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Industry Briefs

Industry Briefs

FERC upheld its March decision on remand in which it disclaimed jurisdiction over a four-mile, six-inch line of KN Wattenberg Transmission LLC that serves two industrial customers in Fort Morgan, CO. The Commission asserted jurisdiction over the lateral in a November 1997 ruling, but the U.S. Court of Appeals for the Tenth Circuit remanded the decision two years later. Last March, FERC vacated its controversial decision upon acknowledging that the line met the qualifications for a Hinshaw exemption and, therefore, was subject to regulation by the Colorado Public Utilities Commission.

Piedmont Natural Gas has signed a formal agreement to purchase a gas distribution system serving 5,100 customers in Gaffney, SC, from Atmos Energy for $5.8 million. Atmos operates its United Cities Gas subsidiary in the Gaffney area. Piedmont has announced that it will continue to maintain a local Gaffney office and retain existing United Cities' employees. The transaction is subject to regulatory approval and is expected to close by the end of the year. Piedmont serves about 660,000 residential, commercial and industrial customers in the Carolinas and in Tennessee. It is the second largest gas utility in the Southeast behind Atlanta Gas Light.

Conectiv sold the southern regional division of Conectiv Services, which is located in southern Delaware and eastern Maryland, to the unit's employees. Terms of the sale were not disclosed. The southern division provided new construction, replacement, service and maintenance of heating, cooling, and plumbing services for residential and commercial customers. The move continues Conectiv's previously announced plan to exit businesses it no longer considers strategic, and seek a partner for its telecommunications business, and focus on its core mid-merit and power delivery segments. Earlier this year, Conectiv announced the sale of the northern and mechanical divisions of Conectiv Services and the sale of its Conectiv Thermal joint ventures in California and Nevada. Conectiv is focused on two core energy businesses: Conectiv Power Delivery, which provides energy service to more than one million customers in New Jersey, Delaware, Maryland, and Virginia; and Conectiv Energy, which includes power trading and a growing portfolio of "mid-merit" power plants.

A new study by consulting firm John S. Herold, Inc. tracks the boom and bust cycles that have decimated the ranks of oil and gas companies. "From Renaissance to Requiem to Rebirth," a special oil and gas industry study authored by CEO Arthur L. Smith and Vice President Aliza Fan, begins with stark statistics highlighting the destructive impact that commodity price volatility has had on oil and gas companies over the past three decades. Smith and Fan point out that of 82 oil companies followed by Herold in 1970, only seven (9%) survive today; of 157 companies followed in 1990, only 63 (40%) are still in business. The 1998-1999 oil and gas wellhead price meltdown was particularly brutal, dealing "body blows to all petroleum producers and oil service providers; some staggered, some fell and many merged or were acquired." At the same time, enormous capital flows were withdrawn from the energy sector, as energy industry weighting in the S&P 500 plunged from 26% in 1982 to less than 5% in early 2000. For a copy of the study contact Tom Biracree at 203-847-3344 or tbiracree@herold.com.

Evergreen Resources Inc., based in Denver, reports that its proved reserves have increased 47% since year-end 1999 to 822 Bcf of natural gas as of Sept. 1. The increase follows the company's successful drilling program in the Rocky Mountains this year, and its $176 million acquisition of producing properties in the Raton Basin from an affiliate of Kansas City Power & Light Co. The reserve estimate represents an increase of 263 Bcf over the Dec. 31, 1999 estimate of 559 Bcf. About 153 Bcf of gas reserves was attributed to Evergreen's Sept. 1 purchase in the Raton Basin. Independent petroleum engineering consultants Resource Services International audited the estimate of reserves. In the first eight months of 2000, Evergreen drilled 73 wells, and the company anticipates it will drill about 100 total in the basin before the end of the year.

Dallas-based Denbury Resources Inc. said that its projected 2001 targeted production will be a company record of 25,000 BOE/d, a 24% increase from its anticipated average daily production this year. The production includes an estimated 17,000 barrels of oil a day and 48 MMcf/d. CEO Gareth Brooks said the company "will exit 2000 with a significant increase in our reserve and production base. If we achieve our targets for 2001, it will be the second straight year of 20% to 25% growth in base production at an expected cost of less than $25,000 per daily producing BOE." The company's capital budget for next year is $100 million, geared toward more production from existing fields and expanded activity in the Gulf of Mexico.

Grey Wolf Inc., headquartered in Houston, has signed a two-year $11.6 million contract with Burlington Resources Inc. for an ultra-deep drilling Rig 558, which would be used to begin exploration and production in the growing Rocky Mountain area. The rig would be used for drilling in the Madden Deep Unit of Wyoming's Wind River Basin, with startup scheduled for second quarter 2001. Grey Wolf's Rig 558 is rated at 4,000 HP, with a hoisting capacity of 2.5 million pounds.

