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Industry Briefs

Industry Briefs

Northern Border Partners have entered into a letter of understanding with Enron North America (ENA) to purchase gas gathering facilities in the Powder River and Wind River Basins in Wyoming for almost $200 million. Included in the acquisition is Enron Midstream Services, which has ownership interests in Bighorn Gas Gathering, and ENA subsidiaries that hold interests in Fort Union Gas Gathering and Lost Creek Gathering. Upon completion of the transaction, Northern Border Partners will own and operate the assets, and will provide gathering and transportation services. ENA will still supply gas purchase and sales, finance, and risk management along with producer outsourcing services.

Shell Trading unveiled its mega-energy electronic trading platform in London last week, offering the first heavy duty competition for Enron Corp.'s industry-leading EnronOnline. Shell Trading, due to start Jan. 1, will include the company's current trading platforms for crude and oil products worldwide; chemical feedstocks in Europe and the United States; and natural gas and power in North America through Coral Energy, based in Houston, and in Europe through Shell Energy. The worldwide crude and oil products shipping operations and the marketing business of Coral Energy also will be included. Shell Trading will have key trading and marketing operations in North America, Asia, the Middle East and Europe. The reorganization puts Shell into the deregulation game for natural gas and electric power markets worldwide. It already leads the pack as the world's largest oil trading operation. Shell's move to enter the market full steam is not unlike other multinational oil and gas corporations --- BP Amoco and ExxonMobil also have plans to do so. However, Shell is considered to be well placed to meet Enron in a battle for energy trading opportunities because its energy division already sells retail gas in four U.S. states: Georgia, New York, New Jersey and Pennsylvania.

Florida Power & Light announced that it has filed a preliminary action with the Florida Public Service Commission (FPSC) for permission to recover $518 million in excess expense due to the "skyrocketing cost of oil and natural gas." Part of the $518 million will be offset by a customer refund agreement which was formed in April 1999 with the office of the Public Counsel, and the FPSC. The agreement provides for revenue sharing between FPL and its customers, as well as a 6% annual rate reduction for three years. As of now, the refund to customers is estimated to be in the range of $75 million-to-$100 million. Subtracting the expected rebate from the forecasted fuel costs, FPL thinks that residential electric rates could increase by almost 13% a kWh. The company has requested that the FPSC extend the recovery period to two years instead of one to lessen the burden on its customers. Along with extending the recovery period, FPL is searching for other ways of limiting the increase to only 9% a kWh. The company will ask that it be able to begin recovering expenses in customer bills beginning Jan 1, 2001.

eCorp Marketing entered into an agreement with NJR Energy Services (NJRES), a subsidiary of the New Jersey Resources Corp., to provide transportation management, storage marketing and gas trading services in connection with Central New York Oil & Gas Co.'s (CNYOG) proposed Stagecoach Natural Gas Storage Project in Tioga County, NY. CNYOG is an eCORP subsidiary. Under the terms of the agreement, NJRES will manage the bundled and unbundled marketing of storage and transportation services from the Stagecoach project and the Tennessee Stagecoach Expansion Project. The proposed Stagecoach Project is an underground natural gas reservoir storage facility which is designed to provide multiple cycles with high rates of injection and withdrawal. The project which is awaiting FERC approval is expected to be completed during the summer of 2001 (see NGI, Jan. 10).

Transocean Sedco Forex reached a definitive agreement to acquire R&B Falcon Corp. in a 100% stock transaction for a total cost of $8.8 billion. The transaction will result in what the companies claim will be the largest offshore drilling contractor. The two Houston-based oil and gas exploration drilling and service companies will become the third largest oil services firm in the world, with an equity market capitalization of $17.7 billion. The acquisition is expected to be immediately accretive to Transocean's cash flow. Both boards of directors have approved a deal that would issue 0.5 of a new Transocean Sedco share for each share of R&B Falcon common stock. Transocean Sedco estimates it will distribute 100 million shares at a cost of $5.8 billion. The company will also assume $3 billion of R&B Falcon's debt. Pending shareholders approval from both companies, regulatory approvals and other conditions, Transocean Sedco hopes to have the purchase completed by the end of the first quarter of 2001

Caminus Corp., headquartered in New York City, has completed its acquisition of Houston-based Nucleus Corp. of Texas for $19.6 million, consisting of $13.7 million in cash, 261,334 newly issued share of common stock of Caminus and stock options. Caminus supplies software systems for trading and risk management in natural gas and electric power throughout North America and Europe. Nucleus supplies software systems for energy trading in North America.

