The executives who were behind energy marketing firm Eagle Energy Partners have launched a new Houston-based gas and power marketer called Twin Eagle Resource Management LLC, and they've hooked up again with one of their former investors, Chesapeake Energy Corp.
Dynegy Inc. founder Chuck Watson is chairman of the venture, as he was with Eagle Energy. Griff Jones, former Eagle Energy CEO, is CEO of Twin Eagle. And Chesapeake has an equity stake, as it did with Eagle Energy.
So everything old is new again. Except this time around there is a lot more natural gas under the marketers' feet; it's going for far less per Mcf; and the basis differentials that existed across the pipeline grid have been flattened by new infrastructure and emerging shale gas supply basins.
It's a good time to be starting in the gas and power marketing business with "a clean sheet of paper," Jones told NGI.
"People with good logistical expertise should prosper in an environment like this because all the logistics are changing with all the shale and all the [pipeline and storage] expansions," he said. "The same transportation paths that were working five or six years ago aren't necessarily the paths that will make the most commercial sense today. I think people who have been staying on top of that should be able to prosper from it."
Twin Eagle said it will focus on energy services from commodity management to asset value optimization. "The company's ability to manage physical energy positions and assist its customers in managing their risks will drive growth," Twin Eagle said.
Prices and volatility are different today than they were during Eagle Energy's days, Jones allowed. Producers are looking for "innovative opportunities" in the low-price environment, he said. And the lower commodity prices allow Twin Eagle's credit dollar to go further, he added.
Two or three years ago counterparties were willing to do long-dated deals, but now terms are shorter as players await wider spreads and the return of volatility, Jones said. Initially, Twin Eagle's business will mostly be one- or two-year deals, he predicted.
At the burner tip customers are expected to be local distribution companies, commercials/industrials as well as power generators. The gas business will focus initially on the Midwest and the East and spread out from there, said Jones, who allowed that talks are ongoing for pipeline capacity.
On the power side Twin Eagle is starting out in the Electric Reliability Council of Texas (ERCOT). It has agreed to acquire certain wholesale power contracts and hire personnel from Fulcrum Power Services and will be managing 1,500 MW of generating capacity in ERCOT. Jones said expansion will most likely be into the Midwest and the Southeast.
Chesapeake subsidiary Chesapeake Operating Inc. has taken a stake in Twin Eagle. Chesapeake also at one time had an interest in Eagle Energy. "The last investment with [Watson and Jones] resulted in significant value to all Chesapeake stockholders," said Chesapeake CFO Nick Dell'Osso.
"Chuck and I have a great history with [Chesapeake CEO] Aubrey [McClendon] and the entire Chesapeake team," Jones said. "We are excited to be partners again with this incredible, growing Fortune 500 company."
Chesapeake has not committed any of its supply to Twin Eagle, but Jones sounds like he expects to get some. "There's a long history of business with those guys and the relationship with them, and given their ownership interest, I think they want to see the company succeed. We plan on competing and trying to buy supply from them," he said.
Being a newcomer these days makes Twin Eagle's odds of success fairly strong relative to existing players that may be struggling with legacy contracts that are out of the money in the new environment, Jones said.
"We start with a clean sheet of paper, which is pretty nice," he said. "My feeling is there is a number of companies out there that did not run completely hedged books and are probably dealing with long-dated transactions and they're paying a lot more for the underlying capacity than what the spreads are realizing today...Given that we're coming in with a clean sheet of paper, no legacy transactions, and we're able to contract at these lower spreads, we think creates a good opportunity.
"We believe we're entering the market on the low end of the cycle and are hopeful that over time, as the U.S. finds opportunities to use this increased gas supply, that we'll be able to ride that wave as volatility reenters the market."
Watson and Jones were two of the three founders of Eagle Energy in 2003. Eagle Energy was sold to Lehman Brothers in 2007 and was ultimately acquired by EDF Trading Ltd. in October 2008 (see Daily GPI, Oct. 31, 2008).
"I am delighted to team up with Griff Jones again to build another values-based, best in class energy marketing company," Watson said. "We are assembling a group of technically competent, relationship-oriented leaders with character who can create value for our customers."
Twin Eagle has opened a senior revolving credit facility with BNP Paribas, as agent and sole lender, effective Dec. 31. "We look forward to BNP Paribas syndicating and upsizing this initial facility, which should close in the middle of the first quarter of 2011," said Jones.
Twin Eagle executive vice presidents are:
Headquarters will be in Houston. Staffing is at about 20 employees but will be growing, Jones said.
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