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Macquarie Integrates Constellation Trading Unit

Constellation Energy completed the divestiture of its Houston-based downstream gas unit as well as a majority of its London-based coal, freight and international commodities business. And last Wednesday the former Constellation gas trading business was integrated with the existing operations of Macquarie Cook Energy in Houston, parent Macquarie Group said.

"We are excited that from today we can bring together Constellation Energy's highly regarded natural gas trading platform and team with Macquarie's existing North American gas trading business, Macquarie Cook Energy," said Nicholas O'Kane, the head of Macquarie Group's energy markets division. "With the closing of this acquisition, Macquarie Cook Energy is now well positioned as one of the leading participants in the North American wholesale natural gas market. Our customers and clients will benefit from our increased scale and scope as we now have access to a greater network of regional markets and staff with a significant depth of experience."

With operations in Calgary and Baltimore besides Houston, Constellation's downstream gas trading unit has provided physical gas to local distribution companies, power generators, retail aggregators, industrials and large end-users in the United States and Canada. In the third quarter of 2008 Constellation ranked third on NGI's ranking of top gas marketers by volume at 13.93 Bcf/d, behind BP plc at 29.9 Bcf/d and ConocoPhillips at 15.5 Bcf/d. The Constellation unit has about 130 employees. While Constellation did not participate in NGI's fourth quarter survey of gas marketer volumes, the combination of its downstream gas unit with Macquarie Cook Energy could create a gas marketer with about 17 Bcf/d of volume, which would place it near the top of the rankings, according to company and NGI figures (see NGI, Feb. 9).

The divestitures complete two initiatives that Constellation took to reduce risk in its merchant businesses and improve liquidity through the return of posted collateral. In a related transaction, Constellation struck a gas supply agreement with Macquarie Cook Energy to supply gas to Constellation's Louisville, KY-based retail division, Constellation NewEnergy Gas.

About $1 billion of collateral had been posted to support the London and Houston businesses. As a result of contract terminations associated with the divested businesses and the return of collateral, more than $500 million of collateral has been returned to Constellation and the remaining $500 million will be returned as the remaining contracts are terminated. On Jan. 20 Constellation announced the divestiture of its London-based international commodities unit to an affiliate of Goldman Sachs (see NGI, Jan. 26).

Constellation's troubles were apparent last summer when the company announced liquidity difficulties and a plan to sell upstream gas assets in an effort to raise money (see NGI, Sept. 1, 2008). Weeks later Constellation was caught in the downdraft of the bankruptcy of Lehman Brothers Holdings Inc. and its shares plummeted (see NGI, Sept. 22, 2008).

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