Burlington, MA-based Essential.com, an online energy and communications marketplace, entered into a reseller agreement with Niagara Mohawk Energy Marketing (NMEM). Under the agreement, Essential.com will sell electricity supply from NMEM throughout the Mid-Atlantic and Northeast regions. The company will also provide customers with online billing, payment and customer care services. Essential.com's online marketplace offers electricity, heating oil, propane gas, internet access, telephone services and satellite TV.

Canadian Occidental Petroleum Ltd.'s subsidiary CXY Energy Offshore released details of a new oil and gas discovery in the shallow waters of West Cameron 170 in the Gulf of Mexico. The company reported the 17,125 foot A-6 discovery well encountered 180 feet of net oil and gas pay in five main pay sands. The well's production tested at a rate of 4,300 b/d and 9 MMcf/d of natural gas. The discovery well has been tied into production facilities and is currently producing 2,100 b/d and 6.5 MMcf/d pending further construction. CXY owns a 78% working interest in the well, which is located 30 miles offshore Louisiana. The company plans to commit to follow-up drilling early next year.

Tulsa-based Beta Oil & Gas, which first stated its intentions to merge with Red River Energy back in November of last year, announced that the $23.5 million deal has closed (See NGI, Nov. 29, 1999). The combined company will continue to do business as Beta Oil & Gas and will have assets in the neighborhood of $50 million. The union will also produce approximately 10 MMcf/d of natural gas equivalent. The deal reflects a 112% increase in Beta's assets, and a 186% increase to the company's production level. Beta assumed about $7.6 million of Red River's existing debt, and issued approximately 2.25 million shares of Beta Common stock. Beta Oil & Gas is an independent company which is involved in production, exploration, acquisition and development of oil and gas properties.

Southern Union Co. shareholders this week approved its $400 million definitive merger agreement with Providence (RI) Energy and its $75 million definitive merger agreement with Fall River (MA) Gas Co. These mergers, along with a pending $160 million merger with Valley Resources Inc., will add more than 300,000 customers to Austin-based Southern Union, giving it a total customer base of 1.6 million. Fall River shareholders approved the merger agreement in a special meeting Aug. 29. Providence Energy and Valley Resources stockholders had previously approved their merger agreements (see NGI, May 29). The deal is scheduled to be completed within the next three months.

Siemens Westinghouse, headquartered in Orlando, FL, yesterday entered into an agreement with Pegasus Technologies Inc. to provide equipment solutions for the power generation industry. Siemens is a leading equipment manufacturer for the power industry and control supplier in the United States and globally. Pegasus, owned by KFx Inc. and headquartered in Mentor, OH, makes neural network applications for boiler combustion optimization to reduce emissions and increase efficiency for electric utility customers. Siemens said its strategy will be to provide integrated IT solutions from the process level (unit and plant) to the enterprise level (corporate) to maximize revenue per megawatt generation.

Midcoast Energy announced that its Mexican pipeline affiliate, Midcoast del Bajio, which is jointly owned with Associated Pipe Line Contractors, has been awarded a 10-year natural gas transportation contract to serve the General Motors de Mexico's Silao Plant. It also has signed a deal to serve the FIPASI Industrial Park, which includes facilities owned by American Axle, Weyerhaeuser Co. and Avintech. The industrial park is located in the Bajio region of central Mexico, where Midcoast del Bajio is building a 59-mile, 16-inch diameter pipeline. The pipeline will run from an interconnection with a Pemex Gas y Petroquimica Basica ("Pemex") pipeline near Valtierrilla to Leon. Substantially all of the right-of-way for the new pipeline has been acquired and when completed, the system will provide gas transportation services to parts of central Mexico that do not currently have access to gas. Under the terms of the GM contract, Midcoast del Bajio will provide 100% of the natural gas requirements to the Silao plant for a 10-year term beginning in spring 2001

