El Paso Corp. on Monday announced that it has executed a binding agreement
with Global Infrastructure Partners (GIP) whereby GIP will acquire a
50 percent interest in the Ruby Pipeline project.
"We are pleased to have Global Infrastructure Partners join us in the
Ruby project," said Jim Cleary, president of El Paso's Western
Pipelines. "We continue to make excellent progress on Ruby, and we
look forward to it being one of the key assets in our pipeline
Terms of Agreement
Under the terms of the agreement, GIP will invest up to $700 million
in the project, which represents a 50 percent equity interest, in the
following three major traunches:
-- $405 million in the form of a 7 percent secured note that will be
drawn upon to reimburse one half of El Paso's costs to date, as well as to
fund one half of the future costs of developing the project. The note will
be exchanged for a convertible preferred equity interest in Ruby at the
close of construction financing;
-- $145 million contributed as a preferred equity interest in the
Cheyenne Plains Pipeline that will be exchanged for a convertible preferred
equity interest in Ruby at final project completion;
-- Depending on the amount of external financing that is raised, GIP
could invest up to an additional $150 million as a convertible preferred
equity interest in Ruby.
GIP's convertible preferred equity interest in Ruby will earn a
fixed 13 percent return beginning at final project completion. GIP
will have the option to convert its preferred equity to common equity
at any time. However, GIP's preferred equity is subject to a
mandatory conversion to common equity upon the satisfaction of
certain conditions, including additional shipper commitments on the
El Paso will provide security for GIP's investment until the
completion of the project in the form of a portion of its 55 million
El Paso Pipeline Partners, L.P. common units and a portion of its
equity in the Cheyenne Plains Pipeline.
Project Progress and Time Line
El Paso will be responsible for the construction of the Ruby Pipeline
project and its operations. The Ruby Pipeline is on schedule and is
expected to be completed at or below its $3 billion budget. Should
construction costs come in under budget, El Paso will retain all
benefits. Conversely, El Paso will absorb any cost overruns.
In January, El Paso filed an application with the Federal Energy
Regulatory Commission (FERC) for a certificate of public convenience
and necessity, under Section 7(c) of the Natural Gas Act, to
construct and operate the Ruby Pipeline.
In June, FERC issued a Draft Environmental Impact Statement (DEIS),
which was consistent with Ruby's construction plan and schedule. Ruby
anticipates timely issuance of FERC's Final Environmental Impact
Statement in October.
Also in June, El Paso hired a major investment bank as financial
advisor for Ruby. The financial advisor will recommend a package of
financing options in addition to project financing with the objective
of accessing the capital markets after final FERC approval has been
Assuming FERC approval in the first quarter of 2010, construction
would begin in the second quarter of 2010 with the pipeline completed
in time for a March 2011 in-service date.
The Ruby Pipeline project is a 675-mile, 42-inch interstate natural
gas pipeline that will access growing sources of supply from multiple
Rockies' basins and make those supplies available to California,
Nevada and the Pacific Northwest region. Ruby has filed with the
FERC to have an initial design capacity of up to 1.5 billion cubic
feet per day.
El Paso Corp. owns North America's largest interstate natural gas pipeline system and one of North America's largest independent natural gas producers.