Statoil Energy Up for Grabs
Statoil Energy, the largest Appalachian Basin gas reserve holder
and a top energy marketer and independent power producer, was put
on the auction block last week after having failed in its attempt
this summer to find a partner to invest about $1 billion in its
The company's parent, Norwegian government-owned Statoil Group,
announced plans to sell the U.S. unit and has engaged Credit Suisse
First Boston in the divestiture. The company's 1.1 Tcf of gas
reserves and top-30 trading operation are expected to be in the
hands of some eastern-U.S. electric utility --- possibly Akron,
OH-based FirstEnergy, according to one inside source --- before the
end of the year.
"In order to effectively execute its business plan, Statoil
Energy needs to substantially increase the scale of its operations.
The resources required to achieve such scale cannot realistically
be supplied by the Statoil Group alone as there are numerous
international investment opportunities competing for our limited
capital," said Statoil Group Executive Vice President Johan Nic
Vold, who also is Statoil Energy's chairman.
In May, the parent company announced it was searching for a
partner to match its six-year investment in Statoil Energy,
formerly The Eastern Group. While a number of prospective partners,
mostly electric utilities, expressed a strong interest, none were
willing to commit to the co-equal partnership the Statoil Group
envisioned. "Our best candidates - those that share our strategic
vision --- believe that these business opportunities are too
central to their core business to be shared with a partner," Vold
said. As a result, the company's decision to sell the entire unit
is expected to generate a rapid response among those who previously
had shown a strong interest, said a spokesman.
The change of heart by parent Statoil Group also apparently was
influenced by the turmoil that occurred on its board earlier this
year and that resulted in the hiring of a new CEO, Olav Fjell.
Seven members of its 10-person board of directors did not have
their directorships renewed because of poor management of the
Aasgard oil and gas field in the Norwegian Sea. The costs for the
field's development surged to $64 billion crowns (U.S. $8.2
billion) from an original $47 billion crowns.
Statoil Group now plans to renew its focus on its core North Sea
operation, where it is the largest hydrocarbon producer, and will
concentrate its energy marketing efforts in the Nordic region and
its downstream natural gas operations in Northern Europe. Statoil
also has identified three core areas, beyond the North Sea region,
where it is focusing its exploration operations including Western
Africa, the Caspian Sea and Venezuela.
It plans to sell Statoil Energy as one unit, comprised of four
tightly knit businesses - gas production, power production, energy
marketing, and energy trading. "Much of our company's value arises
from the operating synergies achieved through the interaction of
our people across business unit lines" said Statoil Energy CEO
David Dresner. "Accordingly, Statoil Energy will be marketed as an
Aside from a setback last summer related to power contract
default by a counterparty, Power Company of America, Statoil Energy
has shown strong growth. It posted a net loss of $7.6 million in
1998 mainly because of a $28.5 million pre-tax charge to earnings
related to the power contract default and declining performance of
its trading and energy services operations. After buying
Appalachian producer Blazer Energy from Ashland in 1997, however,
the company more than doubled its annual revenues last year to $3.6
billion. Its operating income before unusual items more than
doubled to $50 million.
Its total assets are valued at $1.1 billion and it has 650
employees. As of the end of last year, the company had 1.1 Tcf of
gas reserves on 6,500 wells, located primarily in the Appalachian
Basin. It traded about 1.6 Bcf/d of gas and sold 66.4 million MWh