Devon Energy and Santa Fe Snyder completed their $2.5 billion merger as shareholders of both companies approved the deal which was first announced in May. The agreement called for each Santa Fe Snyder common share to be converted into 0.22 shares of Devon common stock. Conversion requires issuance of 40.6 million additional Devon common shares, resulting in total shares outstanding of 127.7 million. Former Santa Fe Snyder shareholders now own 32% of the combined company. The transaction will be accounted for as a pooling of interests. With merger completion, Devon now ranks among the top five U.S.-based independent oil and gas producers in terms of market capitalization, total proved reserves and annual production. The company has an enterprise value of $9 billion and proved reserves of 1.1 billion boe. The union expects to realize $30 million to $35 million in annual cost savings from the merger. Devon was added to the S&P 500 Index after the close of business.

A 24% increase in natural gas sales helped Mitchell Energy & Development Corp. to reach record second quarter earnings of $1.13 a share, or $55.4 million - more than twice that for the second quarter of 1999's 55 cents per share or $26.8 million. A First Call consensus had put the earnings estimate at 97 cents a share. Natural gas sales rose to 294 MMcf/d, with the company operating 12 drilling rigs bringing in new production, particularly in the Barnett shale in North Texas where sales nearly doubled to 135 MMcf/d for the second quarter. The Woodlands, TX-based company's accelerated drilling program in North Texas and third-party drilling in Southeast Texas sent natural gas liquids production up 18% to an average of 51,500 barrels per day, and pipeline throughput at 798 MMcf/d. This was the company's second consecutive quarter of record earnings, reflecting a 19% volume increase and a 64% rise in commodity prices.

Dominion Exploration & Production said it bought operating interests in three Texas Gulf Coast natural gas fields from Suemaur Exploration & Production, LLC and several partners for an undisclosed sum. Dominion now owns and operates the Bluntzer Field, a Vicksburg discovery made in western Nueces County by Suemaur in early 1999. The field produces a total of about 24 MMcf/d of gas and 450 b/d of oil and has significant opportunity for additional development drilling. Over the last 18 months, Dominion has acquired interests in five onshore Texas fields, boosting net production from the area by over 115 MMcfe/d and increasing reserves by about 270 Bcfe.

UtiliCorp United is using Lukens Consulting Group Storage Valuation Advisor software and modeling methodology to estimate the future value of gas storage based on the volatility of future prices. Based on real option theory, the software incorporates the latest thinking in econometric modeling of energy commodity markets. Since launching the software package in April, Lukens has done work with leading storage operators, including Dominion Resources, Columbia Energy Group and National Fuel Gas Supply. "Competing in the energy marketplace requires a number of effective tools," said Bob Poehling, senior vice president, Capacity Services, Aquila Energy. "Storage Valuation Advisor is one of those tools which will allow us to more effectively manage and value our storage portfolio." For more information on the software, contact Scott R. Smith at (713) 961-1100. Lukens Group's Internet address is www.lukensgroup.com.

The New York Mercantile Exchange has selected Andersen Consulting to act as program manager and integrator for enymex, the exchange's new Internet venture. Enymex is intended to be a global exchange for forward trading and clearing contracts in a range of physical commodities with an initial focus on energy and metals. The exchange originally said it planned to launch the first phase of the e-commerce exchange in October. However, start-up has been pushed back to "early 2001," according to Nymex spokeswoman Nachamah Jacobovits. "We're not going to launch it until we can get clearing services and trade matching up and running," she said. Nymex will use its existing clearing infrastructure to introduce complete counter-party risk management for OTC trading, and will create net margining with futures markets by calculating a consolidated clearing position. The new system will provide a single, Internet-based interface to both the OTC markets and the futures market by routing futures orders to the trading floor and the Nymex ACCESS electronic trading system, depending on the session. The range of OTC products offered initially will focus on swap contracts in crude oil, petroleum products, natural gas, with some spot cash market products also offered, Nymex said. Over time, this would be expanded to include electricity, precious and base metals, coal, and, potentially, bandwidth, weather, and emissions.

