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Statoil Energy Almost Gone With Hess Deal

February 28, 2000
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Statoil Energy Almost Gone With Hess Deal

Statoil Energy is on track to close its doors by the end of June with last week's announced sale of the company's marketing business and the pending sale of power generation operations. The break-up and sale of Statoil Energy is expected to generate about $1 billion for Norwegian parent Statoil Group.

Amerada Hess agreed to buy gas and power marketer Statoil Energy Services Inc. of Alexandria, VA, for what a Hess spokesman said was less than $25 million. Statoil Energy Services serves industrial and commercial customers, mainly in New York, Pennsylvania, Maryland, Virginia and Washington, D.C.

The deal is intended to expand Hess' customer base and strengthen its position as an independent energy marketer, Hess said. About 120 Statoil employees will join Hess. "The combination of Statoil's electricity capabilities with Hess' expertise and experience in fuel oil and natural gas will make Hess one of the only total energy providers of fuel oil, natural gas and electricity on the East Coast," Hess said in a brief statement. The purchase is expected to close in the first quarter. Hess' spokesman would not reveal volumes of gas and power marketed by the company but said, "we're a major marketer of natural gas, particularly in the New York metropolitan area." An industry observer said the deal should bolster Hess' back office administration.

Last month Statoil Energy agreed to sell its Appalachian Basin gas exploration and production subsidiaries, Eastern States Exploration Co. and Eastern States Oil and Gas, for $630 million to Equitable Resources Inc. (see NGI Jan. 10). The deal, which closed Feb. 15, combines Pittsburgh, PA-based Equitable's 930 Bcfe of reserves and 6,100 wells with Statoil's 1.1 Tcf of reserves and 6,500 wells. Statoil was the largest reserve holder in the Appalachian Basin. The wells are in Kentucky, West Virginia, Pennsylvania and Ohio.

Statoil Energy was put on the auction block in October (see NGI Oct. 18). Norwegian government-owned Statoil Group hired Credit Suisse First Boston for the divestiture. "In order to effectively execute its business plan, Statoil Energy needs to substantially increase the scale of its operations," said Statoil Group Executive Vice President Johan Nic Vold at the time. "The resources required to achieve such scale cannot realistically be supplied by the Statoil Group alone as there are numerous international investment opportunities competing for our limited capital."

Before Statoil Energy hung up the for sale sign the company said it was looking for a partner to bolster its resource base (see NGI May 3). "Our parent group, Statoil, has invested $700 million in Statoil Energy," a spokesman said at the time. "The search has been misconstrued as a selling of interest. Statoil is not looking for someone to come buy $350 million of the company. They are searching for someone to come in and add to what already exists."

No deal was struck, however, and Statoil Group was faced with the prospect of heavily investing in the business to make it viable. "We needed a much stronger presence in the power market, and the level of investment needed to be competitive there was into the multiple billion dollars," said Dave Dresner, Statoil Energy's chief operating officer, who is departing the company. He said Statoil Group will continue to pursue energy marketing operations but closer to its core business in the North Sea. "They were able to take some good lessons home."

Statoil Energy was founded in 1981 and evolved from a small gas exploration and production company to a full-service energy company with 1998 revenue exceeding $3.5 billion. It traded 600 Bcf of gas per year as of 1998 and supplied 100 Bcf/year of retail gas. The company also sold 66 million MWh of electricity per year and ranked 11th in U.S. electricity trading.

Power Systems, which is expected to be sold shortly to an eastern U.S. electric utility, has assets that include a 50% interest in two Long Island, NY, plants; a coal-fired plant in Dover, DE; as well as distributed generation and field services operations. Power Systems assets were valued at $107.8 million at the end of 1998 compared to $21 million two years earlier.

The Statoil Group is one of the world's largest energy companies and has revenue of about $20 billion. Proceeds from the sale of the businesses will help reduce debt at the parent company, which is refocusing its business .

Joe Fisher, Houston

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