Duke Energy on Friday announced an agreement with Barclays Capital to transfer substantially all of the outstanding natural gas and power derivative contracts of affiliate Duke Energy North America (DENA). The agreement, anticipated since September, will essentially eliminate Duke's credit, collateral, market and legal risk associated with the trading book as it readies for a merger with Cinergy.
The contracts will transfer to Barclays over several months. Excluded are derivative contracts associated with the near-term value of DENA's West and Northeast power generation assets and some remaining gas transportation and structured contracts.
By January 3, Duke will pay Barclays $700 million in cash, to cover transaction costs and to reflect the amount by which the portfolio is below current market value. The payment will be offset by the return of collateral to Duke. No other financial details were disclosed. In September, Duke announced plans to sell substantially all of DENA's physical and commercial assets outside the Midwest (see NGI, Sept. 19). Duke said it expects to sell the rest of DENA's power generation assets in the West and Northeast before Sept. 2006.
Duke CEO Paul Anderson said the transaction "is a major step forward in our plan to exit DENA's business outside the Midwest. With Barclays acquiring the lion's share of DENA's book and assuming the associated risks, we've achieved a significant strategic objective in just two months, well ahead of our initial schedule."
The deal also allows the company to "focus our efforts on divesting the remaining DENA assets, and more importantly on the merger with Cinergy and Duke Energy's future."
Barclays Capital, the investment banking division of Barclays plc, began trading physical power and gas in North America in late 2004. The firm now executes physical transactions with clients in several natural gas pipelines in North America and across power pools in the eastern United States. In 2004, Barclays Capital also added coal, freight, petrochemicals and emissions to its suite of products.
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