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Industry Briefs

Industry Briefs

Higher interest expenses and new costs related to a fiber optics project sent third quarter earnings for Columbia Energy Group downward last week, failing to measure up to forecasts by First Call/Thomson Financial analysts. Herndon, VA-based Columbia reported income of $19.5 million, or 24 cents per share, came in under analysts' expectations of 29 cents per share. For the third quarter of 1999, Columbia had reported earnings of $20.5 million, or 25 cents per share. Still, after adjusting for one-time items, Columbia's third quarter income from continuing operations was $32.4 million, which is $6.2 million more than third quarter 1999. Even with lower labor costs and higher natural gas prices, the company could not offset the impact of higher interest expenses associated with its pending takeover by NiSource Inc., which is scheduled to close Nov. 1(see NGI, July 10, June 5). Columbia also said that it had additional costs associated with building a fiber optics network between Washington, D.C. and New York City. CEO Oliver G. Richard III said, "Columbia's core businesses continue to achieve solid operating performance. Our transmission, distribution and exploration and production segments all reported higher results this quarter compared with a year ago."

Schlumberger Ltd. is acquiring a majority interest in Convergent Group Corp., a digital company offering companies Internet solutions, for $276 million. The merger agreement, which gives Schlumberger 71.7% of Convergent, will result in a new entity, Convergent Holding Corp., and will give Schlumberger a stake in the growing global digital economy. New York-based Schlumberge, the number two oilfield services company, said the acquisition of Convergent will improve its stake in the utility sector. Convergent, based in Denver, offers consulting, software engineering, systems integration and project management services to enable utility and government clients to integrate data. Convergent's current executive management team and an affiliate of its largest client, Cinergy Corp., will own the remaining 28% of the new company. Schlumberger's offering price of $8 per share is 69% higher than Convergent's closing price Oct. 13 on NASDAQ for $4.72. About 43.4 million shares of Convergent are outstanding. Glenn E. Montgomery will remain Convergent's CEO.

The American Gas Association (AGA) has formed a new Leadership Council to serve as a forum for member company senior executives to manage and participate in association activities. The council will include senior executives not serving on the AGA board. "The Leadership Council will help AGA tap the tremendous amount of expertise and energy of member company senior executives for the benefit of our members and the natural gas industry," said AGA President and CEO David Parker. "I am confident this new group will be a source of ideas and initiatives that will help our members stay on top of an increasingly fast-moving, competitive business environment." Council members will be nominated by their company's CEO. The council will meet twice a year, in conjunction with AGA Board meetings and the Executive Conference. Michael Warren, CEO of Energen Corp., will serve as the council's inaugural chairman. The AGA represents 189 local natural gas utilities that serve customers in all 50 states. In other action during the association's annual executive conference, held this year in Naples, FL, AGA's board elected D.N. Rose, CEO of Questar, as chairman of the board for 2001. AGA also elected Michael Warren first vice chairman. Rose said he plans to emphasize a leadership theme he adopted from the Pacific Coast Gas Association: "Right Fuel, Right Time, Right Now," regarding natural gas.

Reliant Energy said its subsidiary Reliant Resources, Inc., which includes all of its unregulated energy operations, has filed a registration statement with the Securities and Exchange Commission for an initial public offering of common stock. The IPO was announced in July as part of a corporate reorganization plan designed to separate the company's regulated and unregulated businesses into two publicly traded companies (see NGI, July 31). Upon receipt of necessary regulatory approvals, the company plans an initial public offering (IPO) of 20% of the common stock of its unregulated operations late this year or early in 2001. The company expects the IPO to be followed by a distribution to shareholders of the remaining stock of the unregulated company within 12 months. Reliant Resources will be the company in charge of Reliant's unregulated power generation (13,000 MW and another 2,800 MW under construction) and related energy trading and marketing operations. It also intends to become a significant player in the retail market in Texas when electric choice begins in 2002 and elsewhere. The company also will be involved in telecommunications, Internet services, and European electric generating and trading/marketing operations.