Chevron, the Royal Dutch/Shell Group and Schlumberger have become equal partners in a new Houston-based company, OpenSpirit Corp., which will offer a standardized software infrastructure for the energy industry. The initial framework was funded by OpenSpirit Alliance, a three-year-old collaboration of exploration and production companies and software vendors that studies ways to better develop, deliver and use E&P applications. OpenSpirit Corp.'s vendor-neutral and platform-independent application framework is expected to be available before the end of the year. Neil Buckley, former president of U.S. operations for Merak, a division of GeoQuest, will serve as CEO. More information is available at www.openspirit.com.

Strategic Energy has announced a five-year Power Supply Coordination agreement with The City of Pittsburgh to provide and manage the electricity supply to city facilities as well as provide related energy management services, including summary billing and assumption of energy price risk. Pittsburgh-based Strategic Energy's Power Supply Coordination Services will provide City locations with an initial 10.8% annual electricity savings plus the likelihood for additional savings over the term of the contract. Pittsburgh City Mayor Tom Murphy said "we are anticipating immediate cost savings of more than $300,000 next year, and believe we will continue to see our energy costs drop.

As part of its house cleaning following its merger with Consolidated Natural Gas, Dominion Resources announced it has agreed to sell to GE Capital Commercial Finance $948 million in commercial loans held by First Source Financial, a unit of its Dominion Capital subsidiary. The company agreed to sell Dominion Capital to obtain regulatory approval for its $8.5 billion acquisition of CNG, which closed earlier this year. The transaction is expected to be completed in the fourth quarter. It marks a big step in Dominion's effort to raise $1.5 billion in cash through asset divestitures. "This transaction will enable Dominion to enhance the company's debt structure and significantly de-leverage its balance sheet," said Dominion CEO Thos. E. Capps. "It also advances our long-term strategy to divest non-core assets and focus our resources on energy markets in the Midwest, Northeast and Mid-Atlantic regions of the United States." Chicago-based First Source Financial originated the loan portfolio after being acquired by Dominion Capital in 1995. The portfolio includes loans made to middle-market companies for expansion, acquisitions and recapitalization, and represents about half of First Source Financial's total loan portfolio.

Constellation Power Source announced it will build one of California's first major power plants in more than a decade. The High Desert Power Project, a $350 million, 750 MW power plant will be built at the Southern California Logistics Airport in Southern California's Victor Valley. "The High Desert Power Project represents an important step in meeting California's critical energy needs," said Constellation Power Source President Charles W. Shivery. "Leading up to this summer there was a growing gap between electric generation supply and consumer demand in California where consumption of electricity has increased more than 22% in the past eight years, and in-state power generation has remained nearly flat at under 4%." Groundbreaking is expected to begin early next year, and the plant is scheduled to begin commercial operation in time for the high electric demand season in the summer of 2003. High Desert is the fifth merchant power plant announced this year by Constellation.

Southern Co., Alabama Municipal Electric Authority, FuelCell Energy and Mercedes-Benz U.S. International started a field test on their Alabama Direct FuelCell Demonstration Project last week. The project, which was announced in February, will utilize FuelCell Energy's Direct FuelCellT stack. It will convert natural gas to electricity that will feed the Mercedes-Benz production facility power distribution system in Alabama. In addition, the entire power plant will be skid-mounted, making it easy to transport to different locations for additional demonstrations.

Henwood Energy Services announced its new online energy auction web site, TermDesk.com, has successfully completed natural gas and electricity auctions with companies including Texaco and San Diego Gas & Electric. The auction allows large and small energy participants to buy and sell long term energy at competitive prices. Different than other trading platforms, TermDesk.com emphasizes a longer term physical transaction, the company said. "We are kind of like the e-Bay of energy," said Mark Reed, TermDesk.com's director of Merchant Services. Launched in July, TermDesk.com has additional auctions scheduled throughout October and can be located on the net at www.termdesk.com.

California regulators unanimously adopted a statewide re-examination of the state's $220 million voluntary electricity curtailment program among large energy users, an ongoing effort that at critical times this past summer helped state energy officials avoid the need to impose rolling blackouts. The program allows large customers to get price breaks in return for agreeing to be curtailed a set number of hours each year. State regulators and utilities hope it will "to assure reliable and reasonably priced electricity, especially in the summer of 2001," said Loretta Lynch, president of the California Public Utilities Commission (CPUC).

