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Boardwalk Pipeline Partners, LP

Boardwalk Pipeline Partners, LP

ORIGINS

ACQUISITION OF TEXAS GAS: 2003

2008 OPENING OF THIRD PIPELINE SYSTEM

PRINCIPAL SUBSIDIARIES

PRINCIPAL COMPETITORS

FURTHER READING

3800 Frederica Street
Owensboro, Kentucky 42301
U.S.A.
Telephone: (270) 926-8686
Toll Free: (877) 686-3620
Fax: (270) 688-5872
Web site: http://www.boardwalkpipelines.com

Public Company
Incorporated:
2003
Employees: 1,100
Sales: $607.6 million (2006)
Stock Exchanges: New York
Ticker Symbol: BWP
NAIC: 486210 Pipeline Transportation of Natural Gas

Boardwalk Pipeline Partners, LP transports and stores natural gas in 11 states through 13,400 miles of pipeline and 11 underground storage fields. Boardwalk serves customers directly and indirectly throughout the northeastern and southeastern United States, counting natural gas producers, distributors, industrial companies, and marketing companies among its clientele. Boardwalk operates through three subsidiaries, Texas Gas Transmission, LLC, Gulf South Pipeline Company, LP, and Gulf Crossing Pipeline Company, LLC. Texas Gas operates 5,900 miles of pipeline stretching from eastern Texas to the Midwest, serving markets such as Memphis, Tennessee; Louisville, Kentucky; Cincinnati, Ohio; and Indianapolis, Indiana. The subsidiary also delivers natural gas to the Northeast through interconnects with other systems. Gulf South operates roughly 7,500 miles of pipeline in the Gulf Coast states of Texas, Louisiana, Mississippi, Alabama, and Florida. Gulf Crossing, expected to commence operations in 2008, will deliver natural gas through 355 miles of pipeline stretching from northern Texas to Louisiana. Boardwalk is owned indirectly by Loews Corporation, a diversified company with interests primarily in insurance (CNA Financial Corp.) and tobacco (Lorillard, Inc.).

ORIGINS

When Boardwalk was formed in 2003, it had no assets and no operations, existing in name only. The company was formed for the sole purpose of acquiring its first asset, a pipeline system with a more than 50-year history. Texas Gas Transmission Corp., formed in 1947, was regarded as a predecessor company to Boardwalk, giving the newly established master limited partnership a legacy in the field of transporting, gathering, and storing natural gas.

Texas Gas, whose headquarters in Owensboro, Kentucky, would become Boardwalks headquarters, fell under the control of several different owners during its history. By the 1990s, the pipeline system that originated in eastern Texas and the Louisiana Gulf Coast area was owned by Transcontinental Gas Pipe Line Corp. (Transco), consisting of part of the assets that drew the interest of The Williams Companies, Inc., and set in motion the events that would lead to the formation of Boardwalk.

Based in Tulsa, Oklahoma, Williams began paving sidewalks in Fort Smith, Arkansas, in 1908 before establishing steel pipeline construction as its focus. The companys first major move to diversify occurred in 1966, when it purchased Great Lakes Pipe Line Company, the countrys largest petroleum products pipeline, part of an ambitious expansion program that would later see the energy and construction company diversify into telecommunications. Williams began cobbling together a nationwide system of interstate natural gas pipelines in 1982 by acquiring Northwest Energy Company, establishing a presence in an industry that would be fleshed out with the purchase of Transco Energy in 1995. The acquisition of Transco spread Williamss operations to the East Coast, making it one of the largest transporters of natural gas by volume in the United States. Texas Gas, which played a large role in giving Williams its new stature, was a 48-year-old pipeline system by the time of the acquisition, having developed into a network that served customers in eight states to the north and east of its origination point in eastern Texas and the Louisiana Gulf Coast.

As part of the portfolio of properties owned by Williams, Texas Gas shared the fate of its parent company. The relationship made for a turbulent ride for the natural gas assets that Boardwalk would acquire. Williams, from the 1960s forward, developed into a conglomerate with wide-ranging interests, including a variety of energy-related businesses, telecommunications holdings, and agrichemicals interests, among others. Expansion and diversification created a flourishing enterprise, but by the end of the 1990s the companys vibrancy began to diminish. Its stock reached $53 per share in 1999 and then began to spiral downward, plunging to less than $1 per share three years later. Reeling, Williams initiated a comprehensive restructuring program that saw it shed billions of dollars worth of assets in an effort to raise cash and regain a steady footing.

