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Industry Briefs

Industry Briefs

TXU Energy Services entered a five-year energy management agreement with Maytag Corp. --- a leading manufacturer of appliances --- that is expected to provide Maytag with significant savings on its energy expenditures. The deal follows an active February in which TXU entered two similar contracts (see NGI, Feb. 26). Under the agreement, TXU Energy Services will procure or negotiate contracts for commodities including natural gas, electricity, coal, fuel oil and propane, and provide consolidated billing and risk management for 14 Maytag manufacturing facilities. The deal also includes demand-side management assessments of energy equipment and analysis of potential energy efficiency improvements. Terms of the agreement were not disclosed. "By consolidating and analyzing multiple bills for facilities in 10 different states and Mexico, we can identify problems and come up with individual changes that will help lower Maytag's total utility costs," explained Ken Breeden, president of TXU Energy Services commercial and industrial division. "Then we can look at the goals of each manufacturing plant, develop a program to meet those goals --- including their tolerance for risk --- and put together a risk management program for procuring the various types of fuel they need." In late February, TXU signed a 10-year multi-million dollar agreement with Aperian Inc. to own, operate and maintain the mechanical and electrical energy equipment at Aperian's five Internet data centers. Also last month, the company entered into a three-year, $100 million-plus comprehensive energy management contract with Bass Hotels & Resorts, a subsidiary of Bass PLC, to provide natural gas, electric and risk management services for 118 hotels. To date, the company is serving more than 8,000 customers in 33 states and has completed more than 3,500 energy management projects nationwide.

With its acquisition of Calgary-based Berkley Petroleum Corp. completed, Anadarko Petroleum Corp. said last week it will increase its total capital spending plan for Canadian operations by 49% to US$386 million, and will step up exploration and production there for the next several years. The 2001 increase, up from the $259 million first budgeted, doesn't count the Berkley transaction, completed in March. "We're extremely excited about the prospects we've been working this winter in British Columbia, Alberta, Saskatchewan and the Northwest Territories," said James J. Emme, Anadarko Canada Corp. president. "We're seeing some promising early indications from our exploratory drilling programs in northeast British Columbia and northwest Alberta in particular." Emme said the Berkley assets "offer some excellent opportunities for both exploration and development, in addition to those we've been working previously. As a result, we intend to accelerate our overall activity level in Canada substantially over the next few years." The acquisition of Berkeley increases capital spending by $127 million for the combined company, which includes $38 million of additional spending over Berkley's original 2001 plans. Berkley spent $46 million in the first two and a half months of this year, and expected to drill more than 600 net wells in Canada in 2001. With the Berkley deal, Anadarko increased its Canadian reserves by 42%, to 312 MM boe, of which 65% is natural gas. It also increased Anadarko's total acreage in Canada to 4.7 million net acres, up from 3 million.

Houston-based El Paso Corp. and its subsidiary Coastal Corp. said last week they had taken a combined charge of $1.28 billion as of January 1, 2001 under a new U.S. accounting rule related to hedging activities and derivative instruments for 2000 earnings. Net of taxes, El Paso's charge was $821 million and Coastal's was $457 million. Under the Financial Accounting Standard (FAS) 133, the charges are non-cash, net of taxes. El Paso said the charges do not affect the company's reported earnings, but they directly affect stockholder equity. The FAS charges mostly relate to the "opportunity" cost of natural gas hedges that were in place as of Dec. 31, 2000 for both El Paso and Coastal, versus natural gas futures prices that existed on that date. El Paso said that the hedges in place at the end of last year eventually would be rolled over time and the remaining hedges would be re-valued in the future, which would reduce the FAS 133 changes. El Paso said that based on current natural gas futures prices, it expected its combined FAS 133 charges of $1.278 billion to be reduced by $500 million to $600 million by March 31, with further reductions in the next few quarters.

