Houston-based Coral Energy Holding LP, one of the top natural gas marketers in North America, bulked up its marketing abilities in the Pacific Northwest and in Western Canada after completing its purchase of Spokane, WA-based Avista Energy Inc., the energy merchant arm of Avista Corp.

Coral Energy, the North American marketing arm of Royal Dutch Shell subsidiary Shell Trading, agreed to acquire Avista Energy’s assets in April in a transaction originally valued at around $202 million (see NGI, April 23). The transaction closed June 30, with Coral Energy paying Avista $175 million, according to Avista Energy. In the transaction, Coral Energy acquired all of Avista Energy’s U.S. assets and all of Avista Energy Canada Ltd.’s contracts and ongoing operations, which will be integrated into subsidiary Coral Energy Canada Inc.

Coral acquired not only a stronger marketing presence in the western states and in Western Canada, but also a top-notch staff, CEO Mark Hanafin told NGI.

“Looking at our business, we are very strong in California and we had a pretty good presence in Western Canada, and to a lesser extent, in the Pacific Northwest,” Hanafin said. “This fits very well within our portfolio, it joins our strengths in California and in Western Canada with the Pacific Northwest, and it gives us a better platform.”

Avista Energy’s marketing presence was integral, but Hanafin said the “main driver in this acquisition was the quality of the staff,” which sealed the deal. Coral Energy plans to not only retain Avista Energy’s offices in Spokane, Great Falls, MT, and Vancouver, BC, but it also will integrate most of the company’s 45 employees with its 700-plus North American workforce.

Avista Inc. CEO Gary Ely said Monday the deal was not only a strategic one for his company, but he wanted to make sure “the customers of Avista Energy would continue to receive the kind of value and service they have come to expect over the past decade. In addition, it was important to ensure that our valued employees would be treated fairly and to realize a fair value for the business, all of which we’ve accomplished with this transaction.”

Hanafin said the continuity of service would not change. Among other things, Coral Energy will acquire Avista Energy’s strategic alliances, including an agreement with Chelan County Public Utility District (PUD) in Wenatchee, WA, operator of the nation’s second largest nonfederal hydropower system. In a unique arrangement, Avista Energy provided real-time scheduling and resource optimization for more than 500 MW of the PUD’s hydroelectric generating capacity. Avista Energy also serves as gas manager for more than 40% of the large industrial market in the interior of British Columbia.

Avista Energy “fits well into our organization,” Hanafin said. The transaction already has been “very well received by the employees and by the customers as well…We believe this is a real win for our employees and our customers, as this increase in scale, resources and experience will allow us to offer a broader portfolio of products and value-added services to our customers in this region. We are committed to growing our business in these markets.”

Hanafin said Avista Energy “clearly” knew how to compete, but it has become more “complicated” and difficult for stand-alone energy merchants to blend physical assets with solid capital requirements.

“The reality is, the credit ratings agencies…Moody’s [Ratings Service], Fitch, S&P [Standard & Poor’s Ratings Services]…all of them look at the businesses, and they want to ensure that they are always solvent,” he said. These credit ratings reviews are “severe tests…they look at the risks versus the capital, and then they stress test it against your positions now and against last year…You have to have an extra-strong balance sheet. We have Shell backing us up, and we are able to produce the right results.”

Coral Energy is consistently in the top five of NGI‘s quarterly North American gas marketing survey, and in the 1Q2007 ranking it was third (see NGI, June 25). Coral Energy’s physical gas sales grew 8% in the first three months of the year, reaching 12.5 Bcf/d compared with 11.60 Bcf/d in 1Q2006.

Hanafin said Coral Energy will continue to look for the “opportunity to grow,” but he said the company was “not on an acquisition spree. We like to grow organically, but if we see the opportunity for something…it will be to continue our strategy of growth. It all comes down to the right opportunity.”

Shell Trading is a global business network integrating the worldwide energy trading activities of the Royal Dutch Shell group of companies, of which Coral Energy and its subsidiaries are an integral part. Coral Energy markets and trades natural gas, wholesale power and risk products with counterparties and customers across North America, and its customers include commercial and industrial end-users, utilities, producers, generators and aggregators.

Proceeds from the sale of Avista Energy are expected to be reinvested in Avista’s utility business.

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