Shell Entering Power Generation with Bechtel
Signaling what could become a trend among large producers, Shell
yesterday said it is stepping into the independent power generation
business with partner Bechtel Enterprises.
Shell and Bechtel formed a new venture to pursue power
generation in North America. Using the InterGen North America brand
name, the new company will develop, finance, own and operate
large-scale independent power projects (IPPs) and co-generation
facilities in the United States and Canada.
Jim Kekeisen, senior vice president acting for InterGen North
America said, "Clearly this entity is being established because
Shell really sees a value in expanding the value chain. So that's
going to lead us to locations where there is this good power market
but there is also a strong presence of the Shell organization."
InterGen will be capitalizing on Shell's strong reserve base and
pipeline presence. "They have large refineries and the like that
could provide excellent industrial hosts. I think we are going to
focus initially where we have a proprietary edge rather than just
plunking down a number of major facilities. One place it's most
obvious these things come together is in the Gulf Coast region.
These are areas where Shell is very strong and there's good,
vibrant growth in the power sector." In Canada, Shell has strength
in the Western Sedimentary Basin as well as the East Coast with
participation in the Sable Island offshore project, Kekeisen noted.
InterGen North America will seek to replicate the success of
InterGen, the international power generation venture owned by Shell
Generating Ltd. and a subsidiary of Bechtel Enterprises Holdings
Inc. Founded in 1995, InterGen has established itself as a leading
international developer and owner of greenfield power facilities.
Currently, InterGen is operating or building a total of six power
stations representing 3,675 MW, in the United Kingdom, Mexico, the
Philippines, Colombia and China. InterGen has an additional 5,925
MW for which it has secured contracts, bid awards or governmental
mandates. In total, the company is pursuing more than two dozen
project opportunities in 15 countries around the globe.
"Shell views power as a major commercial opportunity in the
deregulating North American energy market," said Walter van de
Vijver, CEO of Shell Exploration and Production Co. "InterGen North
America is positioned to become a major competitor in this market,
which will complement Shell's ongoing activities to build a
platform for growth throughout the gas and power business."
John Olson, energy analyst for Sanders, Morris and Mundy, has
been calling on major producers to reinvent their business, and
this is just the kind of change he has been talking about. Back in
January, Olson told a producer audience at the Canadian Embassy in
Washington, D.C., there was no better time for them to invest in
the gas-fired power business and sign more long-term agreements
with end-use markets. "That's where the money is, ladies and
gentlemen," he said (see Daily GPI Jan. 29, 1999).
Olson called the arrangement with Bechtel "a natural, organic
evolution of Shell USA's game plan. The move into Tejas Gas over a
year ago was the first sensible move made by a major North American
oil company, and this is the next step. And I think given Shell and
Bechtel's track records, it will be a fairly significant step. Wall
Street has wondered about the financial implications of investing
in Russian oil deals or things of that ilk with questionable
pay-outs, and while most major oil companies are looking abroad,
there is a very attractive energy marketplace right under their
noses, meaning combined natural gas and power assets or power
Olson's remarks to producers in January followed a disastrous
fourth quarter for many of them, including Shell. Last month Shell
Oil reported fourth quarter net income, excluding special items, of
$59 million, a decrease of $397 million from fourth quarter 1997.
Lower commodity prices were blamed.
InterGen North America operation will be headquartered in
Houston. Carlos Riva, CEO of InterGen, will also be the CEO of the
new venture; a worldwide search for a president is underway. "Much
of our international experience is in highly deregulated markets
and we look forward to leveraging that experience in the North
American market, Riva said.