Calgary's Husky Energy completed its acquisition of Renaissance Energy and began trading yesterday as one company on the Standard and Poor's Global 1200, TSE 300 Composite, S&P/TSE 60, TSE 100 and Toronto 35 Indices. Husky Energy will be removed from the oil and gas producers' subgroup and is being moved into the integrated oils subgroup. According to Husky's CEO John C.S. Lau, the new company is ranked as Canada's second largest integrated energy company in terms of oil and natural gas production, third largest in reserves and fourth largest downstream retailer.

Aquila Energy said it has been awarded a $550 million long-term contract to supply 154 Bcf of natural gas over 12 years to members of the American Public Energy Agency (APEA). It is the fourth contract the agency has awarded to Aquila since 1998. Under the three previous contracts with APEA Aquila is supplying the agency with 14.4 Bcf of gas over ten years, 91 Bcf over 12 years and 141 Bcf over 12 years. All together, Aquila is providing APEA with more than 400 Bcf over the next 12 years. APEA provides a reliable supply of natural gas to many municipal utilities and other public entities throughout the United States. These public buyers serve thousands of homes and businesses.

Despite the fact that bids were considered well below what government officials hoped, Alberta soon expects to be the first Canadian province to successfully deregulate its power industry after five companies won the rights to sell electric power in the coming retail marketplace, which opens Jan. 1, 2001. The winning companies, all with offices in Canada, were EPCOR Utilities, TransCanada PipeLines Ltd., Engage Energy, Enron Canada Power Corp. and Enmax Energy. All total, they bid nearly C$1.17 billion for the right to sell 4,249 MW of electricity to Alberta residential, industrial and residential customers over the next 20 years. More than 6,500 MW of power from 10 Alberta plants - about 85% of the power available in the province - was available at the auction. Generation capacity at four plants attracted no bids, while production from Engage Energy will be subsidized. The four plants that failed to receive bids carried the highest debt and costs, according to officials. The auction opened Aug. 2 and concluded last Monday with 69 bidding rounds between seven companies. PanCanadian Petroleum and UtiliCorp United of Kansas failed to win any power contracts in the auction. Alberta Minister of Development Mike Cardinal said the government will soon unveil a redistribution program that will use the money raised in the auction plus revenue from other Alberta plants, to offset rising electricity costs. In the past year alone, the average price of power per kilowatt hour at the Power Pool of Alberta has increased nearly 100%.

Peoples Gas, a subsidiary of Peoples Energy, is expanding its customer choice program this September to include up to 82,000 small commercial and industrial customers within the City of Chicago. Eligible customers can begin enrolling on Sept. 1 in the company's Choices For You(SM) program. Introduced as a pilot in 1997, the program so far has included only 14,000 customers. This is the first open enrollment where eligible customers have the option to sign up for the program on an ongoing basis. Peoples Gas also will offer an optional billing service to suppliers so that customers may receive one bill, including gas charges from the customer's supplier along with the distribution charges from Peoples Gas. The six suppliers who are currently qualified to participate in the program include: Enron Energy Services, MidAmerican Energy, Multiut, Nicor Energy, Peoples Energy Services and Santanna Energy Services.

In an acquisition that CEO Jack E. Wheeler called "very strategic and synergistic," the Aspen Group Resources Corp. last week acquired 100% of Old Dominion Oil Corp.'s Anadarko Basin producing wells, leases, property and equipment, of which about 90% are natural gas reserves, in an all-cash transaction. Terms of the transaction were not disclosed. Old Dominion's holdings include interests in about 400 production wells in Arkansas, Louisiana, Michigan, New Mexico, Oklahoma and Texas. Most of its production now is in the Anadarko Basin of Oklahoma where Aspen also has several key producing properties. "Old Dominion's properties in the Anadarko Basin, when combined with our own, give Aspen a very strong position in an extremely productive, gas-rich area of western Oklahoma," said Wheeler. "In addition, we add interests in two new states in Michigan and New Mexico, and increase our base of properties from 840 to over 1,240. In respect to our business plan, we are well ahead of schedule." Aspen, based in Oklahoma City, has interests in wells located in 10 states, but most of its focus is in Oklahoma, Kansas and Texas. Formerly Cotton Valley Resources, it began trading under the Aspen name in April (see NGI, April 24).

