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Stan and Cuba - this expansion was contemplated as part of the original deal and was included in the model in the approval process for this acquisition when it was approved by the Policy Committee last fall. If you have any concerns please give me or Jerry a call. Otherwise please approve the consent per Hardie's communication with you next week.
Bill -----Original Message----- From: Jesse III, John Sent: Friday, June 01, 2001 11:07 AM To: Cordes, Bill Cc: Peters, Jerry; Benner, Martha Subject: NBP Unanimous Consent for Ft. Union Hardie Davis will be routing a Unanimous Consent for approval by the Partnership Policy Committee on Monday, June 4th, related to the pending financing transaction for the expansion of the Ft. Union system. The following provides pertinent background information and a summary of the transaction: Background The Ft. Union gathering system was originally project financed (100% debt during construction and 85% debt/15% equity after completion) with Fleet Boston and Credit Lyonnais. Under this structure, the members executed firm gathering agreements to support the financing. The sponsors or parents of the members provided pro rata financial guaranties during construction and performance guaranties of the gathering agreements after completion. Also, the sponsors have provided guaranties to fund a debt service coverage account to the extent that cash flow from operations is not sufficient to meet certain covenant tests. All project documents such as the gathering agreements and guaranties have been pledged as collateral to the banks. Currently, Crestone Energy Ventures holds a firm gathering agreement for 100 MMcfd ($5.1 million annually) and NBP/NBILP provides a performance guaranty of this obligation. Please recall that while Crestone holds this firm obligation, the capacity is bundled and resold to producers connected to Ft. Union through Crestone Gathering lines. Crestone is currently flowing 90 MMcfd through Ft. Union, so they are covering most of their firm obligation. Also, the firm rate on Ft. Union is $0.14/Mcf but the costs are closer to $0.08/Mcf, so the overage flows back to members through equity distributions. Transaction During the initial construction, the members expected and planned for an expansion of the system within 2-3 years as volumes increased. Earlier this year, the members approved an expansion of the system from 434 to 635 MMcfd and moved forward with financing the $26.7 million project in the same manner as the original project by amending the existing Credit Agreement. Given the debt service coverage ratios of the combined project, we negotiated with the banks that the members would be required to only execute firm gathering agreements for 125 MMcfd of the 200 MMcfd expansion. Therefore, taking into account some other agreements among the members, Crestone will execute a revised firm gathering agreement for an incremental 31.2 MMcfd, bringing their total firm volumes to 131.2 MMcfd and their annual obligation to $6.7 million. Based upon the volume ramp-up and current acreage dedications, Crestone expects that most, if not all, of this incremental capacity will be resold. During construction, NBP/NBILP will provide a construction guaranty for its pro rata share of the construction loan, which will be a maximum amount of roughly $9 million. At completion, the members will contribute an aggregate 15% of the construction costs as equity on a pro rata basis, so NBP's share will be $1.3 million. In summary, the Unanimous Consent is being routed to provide the Partnership and it subsidiaries with the requisite authority to execute all documents necessary to complete this expansion financing, including the amended firm gathering agreement, the sponsor guaranties, and the consents to assignment. The transaction is scheduled to close Thursday, June 7th, so the primary task is the completion of the documentation.
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