In its latest public response to outside efforts to kill its proposed acquisition by private equity firm Blackstone Group LP, Houston-based Dynegy Inc. said Monday the growing prospects for depressed natural gas prices and the accelerated advent of shale gas makes it crucial for Blackstone's $4.50/share offer to be approved Wednesday by shareholders.
With the dramatically changed natural gas situation contributing to its outlook, Dynegy again reiterated that it faces $1.6 billion in negative free cash flow during the next five years.
"Dynegy's long-term capital needs require funding to address the projected $1.6 billion of negative free cash flow over the next five years resulting from the significant change in the U.S. natural gas market and significant environmental enforcement uncertainty," Dynegy said in rebuffing a $2 billion line of credit offer last Friday from billionaire hedge fund manager Carl Icahn.
Dynegy argued that an uptick in wholesale natural gas prices is not expected anytime soon, and it quoted a presentation earlier this month by Standard & Poor's Ratings Services (S&P) credit analyst Swami Venkataraman to support its position. Venkataraman spoke at an energy conference Nov. 9 (see Power Market Today, Nov. 16).
"While there was a tremendous fall in gas prices in 2009, it was more reflective of the recession. But starting in 2010 we have seen how the forward curves have kept declining," Venkataraman said. "Clearly, the shale gas was not felt in 2009, and starting in 2010, the forward curve began pricing that in much more than before...
"The shale gas story has not played out yet. It has a long way to go before it is settled."
Dynegy also cited the S&P analyst's thoughts on the risks of being wrong on commodity price recovery in the natural gas sector. "There is a chance that you could find more bankruptcies in 2012 and 2013, like we did in 2002-2004," Venkataraman said. "Companies and projects that are over-leveraged are the most vulnerable."
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