Schlumberger Oilfield Services has completed the first phase of its largest 4C seismic survey ever as part of the 4Sight Program, a joint venture with Seitel. Schlumberger delivered its final poststack P-wave migration, and the initial survey, conducted about 120 miles southeast of Galveston, will cover nearly 45 blocks of West Cameron using ocean-bottom cable vessels. The converted wave data is expected to be delivered in December, imaging beneath prevalent gas clouds with the converted waves. The new data have higher vertical resolution with better reflection continuity and fault definition than 3-D surveys, and Schlumberger's David Meeh said the success so far with the equipment has created "a surge of interest in 4C technology."

AGL Resources Inc. has closed on its $533 million acquisition of Virginia Natural Gas, more than two months ahead of schedule and prior to the start of the winter heating season. Completion of the purchase from Richmond, VA-based Dominion was accomplished after the Securities and Exchange Commission granted its final approval. Dominion was required to divest the Virginia company, which serves customers in the Hampton Roads region of southeastern Virginia, as a condition of its acquisition earlier this year of Consolidated Natural Gas. "The acquisition of Virginia Natural Gas represents an important milestone for AGL Resources to extend our capabilities into a promising new market," said AGL Resources CEO and President, Paula G. Rosput. "Our new customers in Virginia can expect a continuation of excellent customer service under the new ownership. AGL Resources successfully bid for Virginia Natural Gas and announced the acquisition on May 8. Henry P. (Hank) Linginfelter, a 17-year veteran of Atlanta Gas Light Company, will be the new president of Virginia Natural Gas.

Canada's fuel cell industry got a charge last week when the board of directors of Fuel Cells Canada inaugurated a private sector, not-for-profit organization designed to offer services and support to developers. FCC, to be headquartered in Vancouver, has proposed a five-year budget of C$26 million, largely funded by the Canadian government, to complement an additional five-year, C$30 million request by the National Research council. Most of the budget will support demonstration projects. Vancouver-based Methanex said the new organization would push fuel cell research into the forefront, and help companies develop alternative fuels. Methanex produces and markets methanol, a leading fuel candidate for many fuel cell applications. "We have been a strong supporter of the formation of Fuel Cells Canada through our early involvement with other companies, universities and governments," said Methanex CEO Pierre Choquette. Many of the "key players" in the fuel cell industry are in Canada, said Choquette, and the new organization will "bring all these players and government together to advance the commercialization" of the technology.

Things are skating along for the Atlanta-based Intercontinental Exchange, "The ICE," which said last week that it has expanded its trading platform to now include global crude and refined oil products. Natural gas and power are expected to slide into play before the end of the year. Trading in those markets was to begin immediately. The Internet-based electronic marketplace was launched in March by some of the largest oil companies and investment bankers in the world, and began trading precious metals in August. Initial investors were BP, Deutsche Bank AG, Goldman Sachs, Morgan Stanley Dean Witter, Royal Dutch/Shell Group, SG Investment Banking and Totalfina Elf. Continental Power Exchange also joined at the time to provide trading technology and the management team. In July, six more energy partners, which had formed the Energy Trading Platform Holding Company earlier in the year, purchased an interest in The ICE. The six companies, American Electric Power, Aquila Energy, Duke Energy, El Paso Energy, Reliant Energy and Southern Company Energy Marketing, accounted for trading nearly 1 billion MWh of electricity and 42 Bcf/d of natural gas in North America in 1999. In its first week trading precious metals, The ICE did 1.4 million troy ounces of gold with a notional value of $270 million, and 27 million troy ounces of silver weighing in at an estimated value of more than $130 million. There were no additional figures on the level of current trading. To learn more about the platform, visit the Web site at www.intercontinentalexchange.com.

Louis Dreyfus Natural Gas said it expects record reserve additions this year and a rapid in crease in drilling during the fourth quarter compared to the historical lull that occurs late in most years. Just in the last 45 days the company has closed five acquisitions, investing $35 million to purchase 45 Bcf of proved reserves. "The combination of solid results from both drilling activities and acquisitions is expected to result in a record volume of proved reserves added this year," said CEO Mark Monroe. "The previous record was in 1997 when we added a total of 358 Bcfe of proved reserves. Typically, we plan for somewhat reduced drilling activity in the fourth quarter. This year, we have increased our drilling budget by $10 million to $220 million in order to maintain a high level of drilling operations through the end of the year." During the three months ended Sept. 30, the company completed 169 of 176 wells drilled in its Gulf Coast, Permian and Midcontinent regions. For the first nine months of the year, 371 wells have been drilled with a 95% success rate.

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