Marathon Oil Co., which completed its acquisition of gas producer Pennaco Energy Inc. in March, expects to increase its oil and gas production another 3% this year through exploration and possible acquisitions, said CEO Clarence Cazalot. However, Cazalot was coy last week about whether parent company USX-Marathon Group would spin off or sell its growing energy unit this year. Speaking at the Howard Weil energy investment conference in New Orleans, Cazalot said that a study is under way about a possible spin off of Marathon Oil from its parent, but he said he could not say anything about it yet. Last December, USX-Marathon indicated it would consider selling Marathon Oil pending a recommendation from its financial advisers. In December, Marathon Oil paid $500 million to acquire two-year-old Pennaco, a company whose key assets are tied to coalbed methane gas production in the Powder River Basin of northern Wyoming and southern Montana. However, Marathon Oil may make itself more attractive to possible suitors with an expanded portfolio of international assets, Cazalot said. There are no North American assets on the radar, but Cazalot said the company is considering more development in Libya, Saudi Arabia and Kuwait. He said the company also sees "great potential" in South and Southeast Asia. Its upstream presence is heavy in North America: of the 414,000 boe/d it produces, more than 70% is from exploration and production activities in the United States and Canada. Cazalot said that Marathon Oil is not considering getting rid of any of its upstream activities, either. In fact, he said, "we continue to look at our refineries to make sure they fit."

Tucson Electric Power Co. (TEP) has signed a five-year wholesale contract to supply 60 MW of electricity to Phelps Dodge Energy Services. The contract calls for TEP to supply the power at all times except during the company's peak customer energy demand periods from July through September of each year. TEP Chairman James S. Pignatelli said the contract is an important one for both companies. "This agreement provides a comfort factor for Phelps Dodge as it plans ahead for its energy needs," Pignatelli said. "And for TEP, the contract provides a stable, profitable margin for five years and a solid boost to our financial outlook in a volatile energy market." Pignatelli said TEP expects the agreement to generate revenues of about $30 million annually.

Westcoast Energy Inc. finalized on Wednesday its previously announced acquisition of the remaining 50% of the Empire State Pipeline for approximately $75 million, increasing its stake in the natural gas line to 100%. The company first announced it was acquiring the remaining 50% interest from Coastal Corp. in November of 2000 (see Daily GPI, Nov. 10, 2000). The 156-mile pipeline runs from the Canada/United States border near Niagara, through New York State to an interconnect near Syracuse, NY. The pipeline has a rated capacity of 525 MMcf/d. "We are pleased to now have full ownership of this valuable link to our Union Gas system, our Dawn hub and markets in Upper New York State and the northeast U.S.," said Michael Phelps, CEO of Westcoast.

Calpine announced plans to build a 1,000 MW gas-fired power facility in Deer Park, TX to supply steam to Shell Chemical and electric power on the wholesale market. "The Deer Park Energy Center significantly strengthens Calpine's position as the largest independent power producer in Texas," said Calpine's Director of Business Development Peter Hansen. "It also exemplifies Calpine's ability to meet the stringent thermal energy requirements of a leading industrial consumer, like Shell Chemical, while providing a clean, reliable source of electricity for the growing Texas power market." Construction for the Deer Park Energy Center is expected to begin in July 2001, with the first phase of the project operational by January 2003 and the second, larger phase operational by June 2004. As proposed, the facility will utilize four 185 MW Siemens Westinghouse gas turbines, four Nooter-Ericksen heat recovery steam generators, and one 260 MW steam turbine generator.

Calpine said it anticipates financial results for 2001 to exceed previous expectations. The company expects to report net income of $645 million compared with $324.7 million in 2000. Diluted earnings per share for the year are expected to be $1.80, which exceeds the company's previous estimate of $1.50 and compares with $1.11 last year. "This increase reflects Calpine's accelerated growth in the U.S. power industry," commented Calpine CEO Peter Cartwright. "With our recent announcement of our plans to acquire Encal Energy, our current expectations for 13 new energy facilities to enter commercial operations this year and a robust energy environment, we are looking forward to another strong year for Calpine." To date, the company has 31,200 MW of base load capacity and 6,500 MW of peaking capacity in operation, under construction and in announced development in 28 states and Canada.

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