Centrica plc North American subsidiary Direct Energy Business has agreed to acquire Hess's New Jersey-based energy marketing business for $731 million in cash and approximately $300 million in net working capital, the UK utility said Tuesday.
"The acquisition builds on Direct Energy's existing capabilities and further integrates these activities along the gas value chain, linking gas supply from producers and other market participants through secured transport and storage capacity to the gas and power customer base," Centrica said.
Hess's energy marketing business, which operates in 18 states, last year supplied 378 Bcf of natural gas and 28 TWh of power to more than 23,000 customers. "When combined with Direct Energy's existing business, which in 2012 supplied 77 Bcf of gas and 51 TWh of power, the acquisition will make Direct Energy the largest business gas supplier on the East Coast of the U.S. and the second largest business power supplier in the competitive U.S. retail markets," Centrica said.
The unit had revenues of more than $6 billion in 2012 and is expected to deliver around $200 million of earnings before interest, taxes, depreciation and amortization in 2013, with margins similar to those of Direct Energy's existing business-to-business (B2B) activities. Centrica expects the acquisition to be earnings accretive in its first full year, after the effect of fair value accounting, and to deliver operational efficiencies.
"This transaction will transform our B2B operations in North America, giving us leading positions in business gas and power supply and creating a unique dual fuel business in the U.S.," said Centrica CEO Sam Laidlaw. "It marks a significant step towards delivering on our strategy -- substantially increasing the scale of our North American downstream business and integrating along the gas value chain -- with the aim of doubling the profitability of our North American downstream business over the next three to five years."
Hess should be familiar territory for Laidlaw, who was COO of Hess from 1995-2001. In early 2002 he was appointed CEO of Enterprise Oil Plc (see Daily GPI, April 3, 2002) and went on to serve as Chevron Corp.'s executive vice president of business development before taking the helm at Centrica in 2006.
For Hess, the deal is part of a previously announced plan to exit the entirety of its downstream business as it transforms into a pure-play exploration and production company (see Daily GPI, March 5). "The sale of energy marketing, along with the sales of four producing assets earlier this year, brings total year-to-date divestitures to $4.5 billion," the company said. "Hess has used the proceeds from its previously completed asset sales to repay $2.4 billion of debt and further strengthen the company's balance sheet for future growth." The sale of the energy marketing unit puts the company in a position to begin repurchasing shares under its existing $4 billion share repurchase authorization, Hess said.
The acquisition follows a deal in which a North American partnership between Centrica and Qatar Petroleum International (QPI) agreed to pay Suncor Energy $986 million for onshore natural gas-weighted properties in the Western Canadian Sedimentary Basin (see Daily GPI, April 16). The properties have proved and probable reserves of about 978 Bcfe, 90% weighted to natural gas, and are in Alberta, northeast British Columbia and southern Saskatchewan. The acquired assets would be 60% owned by Centrica and 40% owned by QPI; Centrica would be the operator. The move would help Centrica secure more gas supplies for Direct Energy and help develop resources internationally to reduce its exposure to price movements in the wholesale gas market.
The deal with Hess, which is subject to regulatory approvals and other customary closing conditions, is expected to close in the fourth quarter.
With plans to sell its energy marketing unit looming, Hess slipped out of NGI's Top North American Gas Marketers Ranking in 1Q2013 (see Daily GPI, June 10). Hess, which had reported 2.56 Bcf/d in 1Q2012 and 2.88 Bcf/d in 4Q2012, had appeared in the survey since 4Q2011.
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