For Texas Gas, Williamss difficulties cast a cloud of uncertainty over the companys headquarters. In 1999, before its profound problems surfaced, Williams consolidated two of its natural gas pipeline units, merging the main offices of Williams Gas Pipeline-Central in Tulsa into the main office of Texas Gas in Owensboro, forming Williams Gas Pipeline-SouthCentral. As Williamss financial troubles flared, the situation at the Owensboro offices became tenuous. In April 2002, Williams Gas Pipeline-SouthCentrals general manager was promoted and transferred to Houston, creating a vacancy in Owensboro that Williamss senior executives chose not to fill. H. Dean Jones III, vice-president of customer service for the eastern region, found himself to be the highest-ranking executive in Owensboro and the de facto leader of the two pipeline systems. Any sense of unease felt by Jones and his colleagues about their future was confirmed in July 2002, when Williamss management put the Owensboro-based assets up for sale. In September 2002, AIG Higher Capital, a New York-based investment group that operated as a unit of American International Group, swooped in, paying $550 million for 6,000 miles of pipeline that constituted the nonTexas Gas assets merged into Owensboro in 1999. Before the end of 2002, Williams sold another pipeline system to another conglomerate, the Kern Rivet pipeline system, which was purchased by Warren Buffetts Berkshire Hathaway holding company for nearly $1 billion.

COMPANY PERSPECTIVES

Boardwalk has a unique combination of complementary pipelines. Our Gulf South pipeline gathers gas from the prolific basins between Texas and Alabama and delivers that gas to on-system markets and to off-system markets in the Northeast and Southeast. Our Texas Gas Transmission pipeline provides long-haul transportation from Gulf Coast supply areas to on-system markets in the Midwest and off-system markets in the Northeast. Together, our existing assets and our newly announced pipeline projects create a strategically interconnected grid of natural gas pipeline and storage assets that provide customers flexibility to access diverse supplies of gas in the Mid-Continent and Gulf Coast and to connect to other pipelines reaching the consuming regions of the Northeast, Midwest, and Southeast.

ACQUISITION OF TEXAS GAS: 2003

The assets shed in 2002 marked just the beginning of Williamss efforts to pare down its operations. The company sold more than $2 billion worth of assets in 2003, assets that would include Texas Gas. While Williams stripped away businesses, another company, Loews Corporation, was looking to move in the opposite direction. The New York-based, diversified holding company, right on the heels of Berkshire Hathaway and American International Group, was set to become the third conglomerate to enter the pipeline business within a year, attracted by the billions of dollars of assets for sale in the distressed energy merchant sector, a sector rocked by the spectacular collapse of Enron Corporation. For Williams, selling to cash-rich companies that were not previously active in the pipeline business meant the transactions closed quickly, eliminating the rigors of regulatory reviews, such as those mandated by Hart-Scott-Rodine antitrust legislation, and delays related to obtaining financing.

Loews, founded in 1946, was a company best known for its investments in insurance and tobacco, but, as shown with its acquisition of Texas Gas, it was always ready to delve into new businesses when presented with the right opportunity. The company owned an 89 percent stake in insurance firm CNA Financial Corporation and 100 percent of tobacco company Lorillard, Inc., as well as hotel chains and watch distributors. Its involvement in the energy business consisted of a 51 percent interest in Diamond Offshore Drilling, which owned 44 offshore drilling rigs, and a 49 percent stake in Hellespont Shipping, which owned a fleet of six, ultra-large crude tankers. The companys diversification, orchestrated by its founders, brothers Robert Tisch and Laurence Tisch, created a more than $17 billion-in-sales enterprise by 2002, when Loews began studying the pipeline market. The company surveyed the market for roughly a year before setting its sights on Texas Gas in 2003, the year Laurence Tischs son, James Tisch, took over as Loewss chief executive officer. We sensed there would be good values, Tisch remarked in an April 28, 2003, interview with Gas Processors Report.

Loews formed Boardwalk in April 2003 to facilitate the purchase of Texas Gas. The deal, which closed in May 2003, comprised a $795 million cash payment and the assumption of $250 million in Texas Gas debt, a $1.04 billion acquisition that marked Loewss entry into the pipeline business and the beginning of Boardwalks life as a commercially active concern. By the time ownership of Texas Gas changed hands, the system comprised roughly 5,900 miles of pipeline running through Texas, Louisiana, Arkansas, Mississippi, Tennessee, Kentucky, Indiana, Illinois, and Ohio, with deliveries to the Northeast through interconnects with other systems. Texas Gas also owned 31 compressor stations and nine underground storage fields in Indiana and Kentucky. Revenues for the system totaled $267 million in 2002, from which the company derived $56 million in net income.

