Apache Corp. announced Tuesday that it will begin marketing its own U.S. natural gas production on July 1 and has dissolved its five-year arrangement with Cinergy Marketing & Trading, LP. The two companies dismissed the arbitration pending between them, which involved a dispute over which company had the rights to market Apache’s Canadian production, an Apache spokesman said. Apache was a co-owner with Oryx Energy of ProEnergy, which Cinergy purchased in 1998.

Apache said it sees a growth opportunity in the marketing business because of the demise of many of the former merchant energy giants that it disliked with a passion. Apache Chairman Raymond Plank once blasted the “unholy alliance between the brethren” of marketers, which operate as middlemen between producers and consumers to create volatility (see Daily GPI, April 25, 2002). Now the company is stepping into the void created by the collapse of many of those hated rivals.

However, it will operate much differently than the marketers it is replacing, said Janine McArdle, who heads Apache’s oil and gas marketing operation. “On the surface, I guess, it looks like we’re switching gears, but we’re really not. What we’re doing is really taking back control of our destiny. We’re actually going to be focused on marketing our own production. We currently market our oil and gas from everywhere on the globe except for the United States. For consistency across our entire marketing plan we needed to filter back in the U.S. piece.

“With what has happened in the marketplace over the last several years, with the fallout of the true marketing companies who were brokering in the middle — that’s not what we will be doing, it actually gave us an opportunity to step back into the role that we basically walked away from years ago and get back in touch with the customer directly. At the end of the day, we are the ones that have the assets and they are the ones that have the needs. So this is maybe going back to the future, so to speak.”

Apache CEO G. Steven Farris said that volumes also played a role in Apache’s decision. Five years ago the arrangement with Cinergy “made sense” because Apache was only producing 500 MMcf/d, he said. “Today, with more than 1 Bcf/d of gas production in North America and significant changes in the gas marketing arena, it is time for Apache to market its own gas.”

Including gas from other producers, Apache will market 1.2 Bcf of gas per day in North America: 830 MMcf/d in the United States and about 420 MMcf/d in Canada.

“We’ve put together a great team and we are eager to get started,” McArdle said. “We want to get closer to our customers and provide them with the services they need. In this new era of gas marketing, we believe more direct interaction between producers and consumers is good for both ends of the energy chain.”

Cinergy Marketing & Trading LP (CMT) expects no ill effects from Apache’s departure. CMT is the natural gas origination and trading arm of Cinergy Corp., which also owns regulated utility operations in Ohio, Indiana, and Kentucky that serve 1.5 million electric customers and about 500,000 gas customers. Spokesman Steve Brash said Apache provided only about 15% of CMT’s gas supply.

“Since the acquisition of ProEnergy, Cinergy’s wholesale gas business under CMT has grown significantly and now supplies over 4 Bcf/d of gas to the physical market,” said CMT CEO Michael J. Cyrus. “Our partnership with Apache served both companies well, and Cinergy continues to grow by adding new gas supplies through partnerships with the producing community and by expanding our natural gas service to customers located across the country.” At the time of Cinergy’s purchase, the ProEnergy volumes were about 1.7 Bcf/d.

“We at this time do not anticipate any material impact on our financial statements as a result of the termination of the contract,” said Brash. “We’ve developed additional relationships with other gas producers and we are moving forward to market additional gas in that regard.”

Brash said Cinergy continues to market gas for Kerr-McGee, which purchased Oryx, and has relationships with a variety of other producers. Most of the Apache production came from the Gulf of Mexico and the Southwest.

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