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Industry Briefs

Industry Briefs

kRoad Ventures LP made a significant investment in HoustonStreet Exchange Inc. to finance the online energy trading system's pond crossing to Europe. New York City-based kRoad is a global venture capital fund focused on the infrastructure sector (energy, utilities, water and waste management). kRoad brings trading liquidity, sector experience and international business networks unique to its limited partners: Vivendi (Europe), Softbank (Asia) and Sithe (North America). kRoad's investment is the cornerstone of HoustonStreet's international initiatives. kRoad, Vivendi and HoustonStreet agreed to structure a strategic partnership to establish HoustonStreet Europe.

Expecting strong summer gas prices, Friedman, Billings, Ramsey & Co. Inc. initiated coverage of HS Resources with a "buy" rating and a 12-month price target of $30. FBR senior research analyst David Khani identified HS as the dominant oil and gas producer in the Denver-Julesberg (D-J) Basin. "Given the company's leverage in the natural gas market and the double- digit growth potential of its Gulf Coast program, we believe HS Resources represents a strong value relative to its peer group," Khani said. "HS Resources is well positioned to take advantage of the recent rise in natural gas prices, which is largely due to the anticipation of a summer price rally and the discrepancy between oil and gas prices." According to Khani's March 2000 report, "The Boom in the Natural Gas Market? --- Fact or Fiction," gas prices are expected to exhibit a near-term spike due to peak electricity demand during the summer but will return to stability in the long-term.

Completing a deal announced last December, El Paso Energy Partners L.P. announced it has assumed control of El Paso Intrastate - Alabama Inc. (EPIA) for $26.4 million from its parent company, El Paso Energy Corp. EPIA owns and operates over 450 miles of pipelines and related compression facilities and is the leading natural gas gatherer in the Black Warrior Basin in western Alabama. The system has current throughput of 150 MMcf/d from 27 producers. El Paso Production Co., another subsidiary of El Paso Energy Corp., is the largest producer on the system and is currently engaged in an aggressive coal seam development program. The partnership plans to expand the EPIA system with 4,200 hp of new compression. This will increase system volume by 40 MMcf/d within the next two years. EPIA was acquired by El Paso Energy through its October 1999 merger with Sonat Inc.

Chuck Watson, CEO of Dynegy, said last week that the company expects first quarter earnings to be 20% higher than industry estimates. In an interview with The Wall Street Journal, Watson said each operating division of the company was operating "on all cylinders." He said key factors in the performance have been the power trading desks in both the U.S. and Europe and synergies from the now-complete merger with Illinova. He expects earnings of 49 cents/share, well above First Call estimates of 41 cents/share. PaineWebber analyst Ron Barone raised his recurring 2000 earnings per share (EPS) estimate from $2.25 to $2.40 as a result of the news. He also reiterated his attractive rating for the stock, raising the 12-18 month price target from $68/share to $75/share.

Although the tight supply/demand situation for gasoline took the spotlight in the Energy Information Administration's Short-Term Energy Outlook last week, the EIA was pretty bullish on natural gas as well. The administration has gas demand rising 3.5% this year to 22.17 Tcf and 4.1% next year to 23.08 Tcf. It projects a major 22% wellhead price hike this year to an average of $2.56/MMBtu followed by a much smaller rise in 2001 to $2.61. EIA sees dry domestic gas production inching up about 1% this year and only about 0.2% in 2001. Imports are seen rising 8.3% this year to 3.67 Tcf and 2.7% next year to 3.77 Tcf. The increase in gas demand is expected across all sectors in both 2000 and 2001. Industrial demand is expected to grow 5.4% this year and 3% in 2001 in reaction to sharply higher oil prices which will encourage fuel switching.

Questar Pipeline bought Enron Overthrust Pipeline Co.'s 18% interest in the Overthrust Pipeline effective Jan. 1, 2000. The transaction gives Questar Pipeline a 72% interest in the 88-mile, 36-inch-diameter pipeline, which runs from the Whitney Canyon area --- north of Evanston, WY, --- to Rock Springs, WY. Questar Pipeline designed and built the Overthrust Pipeline, and has operated it since its completion in October 1982. Other partners are Natural Gas Pipeline Co. of America and Colorado Interstate Gas Co. The Overthrust Pipeline is a segment of the 793-mile Trailblazer system, which runs from southwestern Wyoming to Beatrice, NE. "Increased ownership of the Overthrust Pipeline is a natural fit for us," said Questar Pipeline President Nick Rose. "Its location in our service territory and proximity to our facilities and supply sources will enhance the services we provide."

ONEOK Inc. completed the sale of its 43.3% interest in the Indian Basin Gas Processing plant and gathering system for $55 million to El Paso Field Services Co. ONEOK said the plant, located in Eddy County, NM, was no longer strategic to its existing assets.

The Department of Energy (DOE) is planning to hold a series of "summits" later this month to address the potential for more power outages this summer. Three summits are planned for April 24 --- Hartford, CT, New Orleans, LA, and in an undetermined northern New Jersey city - with Energy Secretary Bill Richardson scheduled to jet to each one, along with utility executives, state regulators and local officials. A follow-up summit will be held April 28 in Sacramento, CA. Richardson is expected to address measures the federal government can take to prevent a repeat of brownouts, outages and price spikes during the summer months. While the situation may have improved somewhat over last summer, "he certainly doesn't think we're out of the woods yet," said DOE spokesman Tom Welch.