Aquila Energy's UtiliCorp Energy Management got a Hallmark greeting of its own last week, after inking a three-year agreement with the Hallmark Cards Inc. to manage the company's energy procurement process for natural gas and electricity. No financial details were disclosed on the amount of the agreement. Under the contract, UEM will manage the multi-million dollar energy budget for 17 of Hallmark's facilities, including its Kansas City-based headquarters and its Binney & Smith subsidiary, which makes Crayola crayons. The Kansas City-based UEM also will oversee the energy supply chain management for demand-side services, targeting onsite energy efficiency projects. Currently UEM provides energy management services for more than 350 client facilities throughout the United States, which represent more than $200 million in annual energy expenditures.

Central Hudson Energy Services, with a long-term strategy to offer a full range of energy supply alternatives, moved toward that goal with the purchase last week of Griffith Consumers Co., a heating oil provider with 43,000 retail customers and a significant market share in the Washington, D.C. area. The subsidiary of CH Energy Group, which is headquartered in Poughkeepsie, NY, already offers natural gas, electricity, fuel oil and propane and other energy services throughout New England, the metro New York region and the greater D.C. area. Details of the transaction were not disclosed, but the Griffith company purchase was considered a key in building a platform to market services in D.C., Maryland, Delaware, Virginia and West Virginia. Maryland-based Griffith last year sold 107.4 million gallons of residential and commercial heating oil, commercial motor fuels and wholesale products, and it posted revenues of nearly $97 million. In 1999, Griffith became a division of AllEnergy, a subsidiary of NEES Energy Inc., a division of National Grid USA. The utility affiliate of CH Energy, Central Hudson Gas & Electric Corp., serves 270,000 electric and 62,000 gas customers in eight New York counties. CH Energy Group revenues in 1999 were $522 million.

After a hard fight over a small project assigned big significance by the contestants, the National Energy Board (NEB) has upheld the doctrine that has ushered pipeline competition into the Canadian natural-gas community. An NEB panel under board Chairman Ken Vollman approved a new, producer-sponsored bypass of the TransCanada-Nova system in Alberta, rejecting pleas for the federal agency to stop setting precedents favoring new entries into gas transportation.

Alberta Energy Co. intends to have deliveries under way by fall on the new stretch of pipe, a C$22.3-million (US$15.4-million), 97-kilometre (60-mile) route for 190 MMcf/d. The new line titled, the North Suffield Pipeline, will carry production from the Suffield military range in southeastern Alberta across the Saskatchewan boundary to a connection with TransCanada's national and international system.

The area served by the line counts for 3.4 Tcf of proven reserves, and an estimated 4.1 Tcf of undiscovered potential, with the possibility of more as drilling ventures into new deep rights acquired recently by AEC. The decision was the second pipeline victory in the area for the producer, which earlier built a similar bypass for southern Suffield wells.

Shippers stand to save up to C$14 million (US$9.6 million) per year by switching to North Suffield because its tolls of C13.7 cents (US9.4 cents) a gigajoule is a little more than half the C26.1 cents (US18 cents) charged by the Alberta-wide grid of TransCanada-Nova. The old gas-transportation mainstays warned the NEB that Suffield represented "an important precedent and policy-setting case." By approving North Suffield, the board confirmed it is prepared to allow new projects even at a time when the Canadian pipeline sector is heading into a period of surplus capacity. The surplus is estimated to be up to 2 Bcf/d, thanks to the forthcoming completion of Alliance Pipeline this fall on top of the late-1990s expansions by the TransCanada and Foothills systems. Shippers hope it will take years for production to catch up with the pipeline expansions because they are fostering a buyers' market in delivery services in Canada for the first time in the industry's history.

It helped AEC that it structured North Suffield as a fully "at-risk" project, pledging to take the chance that it will lose money on any unused capacity without seeking regulatory decisions to prop up the tolls. Rather than pipeline profits, "the primary benefits in the North Suffield case relate to competition and choice," the NEB said.

The NEB panel also turned down pleas by TransCanada-Nova for a ruling to define the pro-competition doctrine more clearly. In particular, to set out some limits about when benefits outweigh costs and vica-versa. Despite repeated attempts by pipeline companies and their lawyers to narrow the NEB's discretion, the Canadian doctrine on competition in gas transportation continues to be a simple statement: "In general, the public interest is served by allowing competitive forces to work, except where there are costs that outweigh the benefits."

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