Dynegy Inc. punted away two assets last week and in return, received some cash to put toward its sagging liquidity. Last Monday, it sold one of its two natural gas storage facilities in the United Kingdom, and on Wednesday, sold the last asset it held in Northern Natural Gas Co. (NNG). Together, the two sales added close to $300 million to the coffers.

The Hornsea Ltd. natural gas storage facility in the United Kingdom was sold to SSE Energy Supply Ltd. for about $200 million (130 million pounds). The Hornsea facility was one of several assets purchased last year from BG Storage Ltd. for a total of $600 million, and had been considered a key part of its European growth plan just before the energy marketplace fell apart (see NGI, July 23, 2001).

Dynegy Hornsea, a subsidiary of Dynegy Europe Ltd., is one of the key players in physical gas storage in the UK gas market, with a total storage capacity of 325 million cubic meters, and a deliverability of 18 million cubic meters/day. Hornsea also owns a neighboring development site at Aldbrough, and has planning permission for development as an additional salt cavity storage facility. SSE Energy is a subsidiary of Scottish and Southern Energy plc.

When Dynegy acquired BG Storage last year, the deal included 30 wells with five offshore platforms, nine salt caverns and about 18 miles of pipelines and an onshore gas processing terminal. Dynegy had used a combination of cash on hand and short-term debt to make the deal.

“This represents another step forward in restructuring our business and improving our financial profile,” said CEO Dan Dienstbier. “We identified Hornsea as a valuable, but non-core asset when we established our UK storage business last year.” ABN AMRO acted as the exclusive financial adviser to Dynegy in the transaction.

Hornsea and Rough, the other major facility included in the BG transaction, are used by approximately half of the UK’s natural gas shippers. Rough, which Dynegy is also interested in selling — completely or for a stake — is an offshore depleted natural gas field with a deliverability rate of 1.5 Bcf/d. The two facilities are capable of storing 111 Bcf of natural gas.

At midweek, Dynegy sold $90 million in 6.875% senior notes due May 2005 for $96 million in cash, its last asset in NNG. Dynegy Holdings Inc. had acquired the notes, which represented the company’s remaining investment in the former Enron Corp. pipeline, at par value in April 2002 under a tender offer. The pipeline, which Dynegy obtained after its short merger attempt with Enron, was sold last summer to MidAmerican Energy Holdings Co. for $928 million in cash and the assumption of $950 million in outstanding debt, including the notes sold (see NGI, Aug. 5).

After Dynegy sold the Hornsea asset, observers noted that the positive news did nothing to help the company’s pathetic stock price, which dropped below $1.00 on Friday. However, Christopher R. Ellinghaus, an analyst with Williams Capital, said he thought investors may have been confused abut the sale.

“The confusion arises from the $600 million purchase price paid to British Gas [BG Storage] in late 2001 for the UK gas storage assets,” Ellinghaus noted on Wednesday. “Some observers have noted the wide disparity between the sale price for Hornsea and the original price for the UK gas storage assets, suggesting that this…represents a significant loss for Dynegy. In actuality, Dynegy paid $600 million for two UK properties, Hornsea, which is an onshore asset, and Rough, which is an offshore natural gas storage asset.

“As far as we are aware, no discreet price was ever established for either the Rough or Hornsea assets,” Ellinghaus said. “Therefore, until Rough is sold, it will be difficult to determine the net effect of Dynegy’s asset sales. However, thus far, we understand that interest has been strong for both assets and the more highly prized Rough asset is expected to produce a very attractive valuation.” Williams Capital has a “hold” rating on Dynegy, and its current earnings per share estimate for 2003 is 40 cents.

©Copyright 2002 Intelligence Press Inc. Allrights reserved. The preceding news report may not be republishedor redistributed, in whole or in part, in any form, without priorwritten consent of Intelligence Press, Inc.