Cabot LNG, the energy division of the Boston-based industrial chemical manufacturer Cabot Corp., will be separated from the parent company with the issuance of a targeted stock as part of slimming and trimming “value enhancement” initiatives announced recently.

Cabot, whose core operations were described by Forbes Magazine earlier this year as production of the commodities “soot, sand, and mud,” (carbon black, fumed silica and drilling mud) said “a targeted stock tied to the performance of Cabot’s LNG business will allow investors to more readily see the value of that business……Our LNG operation should eventually be separated from Cabot Corp. to allow Cabot LNG to more readily pursue opportunities in its energy markets. The possible creation of a targeted stock would be a step toward that eventual separation.” The plan is to get stockholder approval on the “tracking stock” proposal at the next annual meeting next March. The maneuver would leave the door open for a spin-off or IPO setting up a completely separate company.

The move was one of several announced along with earnings from the company’s third quarter and nine months which ended June 30, 1999. Cabot also plans an initial public offering of approximately 15% of its microelectronic materials business, and it will explore alternative ownership structures for its tantalum materials business (CPM).

A cost reduction restructuring in its core businesses will eliminate 250 positions out of its 4,500-person workforce for a savings of between $30 and $35 million, Cabot said.

While revenues from LNG operations increased 11% to $199.7 million from $179.6 million in the company’s first nine months, operating profits decreased 39% to $10.6 million from $17.4 million in the same period a year ago. The decrease in operating profit was attributable to the combination of warmer than normal winter weather and lower average natural gas prices. Average gas selling prices decreased approximately 19% year-over-year. Offsetting weak prices was an increase in volumes equivalent to 8 additional cargoes for the first nine months of the year.

Gordon Shearer, Cabot LNG president, said he expects his operations to show significant earnings nest year and he sees a promising future based on its central location in the burgeoning New England market for natural gas. “Demand for new power generation is strong; we came close to blackouts (in Boston) a number of times this summer and you can’t build anything but gas-fired power plants in New England.”

Shearer said he saw the separation as an opportunity to draw new capital into the LNG operations. “The LNG business is highly capital intensive – one of the most capital intensive. It’s going to take a lot of capital to grow the company to the next level and [the parent company] has other priorities, other places they want to put their money.” Shearer had said earlier that LNG trade could be constrained in the future by a declining tanker fleet, and new LNG vessels cost $170 million to build. (See NGI, July 19)

In Cabot’s core specialty chemicals and materials group, revenues decreased 2% to $1,068.7 million from $1,089.1 million. The reduction in revenue reflected competitive pricing in several of the Company’s market segments.

Excluding special items from both years’ earnings, operating profit for the nine-month period ended June 30 was $192.1 compared with $194.9 for the same period last year.

Cabot LNG’s Boston-based Distrigas import and distribution subsidiary recently received its first cargo from the new Atlantic LNG’s processing operations in Trinidad and Tobago to go with deliveries from its traditional supplier Algeria. Cabot is a 10% shareholder in Atlantic and holds a 20-year purchase contract for 220 MMcf/d.

Ellen Beswick

©Copyright 1999 Intelligence Press, Inc. All rights reserved.The preceding news report may not be republished or redistributed in wholeor in part without prior written consent of Intelligence Press, Inc.