Dynegy Inc. announced on Wednesday that it has executed term sheets to expand and extend its commercial agreements with ChevronTexaco to purchase “substantially all” of legacy Texaco’s undedicated U.S. natural gas and natural gas liquids production through Aug. 31, 2006, increasing the ChevronTexaco volume of natural gas purchased by Dynegy by to 3 Bcf/d.

Dynegy also will provide supply and service for 2 Bcf/d natural gas for legacy Texaco’s facilities and third-party term markets. Already, the partners have begun integrating the additional supply and service, with start-up planned for Feb. 1, 2002. Included in the agreement will be Dynegy’s purchase of the undedicated liquids production associated with the processing of Texaco’s natural gas, more than doubling the volume of liquids Dynegy currently purchases from ChevronTexaco in the United States.

In the Gulf of Mexico, Dynegy will have the right to process the current uncommitted gas production from the former Texaco properties as well as most future ChevronTexaco production. Dynegy will also purchase Texaco’s wholesale propane marketing business and integrate it into its existing wholesale business. Dynegy’s current liquids marketing and trading business sells in excess of 586,000 b/d of natural gas liquids.

“The growth of our relationship with ChevronTexaco is a continued vote of confidence in our commercial capabilities,” said Dynegy CEO Chuck Watson. “The additional natural gas and natural gas liquids supply added to our portfolio by this agreement further enhances our strategic position as one of the leading physical market participants.”

Dynegy began purchasing Chevron’s natural gas and natural gas liquids in 1996 when Dynegy acquired Warren Petroleum, a former Chevron subsidiary.

The expanded partnership followed an announcement Monday by Dynegy that it would restructure its balance sheet in the wake of the downgrade in its bond rating last week by Moody’s Investment Service to one notch above junk (see Daily GPI, Dec. 18). Dynegy’s stock has tumbled in response to Enron Corp.’s recent bankruptcy, and executives said earlier this week that they would take a more conservative approach to business.

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