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Lehman Brothers Invests in Physical Gas, Power Marketer Eagle Energy

The banking/brokerage link-up with energy trading is continuing. Lehman Brothers Merchant Banking has taken a one-third interest in Houston-based energy marketer Eagle Energy Partners. Lehman, producer Chesapeake Energy, and Eagle management each will own one-third of the company.

Terms were not disclosed. Griff Jones, Eagle CEO, told NGI that Eagle has had a relationship with Lehman for years. The deal gives the company additional capital that will allow it to grow faster, he said. Jones said the firm will likely expand its presence in Texas and Canada and pursue growth opportunities in the western United States.

The ownership of Eagle has been one-third Chesapeake and two-thirds management. There will be no management changes; however, the Eagle board will grow to nine members with the addition of three Lehman representatives.

The deal gives Eagle backing from both the producer and financial sides of the energy patch. Jones said Eagle did not require that its new investor be from the financial community, but he noted that Lehman brings new skills to Eagle. "That kind of adds to management's skill set and provides insight into the marketplace among the private equity and financial community that are getting involved in energy trading," Jones said.

A filing at FERC, necessitated by Eagle's power marketing license, says that Lehman "will not be engaged in the day-to-day operations of Eagle, and will not engage in the physical sale of electricity or the ownership or operation of generation or transmission facilities."

Eagle aggregates physical gas supply, arranges transport and sells to customers throughout the eastern United States. The company has offices in Chicago, Atlanta and Pittsburgh, in addition to its office in Houston. On the power side, Eagle manages generation and offers real-time services for generation and load obligations. Its operations focus on the Southeast and Midwest. Eagle Energy was launched in 2003. Chuck Watson, former chairman of Dynegy Inc., is the chairman of Eagle.

Lehman's backing of Eagle is, of course, not the first pairing of a banking/investment house with an energy company.

In 2004 Merrill Lynch & Co. bought the energy trading operation of Entergy-Koch LP, a joint venture of Entergy Corp. and Koch Industries Inc. (see NGI, Sept. 6, 2004). Last year Calpine Corp. and Bear Stearns Companies Inc. announced an energy trading joint venture, CalBear, saying they hoped to capture a "very significant" part of the North American natural gas and electricity trading business (see NGI, Sept. 12, 2005). Also last year, Odyssey Energy Services LLC was formed by major bank Wachovia Corp. and Tulsa-based Resolute Holdings, parent of Resolute Natural Resources (see NGI, May 23, 2005).

Jim Kincaid, Odyssey CEO and co-founder of Resolute Holdings, told NGI that his firm began commercial operations in July and has received "rather astonishing" customer response. "We're active from Waha to Washington, and we've been pleasantly surprised by the width and breadth of our counterparty growth over the last year." He said Odyssey has about 100 counterparties and focuses on "space and time" arbitrage.

"We try and do things that take advantage of what we have the best of, which is credit," Kincaid said. "We are an affiliate of the fourth largest bank in America with assets of three-quarters of a trillion dollars." He said his company has "an appetite for size and term" and that is what the marketplace is looking for now.

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