The acquisition of Texas Gas represented Loewss first step toward developing a pipeline arm to its holdings. The company, through Boardwalk, was on the prowl for more assets, seeking the steady cash flow typically generated by natural gas pipeline systems. A second system was acquired in December 2004, when Boardwalk purchased Gulf South Pipeline, a system also known within the industry as United Gas Pipe Line. Boardwalk paid $1.13 billion to New Orleans, Louisiana-based Entergy-Koch, LP for Gulf South, which operated 7,570 miles of pipeline in Texas, Louisiana, Mississippi, Alabama, and Florida, 29 compressor stations, and two natural gas storage fields in Louisiana and Mississippi. Together, Boardwalks two systems comprised more than 13,000 miles of pipeline in 11 states and 11 underground storage fields in four states that were capable of 124 billion cubic feet of storage and four billion cubic feet per day of gas throughput. The two systems provided Boardwalk with a formidable profile in the industry and they also provided the company with its leadership. Dean Jones headed Texas Gas, serving as copresident of Boardwalk, while his counterpart at Gulf South, Rolf Gafvert, who joined Gulf South in 1992, held the identical title of copresident.

KEY DATES

1947:
Texas Gas Transmission Corp. is founded.
1995:
The Williams Companies, Inc., acquires Texas Gas.
2003:
Loews Corporation forms Boardwalk and acquires Texas Gas from Williams.
2004:
Boardwalk acquires Gulf South Pipeline from Entergy-Koch, LP.
2005:
Boardwalk completes an initial public offering of stock.

2008 OPENING OF THIRD PIPELINE SYSTEM

Gafvert and Jones relished the opportunities available to Boardwalk with deep-pocketed Loews ready and willing to assist in the companys expansion. For Jones in particular, who had no doubt felt Williamss waning interest in Texas Gas, the new arrangement sparked a palpable sense of excitement. Loews role as the majority stockholder in Boardwalk meant the company had instant access to funding to promote its development. We want to be a much bigger company now that we have an opportunity to grow, Jones explained in a fall 2006 interview with Exploration + Processing. Were fortunate to have the financial backing of Loews Corp. to assist us to accomplish anything that we set our minds to, he added. Gafvert echoed the sentiment, telling Exploration + Processing, We have speed and execution. Because of our ownership with Loews, one of the things we do bring to the market is our projects are worked on and executed in a quick turnaround, which is important today.

As Boardwalk set out, the expansion-minded mood at the Owensboro main office was on display. Loews took Boardwalk public in November 2005, raising more than $300 million in an initial public offering of stock. Next, Boardwalk, with Loewss blessing, turned to expanding its operations. There were numerous expansion projects underway in 2005 and 2006, but none figured more prominently than the construction of a new pipeline that gave birth to a third operating subsidiary. Gulf Crossing Pipeline Company, LLC, was established to construct a 355-mile pipeline originating near Sherman, Texas, and ending near Tallulah, Louisiana. The $1.3 billion project, which also included the construction of four new compressor stations, was expected to commence operation in October 2008, adding a third dimension to Boardwalks holdings. In the years ahead, further expansion projects were expected, and potentially additional acquisitions, as Boardwalk sought to spread its influence in the pipeline business. With the financial backing of Loews giving the company an advantage over many of its competitors, Boardwalk could justifiably look to the future with confidence.

Jeffrey L. Covell

PRINCIPAL SUBSIDIARIES

Texas Gas Transmission, LLC; Gulf South Pipeline Company, LP; Gulf Crossing Pipeline Company, LLC.

PRINCIPAL COMPETITORS

El Paso Corporation; Southwest Gas Corporation; TXU Corp.

FURTHER READING

Boardwalk Pipeline Partners to Build Interstate Gas Pipeline and Expansion, Pipeline & Gas Journal, December 2006, p. 12.

Boardwalk Pipeline Partners to Extend Two Pipelines, Pipeline & Gas Journal, February 2007, p. 10.

Fayetteville Extensions Planned, Oil Daily, December 18, 2006.

Holding Company Loews Enters Pipeline Business, Oil Daily, April 15, 2003.

Lawrence, Keith, Williams Cos. Employment in Owensboro, Ky., Dwindles, Messenger-Inquirer, September 30, 2002.

Salgado, Brian, Pipelines to Success, Exploration + Processing, Fall 2006, p. 24.

Shook, Barbara, Loews to Raise $345 Million in IPO for Boardwalk Pipeline Partners, Natural Gas Week, August 22, 2005, p. 5.

Williams Agrees to $1.045 Billion Sale of Texas Gas Transmission, Pipeline & Gas Journal, May 2003, p. 4.

Williams Agrees to Sell Texas Gas Transmission to Loews for $1.045 Billion, Gas Processors Report, April 28, 2003.

Williams Merging Central and Texas Gas, Pipeline & Gas Journal, January 2000, p. 4.

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