Statoil Energy Almost Gone With Hess Deal
Statoil Energy is on track to close its doors by the end of June with last
week's announced sale of the company's marketing business and the pending
sale of power generation operations. The break-up and sale of Statoil Energy
is expected to generate about $1 billion for Norwegian parent Statoil Group.
Amerada Hess agreed to buy gas and power marketer Statoil Energy Services
Inc. of Alexandria, VA, for what a Hess spokesman said was less than $25
million. Statoil Energy Services serves industrial and commercial customers,
mainly in New York, Pennsylvania, Maryland, Virginia and Washington, D.C.
The deal is intended to expand Hess' customer base and strengthen its
position as an independent energy marketer, Hess said. About 120 Statoil
employees will join Hess. "The combination of Statoil's electricity capabilities
with Hess' expertise and experience in fuel oil and natural gas will make
Hess one of the only total energy providers of fuel oil, natural gas and
electricity on the East Coast," Hess said in a brief statement. The purchase
is expected to close in the first quarter. Hess' spokesman would not reveal
volumes of gas and power marketed by the company but said, "we're a major
marketer of natural gas, particularly in the New York metropolitan area."
An industry observer said the deal should bolster Hess' back office administration.
Last month Statoil Energy agreed to sell its Appalachian Basin gas exploration
and production subsidiaries, Eastern States Exploration Co. and Eastern
States Oil and Gas, for $630 million to Equitable Resources Inc. (see NGI
Jan. 10). The deal, which closed Feb. 15, combines Pittsburgh, PA-based
Equitable's 930 Bcfe of reserves and 6,100 wells with Statoil's 1.1 Tcf
of reserves and 6,500 wells. Statoil was the largest reserve holder in
the Appalachian Basin. The wells are in Kentucky, West Virginia, Pennsylvania
Statoil Energy was put on the auction block in October (see NGI Oct.
18). Norwegian government-owned Statoil Group hired Credit Suisse First
Boston for the divestiture. "In order to effectively execute its business
plan, Statoil Energy needs to substantially increase the scale of its operations,"
said Statoil Group Executive Vice President Johan Nic Vold at the time.
"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."
Before Statoil Energy hung up the for sale sign the company said it
was looking for a partner to bolster its resource base (see NGI May
3). "Our parent group, Statoil, has invested $700 million in Statoil
Energy," a spokesman said at the time. "The search has been misconstrued
as a selling of interest. Statoil is not looking for someone to come buy
$350 million of the company. They are searching for someone to come in
and add to what already exists."
No deal was struck, however, and Statoil Group was faced with the prospect
of heavily investing in the business to make it viable. "We needed a much
stronger presence in the power market, and the level of investment needed
to be competitive there was into the multiple billion dollars," said Dave
Dresner, Statoil Energy's chief operating officer, who is departing the
company. He said Statoil Group will continue to pursue energy marketing
operations but closer to its core business in the North Sea. "They were
able to take some good lessons home."
Statoil Energy was founded in 1981 and evolved from a small gas exploration
and production company to a full-service energy company with 1998 revenue
exceeding $3.5 billion. It traded 600 Bcf of gas per year as of 1998 and
supplied 100 Bcf/year of retail gas. The company also sold 66 million MWh
of electricity per year and ranked 11th in U.S. electricity trading.
Power Systems, which is expected to be sold shortly to an eastern U.S.
electric utility, has assets that include a 50% interest in two Long Island,
NY, plants; a coal-fired plant in Dover, DE; as well as distributed generation
and field services operations. Power Systems assets were valued at $107.8
million at the end of 1998 compared to $21 million two years earlier.
The Statoil Group is one of the world's largest energy companies and
has revenue of about $20 billion. Proceeds from the sale of the businesses
will help reduce debt at the parent company, which is refocusing its business
Joe Fisher, Houston