In an effort to further reduce its debt and strengthen its balance sheet, CMS Energy Corp. announced it has put its oil and gas exploration and production unit, CMS Oil and Gas Co., on the block and intends to exit the E&P business. The E&P operation is one of many CMS will sell this year to improve its financial situation (see NGI, May 6).

CMS already has sold a Philippine power plant, reserves in Equatorial Guinea and its Powder River Basin reserves. What’s left are oil and natural gas reserves in the Permian Basin of West Texas, in Cameroon, the Republic of Congo, Colombia, Eritrea, Tunisia and Venezuela.

The E&P unit reported 1.2 million b/d of crude and condensate and 2.4 Bcf/d of gas production in the first quarter. It holds about 248 million boe of oil and gas reserves. However, the division struggled financially, reporting zero operating income in the quarter, mainly because of lower oil prices and the loss of production from its assets in New Guinea, which were sold for $1 billion. The New Guinea asset sale allowed the company to reduce its debt to 71% of capitalization to 66%.

CMS Energy said it expects to conduct a competitive auction process for its remaining oil and gas E&P assets and will provide details to interested parties in the near future to begin the sale process. CMS has hired Randall & Dewey Inc., a Houston-based oil and gas merger and acquisition consulting firm, to advise it.

Proceeds from the sale will be added to CMS Energy’s current total of $2.4 billion of cash proceeds from asset sales, securitization proceeds and LNG monetization toward its $2.9 billion asset optimization goal by year-end 2002. Other assets to be sold before the end of the year include Consumer’s electric transmission system, with an expected $290 million in proceeds, and some generation, distribution and other assets for an additional $588 million.

CMS has been under intense scrutiny and pressure from investors and regulators for admitting questionable energy trading practices, particularly round-trip trades, which were designed purely to boost revenues and sales volumes in order to create the perception of scale in the energy market (see NGI, May 20). The company’s chairman and CEO, William T. McCormick, was one of several energy company heads who have stepped down because of the trading scandal that has tarnished the industry (see NGI, May 27). And on Friday, the company’s board of directors appointed a special committee to investigate the sham power trades that artificially pumped up CMS’ revenues and volumes. The special committee, which will select legal counsel to advise it, will report the results of its investigation back to the board.

The special committee will be chaired by Kenneth L. Way, chairman of Lear Corp.. Other members include Kenneth Whipple, the new chairman and CEO of CMS; Kathleen Flaherty, former president and COO of WinStar International; and Earl Holton, chairman of Steelcase Inc.

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