tem 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following discussion should be read in conjunction with the Partnership's
consolidated financial statements and notes thereto included in Part I of this
quarterly report. Unless the context otherwise requires, all references herein
to the Partnership with respect to the operations and ownership of the
Partnership's assets are also references to its subsidiaries.
The Partnership's assets include interests in (i) eight natural gas pipeline
systems (the "Pipelines"), (ii) a crude oil pipeline system (the "Poseidon Oil
Pipeline"), (iii) five strategically located multi-purpose platforms, (iv)
three producing oil and gas properties, (v) an overriding royalty interest and
(vi) a dehydration facility.
The Pipelines are strategically located offshore Louisiana and eastern Texas
and gather and transport natural gas for producers, marketers, pipelines and
end-users for transportation fees. The Pipelines include 981 miles of pipeline
with a throughput capacity of 5.6 billion cubic feet ("Bcf") of gas per day.
The Partnership's interest in the Pipelines is owned through 100% interests in
each of Ewing Bank Gathering Company, L.L.C., a Delaware limited liability
company ("Ewing Bank"), Manta Ray Gathering Company, L.L.C. ("Manta Ray")
(formerly Louisiana Offshore Gathering Systems, L.L.C. ("LOGS")), a Delaware
limited liability company, Green Canyon Pipe Line Company, L.L.C., a Delaware
limited liability company ("Green Canyon") and Tarpon Transmission Company, a
Texas corporation ("Tarpon"); a 50% partnership interest in each of Stingray
Pipeline Company, a Louisiana general partnership ("Stingray") and Viosca Knoll
Gathering Company, a Delaware general partnership ("Viosca Knoll"); a 40%
partnership interest in High Island Offshore System, a Delaware general
partnership ("HIOS"); and a 33 1/3% partnership interest in U-T Offshore
System, a Delaware general partnership ("UTOS").
At inception, the Partnership owned a 50% interest in POPCO. POPCO was formed
to construct, own and operate the Poseidon Oil Pipeline. As designed, the
Poseidon Oil Pipeline will ultimately consist of approximately 200 miles of 16
to 24 inch pipeline capable of delivering up to 400,000 barrels per day of sour
crude oil production from the Gulf to multiple market outlets onshore
Louisiana. The initial 117-mile segment, which extends easterly from Garden
Banks Block 72 to Ship Shoal Block 332, was placed in service in April 1996.
The second phase, an 83-mile segment extending from the platform in Ship Shoal
Block 332 in a northerly direction to a terminus located in southern Louisiana,
is currently under construction and scheduled to be completed during the fourth
quarter of 1996. In July 1996, Marathon joined POPCO by contributing its
interest in 58 miles of nearby crude oil pipelines and dedicating its portion
of oil reserves attached to such pipelines to the Poseidon Oil Pipeline for
transportation. As a result, each of the Partnership and Texaco Trading now
owns a 36% interest in POPCO and Marathon owns the remaining 28% interest.
The Partnership owns interests in five strategically located multi-purpose
platforms in the Gulf that have processing capabilities which complement the
Partnership's pipeline operations. The multi-purpose platforms serve as
junctions in the pipeline grid and enable the Partnership to perform
maintenance functions on its pipelines. In addition, the multi-purpose
platforms serve as landing sites for deeper water production and as sites for
the location of gas compression facilities and drilling operations.
The Partnership owns an interest in and is operator of three producing leases
in the Gulf which were acquired by the Partnership on June 30, 1995 from Tatham
Offshore. The properties, which are subject to certain reversionary rights,
include a 75% working interest in Viosca Knoll Block 817, a 50% working
interest in Garden Banks Block 72 and a 50% working interest in Garden Banks
Block 117. The Viosca