Cinergy Buys ProEnergy; Forms Alliance with Oryx, Apache
Cinergy Corp. took a huge step in growing its commodity
marketing operation last week with the purchase of Producers Energy
Marketing, LLC, (ProEnergy) from owners Oryx Energy and Apache
Corp. for $42.5 million and with the signing of a 10-year marketing
alliance that covers both producers' entire marketable gas supply,
or 1.1 Bcf/d.
ProEnergy markets about 1.7 Bcf/d of gas to more than 200 large
industrial buyers and local distributors. Wholesale gas marketing
will be a new business venture for Cinergy. The company plans to
combine the staff of ProEnergy with its rapidly growing wholesale
electricity marketing business, Cinergy Capital and Trading, which
reported a 200% increase in volume over the past two years, selling
about 56.6 million MWh in 1997.
"Through integration with Cinergy's electric trading and
marketing, financial risk management and origination services, this
transaction gives us an additional platform for further growth
through internal expansion and acquisition," said Cinergy CEO James
"[It's] another step toward achieving our goal of being a top
tier energy commodity provider which began with the creation of the
Energy Commodities Business Unit two years ago. Since then, other
steps have been taken, including the acquisition of Greenwich
Energy Partners, the creation of Cinergy Capital Services, the
selection of Cinergy by the New York Mercantile Exchange as a
delivery point for futures contracts and expansion of our power
marketing and trading business."
Cinergy recently completed a reorganization of its power and gas
trading operations in the wake of former President J. Wayne
Leonard's departure to Entergy Corp. Cinergy named Madeleine W.
Ludlow as the new president of Cinergy Capital and Trading and
brought on Michael J. Cyrus, an executive with Electric
Clearinghouse, to assume the post of executive vice president
overseeing power trading operations. A Cinergy spokesman said Cyrus
now will head up both gas and power marketing and report to Ludlow.
The alliance with Oryx and Apache gives Cinergy a geographically
diverse gas supply portfolio, which includes production in the
southwestern U.S., Rocky Mountains, Gulf Coast, Gulf of Mexico,
Michigan and Canada.
Oryx said it will realize proceeds from the sale of about $18
million and will recognize a net capital gain of $10 million.
Apache will take its 57% stake in ProEnergy primarily in shares of
Cinergy's common stock.
AG Edwards & Sons energy analyst Joseph M. Culp viewed the
deal as a positive for the producers, particularly Apache, which
has long viewed marketing as "kind of a necessary evil."
"Apache bought Natural Gas Clearinghouse from the investment
bankers years ago because they thought the marketers had captured a
lot more of the value but were taking very little of the risk
during periods when there was a surplus and prices were soft. They
always thought they would be able to get better profit for their
gas if they owned a marketing arm. Then they sold NGC and made a
profit. But then later on, they started this venture up because
they are a very major supplier in certain markets, particularly the
Oklahoma area, and if they could aggregate and find markets they
could improve their price."
But several things happened since the formation of ProEnergy.
One is the deflation of the gas supply bubble. "We seem to be in a
market that the gas almost will sell itself," said Culp. Another
factor is Apache's desire to continue focusing on E&P both in
the U.S. and internationally and outsource noncore operations.
Apache still will have a stake in the marketing operation because
they took their portion of the company in stock.
"I think probably what they saw was that to be a real player
[ProEnergy] probably needed to expand beyond its [supply side
marketing operation]" into a multifuel, market oriented business
because of unbundling and electric restructuring.
Cinergy has access to a large customer base. Its utility
subsidiaries, Cincinnati Gas & Electric and PSI Energy, serve
more than 14 million electric customers and 455,000 gas customers
in Indiana, Ohio and Kentucky.