Cinergy Corp. took a huge step in growing its commoditymarketing operation last week with the purchase of Producers EnergyMarketing, LLC, (ProEnergy) from owners Oryx Energy and ApacheCorp. for $42.5 million and with the signing of a 10-year marketingalliance that covers both producers’ entire marketable gas supply,or 1.1 Bcf/d.

ProEnergy markets about 1.7 Bcf/d of gas to more than 200 largeindustrial buyers and local distributors. Wholesale gas marketingwill be a new business venture for Cinergy. The company plans tocombine the staff of ProEnergy with its rapidly growing wholesaleelectricity marketing business, Cinergy Capital and Trading, whichreported a 200% increase in volume over the past two years, sellingabout 56.6 million MWh in 1997.

“Through integration with Cinergy’s electric trading andmarketing, financial risk management and origination services, thistransaction gives us an additional platform for further growththrough internal expansion and acquisition,” said Cinergy CEO JamesE. Rogers.

“[It’s] another step toward achieving our goal of being a toptier energy commodity provider which began with the creation of theEnergy Commodities Business Unit two years ago. Since then, othersteps have been taken, including the acquisition of GreenwichEnergy Partners, the creation of Cinergy Capital Services, theselection of Cinergy by the New York Mercantile Exchange as adelivery point for futures contracts and expansion of our powermarketing and trading business.”

Cinergy recently completed a reorganization of its power and gastrading operations in the wake of former President J. WayneLeonard’s departure to Entergy Corp. Cinergy named Madeleine W.Ludlow as the new president of Cinergy Capital and Trading andbrought on Michael J. Cyrus, an executive with ElectricClearinghouse, to assume the post of executive vice presidentoverseeing power trading operations. A Cinergy spokesman said Cyrusnow will head up both gas and power marketing and report to Ludlow.

The alliance with Oryx and Apache gives Cinergy a geographicallydiverse gas supply portfolio, which includes production in thesouthwestern U.S., Rocky Mountains, Gulf Coast, Gulf of Mexico,Michigan and Canada.

Oryx said it will realize proceeds from the sale of about $18million and will recognize a net capital gain of $10 million.Apache will take its 57% stake in ProEnergy primarily in shares ofCinergy’s common stock.

AG Edwards &amp Sons energy analyst Joseph M. Culp viewed thedeal as a positive for the producers, particularly Apache, whichhas long viewed marketing as “kind of a necessary evil.”

“Apache bought Natural Gas Clearinghouse from the investmentbankers years ago because they thought the marketers had captured alot more of the value but were taking very little of the riskduring periods when there was a surplus and prices were soft. Theyalways thought they would be able to get better profit for theirgas if they owned a marketing arm. Then they sold NGC and made aprofit. But then later on, they started this venture up becausethey are a very major supplier in certain markets, particularly theOklahoma area, and if they could aggregate and find markets theycould improve their price.”

But several things happened since the formation of ProEnergy.One is the deflation of the gas supply bubble. “We seem to be in amarket that the gas almost will sell itself,” said Culp. Anotherfactor is Apache’s desire to continue focusing on E&ampP both inthe U.S. and internationally and outsource noncore operations.Apache still will have a stake in the marketing operation becausethey took their portion of the company in stock.

“I think probably what they saw was that to be a real player[ProEnergy] probably needed to expand beyond its [supply sidemarketing operation]” into a multifuel, market oriented businessbecause of unbundling and electric restructuring.

Cinergy has access to a large customer base. Its utilitysubsidiaries, Cincinnati Gas &amp Electric and PSI Energy, servemore than 14 million electric customers and 455,000 gas customersin Indiana, Ohio and Kentucky.

Rocco Canonica

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