AEC Oil & Gas of Calgary, Alberta, a partnership owned by Alberta Energy Co. Ltd., acquired the majority of its key prospects in the special Crown land sale for deeper petroleum and gas rights underlying AEC's existing producing properties on the Suffield Military Range. The company acquired 200,000 acres of exploration lands for $63 million, about 70% of the posted lands. "These lands are in the heart of what AEC views as one of our franchise asset regions, at Suffield, and are surrounded by existing infrastructure which will minimize future development and operating costs," said Randy Eresman, AEC Oil & Gas president. "AEC's acquisition has the potential to yield recoverable reserves in the range of 25 to 50 million barrels of oil, with the potential to double AEC's oil production at Suffield over the next five years from the current level of 16,000 b/d. The acquisition also positions AEC to add gas reserves, helping to sustain our 190 MMcf/d of natural gas production."

Mitchell Energy & Development Corp. is stepping up capital spending on strength of natural gas and opportunities in its gathering and processing operations. The company announced a fiscal 2001 budget of $221.5 million, a 50% increase from last year's expenditures of $147.8 million, excluding the Jameson gas processing plant acquisition. Of the total budget, $183.1 million is allocated to exploration and production, $36.2 million to gas services and the remainder to corporate projects. As part of the company's accelerated drilling program, $127 million is slated to drill 196 net wells, up from the $85 million spent on 111 net wells during last fiscal year. The focus remains on developing the Barnett shale where 136 wells are planned. The light sand fracture technology that was successfully applied in the Barnett will also be extended to wells in Limestone and Freestone counties in east Texas, with 26 wells scheduled for this area.

PECO's Exelon Infrastructure Services Inc. (EIS) announced a new service yesterday in which gas utilities are offered a new cured-in-place relining technology, called starliner, for rehabilitating faulty mains and services. Utilities perform more than 150,000 gas service line restorations and 4,500 miles of gas main restoration each year, Exelon said. The majority of this work involves the traditional open-cut excavation. Unlike straight or rigid liners, cured-in-place liners can be installed through bends, fully open fittings, and where there may be variations in internal diameters. This new service minimizes costly tasks like traffic control and digging up and restoring streets, which account for 70% of the cost in gas line restoration work. Starliner has been used successfully in Europe since 1991 to restore over one million feet of gas main. EIS is the first construction company to offer starliner to the U.S. market.

NiSource and Columbia filed a joint petition with the State Corporation Commission of the Commonwealth of Virginia requesting approval of their planned $6 billion merger, which was announced Feb. 28. The transaction is expected to close by the end of the year. The combined company will become the largest gas distributor east of the Rocky Mountains, serving more than 4.1 million customers primarily located in nine states. Columbia Gas of Virginia, a Columbia Energy Group subsidiary, provides retail gas service to more than 182,000 customers. The companies stressed the proposed merger would have no impact on Columbia Gas of Virginia's rates, terms and conditions now approved by the Commission. The filing also says following the NiSource/Columbia merger, Columbia Gas of Virginia will maintain its headquarters, retain key management personnel along with local decision-making authority, retain local operations and the employee workforce. The action follows a similar filing March 30 with the Pennsylvania Public Utility Commission. NiSource and Columbia also will seek merger approval from state regulators in Kentucky and from various federal agencies.

The Gas Industry Standards Board (GISB) will facilitate a second industry-wide meeting April 17 on an organization to develop wholesale and retail standards for the gas and electric industries. The meeting, will be held at the Department of Energy's Forrestal Building, 1000 Independence Ave., S.W., from 1 to 6 p.m. and will deal with the scope of a gas and electric standards organization. Representatives of companies and trade associations in the gas and electric industries, as well as interested individuals, are invited to attend, but registration is required. To register, e-mail the GISB office at GISB@aol.com by April 12. The first meeting on the issue, held on Feb. 14 at DOE, dealt with the need for a gas and electric standards organization. A third meeting, also facilitated by GISB, will concern governance issues, including industry segments and voting procedures.

Kerr-McGee Corp. has bought a 50% stake in four exploration licenses covering 1.5 million acres offshore Nova Scotia, Canada, from Canadian 88 Energy Corp. for $10.5 million. The deepwater exploration prospects are located 125 miles south of Halifax in water depths from 500 to 9,200 feet. "This area, which is about 100 miles from the Sable Island developments, will add another promising deepwater exploration opportunity to Kerr-McGee's extensive inventory of worldwide prospects," said Kerr-McGee CEO Luke R. Corbett. "With this acquisition, Kerr-McGee will own more than 18 million acres in the deepwater areas of the Gulf of Mexico, Australia, Brazil, Gabon, Thailand and Canada." Kerr-McGee Offshore Canada Ltd. will operate all four licenses. Canadian 88 will retain the remaining 50% interest. Under the terms of the agreement, Kerr-McGee will replace C$9.4 million (US$6.5 million) of work commitment promissory notes previously filed by Canadian 88 with the Canada-Nova Scotia Offshore Petroleum Board. Kerr-McGee also will assume US$1.5 million (C$2.2 million) of future seismic processing costs related to the project. Through this transaction, Kerr-McGee also acquired 2-D and 3-D seismic over portions of the licensed area and anticipates drilling the first exploratory well in 2002. Canadian 88 and Western Geophysical shot a large deepwater 3-D seismic program (900 square miles) off the east coast of Canada. Initial mapping indicates a large turbidite fan play analogous to major discoveries offshore Angola and Brazil. Photographs and maps are available from Canadian 88's website at www.cdn88energy.com.

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