Gulf Canada mailed its formal purchase offer to the shareholders of Crestar Energy last week. The deal offered is C$3.25 in cash and 3.333 ordinary shares of Gulf in exchange for each Crestar common share (see NGI, Oct. 9). Shareholders may request a different ratio as long as the final deal for all of Crestar's shares would be C$185 million in cash and about 190 million Gulf ordinary shares. Gulf said the addition of Crestar will more than double its western Canada gas production to over 615 MMcf/d. In another deal announced last week, Crestar sold its remaining 50% interest in Gulf Midstream Services (GMS) located in western Canada to Keyspan Corp., which had purchased the first 50% for $189 million in 1998 (see NGI, Nov. 9, 1998). Upon completion of the sale, GMS's name will change to Keyspan Energy Canada (KEC). Analysts estimate the deal to be valued at about C$200 million, including C$100 million in debt. "Selling our interest in the partnership will allow us to focus our attention and capital on what Gulf does best: exploration for and production of oil, natural gas and natural gas liquids," said CEO Dick Auchinleck. The GMS partnership holds substantial interests in 14 gas processing plants and extensive gathering systems, with more than 1.5 Bcf/d of raw gas processing capacity.

Williams and ONEOK reported that they have reached a two-year agreement in which Williams will provide incremental firm transportation service of 56,200 Dth/d to the Oklahoma Natural Gas (ONG) division of ONEOK. "We have had a long-standing relationship with ONEOK through our service to its Kansas Gas Service division and we look forward to helping ONEOK serve its growing energy needs in Oklahoma," said Kim Cocklin, senior vice president of Williams Gas Pipeline-SouthCentral (Central and Texas Gas systems). Service will begin on Nov. 1, and will require Williams to build two new meter stations along its existing pipeline system. A spokesman for ONG said the gas load from Williams was necessary to serve its steadily growing customer base of approximately 800,000 as the company unbundles its services. The transportation capacity will be used to serve customers in ONG's Oklahoma City and Enid, OK, markets.

Powder River producer Pennaco Energy revised downward its estimated gas production for the fourth quarter of 2000 and for 2001 because of some maneuvering by competitors that has reduced its wellhead deliveries. It also has encountered some downhole water problems at a couple of its projects. The small producer, which works exclusively in one of the hottest new production plays in the country, estimates it will produce between 58 and 63 MMcf/d of gas net to its interest in the fourth quarter compared to a previous target estimate of 70 to 75 MMcf/d. Pennaco also revised downward its production forecast for 2001 to a range of 95 to 105 MMcf/d net to its interest as compared to a previous target of 110 to 120 MMcf/d. Several Pennaco competitors in the Gillette area of the Powder River have recently installed mini-compressors, or blowers, at the wellhead on properties adjacent to Pennaco's producing wells. The blowers have increased the production rates from competitor wells and temporarily reduced production from Pennaco wells, Pennaco said. It is in the process of installing its own blowers on key wells and expects production from the affected wells to return to previous levels over the next 30 days. In addition, Pennaco's operated production in the Felix and Fitch Ranch Projects, located in the Pennaco/CMS AMI, has increased at a slower rate than expected due to persistent downhole water pump problems. Despite numerous pump changes, the downhole pumps in Felix and Fitch Ranch have not operated consistently due to clogging with coal and shale. Pennaco said progress is being made in both areas, however. The company did report encouraging results from its deeper pilot well projects. In House Creek, Pennaco has drilled three pilot projects to the Big George Coal and two pilot projects to the deeper Wyodak Coal. The company has estimated net unrisked reserve potential of 250 Bcf in the House Creek Big George Coal and 95 Bcf in the House Creek Wyodak Coal.

Magnum Hunter Resources received net proceeds of $20.6 million from ONEOK Resources through the voluntary exercise of 100% of their public warrant shares (3,174,600 shares) at an exercise price of $6.50 per share. Through the exercise of these warrants, ONEOK Resources increased its current ownership interest from 32% to 38% of Magnum Hunter's outstanding securities. Additionally, Trust Company of the West as Investment Manager for General Mills, Inc. exercised 450,000 restricted common purchase warrants and Magnum received net proceeds of $2,362,500. "With the combined proceeds of this new equity capital totaling approximately $23 million, Magnum can significantly reduce its current outstandings under its senior bank credit line, increase our book equity, and at the same time expand our market capitalization by approximately $30 million," said Magnum CEO Gary C. Evans.

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