Strengthened by its merger with The Coastal Corp. earlier thismonth that made it the fourth largest U.S. energy company, theformer El Paso Energy Corp. unveiled an impressive show of strengthlast week as it began a two-day analysts’ conference in Houston,showcasing a new energy trading floor, new corporate identify anddetails to grow earnings at least 25% in the coming year.
The company also announced last week that it would substantiallygrow its liquefied natural gas business, spending $1.5 billion inthe next five years to build six LNG terminals to serve the NorthAmerican marketplace.
Now doing business as El Paso Corp., the company has a new logo,which CEO William A. Wise said reflects the company’s “emergence asa leader in all phases of the natural gas industry.” Wise said thatthe “combination of closing the Coastal merger, announcing yetanother year of record earnings, simplifying the company name andpresenting a new face to the world creates an unrivaled platform tosustain El Paso’s track record of success.”
Wise and members of the company’s management team laid out adetailed blueprint for its earnings backbone, the Merchant Energysegment, which now includes the company’s North American naturalgas and power merchant operations, international assets and thepetroleum assets and trading. El Paso said it expects to generate$1.7 billion of net income this year, about $3.25 a share, whichwill match First Call/Thomson Financial analysts’ averages for theyear. Long-term growth will exceed 25%, Wise said.
The growth will be tied to success is several areas, with a lotof hopes in trading activities, which now will be hubbed in a new80,000-square-foot energy trading facility in downtown Houston,adjacent to the company’s headquarters. The facility supports morethan 500 commercial, trading, risk management and administrativestaff to manage marketing and trading activities, including naturalgas, power, natural gas liquids, crude oil, refined products,weather derivatives and related commodities.
Ralph Eads, president of the Merchant Energy Group, called thecompletion of the facility and next-generation trading platform,dubbed THERMS, an important step in El Paso’s move to the front ofthe line in energy marketing and trading.
The long anticipated telecommunications strategy, first promisedlast July, also was detailed by the company’s Global Networkssegment. El Paso, which has already started acquiring fiber opticcable assets and building cable throughout the United States, plansto leverage its knowledge of commodity and capital markets withtelecommunications market skills to “identify and capture value” inthe young industry — a market in which El Paso’s Houstonneighbors Enron Corp. and Dynegy Corp. already are succeeding.
In the next four years, the Global Networks segment plans topour about $2 billion into its multi-pronged strategy that willleverage El Paso’s pipeline network — “end-to-end liquidity” —using three major components:
Access to fiber across metropolitan markets to aggregate supplyin major U.S. cities;
Use of fiber rings and key points of interconnection of majorcarriers and service providers to allow for liquidity to develop inmajor markets; and
Installation of a high-capacity, fiber-efficient nationallong-haul backbone.
The first step is its home base, Texas, where El Paso isfinalizing its deployment of an extensive fiber optic network inthe state’s major markets. Once the Texas network is completed, ElPaso will branch out across the United States.
Using the business model that CEO Wise asserted has made ElPaso’s Merchant Energy platform a leader, he said that the GlobalNetworks segment would bring a “unique vision” to the bandwidthindustry, duplicating success already found in the natural gas andpower markets.
“We expect this business to generate positive operating cashflow by the end of 2003, but more important, we firmly believe thatEl Paso Global Networks has created $7 billion to $10 billion ofcurrent value based upon opportunities that have already beenidentified.”
To capitalize on the growing North American LNG market (seerelated story), El Paso plans to spend $1.5 billion over the nextfive years to build projects, including three in the United States,two in Mexico and one in the Bahamas, with five serving the U.S.marketplace.
Eads said the company predicts that LNG will grow at a ratebetween 10% and 15% for the next 10 years — a faster rate thanany other energy business. To be worth the expense, however, Eadssaid that natural gas prices would have to stay above $3/Mcf forthe next 10 years as well, something analysts predict will occur.
Sites for the new projects now include a proposed plant in aremote region of Baja California to feed the San Diego and Mexicangas markets, and another in Florida. El Paso also has options onland in the Bahamas and is finalizing its options on a site in theCarolinas. Other potential sites include Baja, San Diego and SanFrancisco. A terminal already is scheduled to be built in Altamira,Mexico for the Mexican market.
The terminals would cost between $250 million and $350 millioneach, according to El Paso.
As if to underscore how important it thinks the LNG market isbecoming, El Paso’s Tennessee Gas Pipeline last week announced anopen season for firm natural gas transportation service from CMSTrunkline LNG’s terminal in Lake Charles, LA into Tennessee’ssystem, coinciding with a planned deliverability expansion at theTrunkline plant, which would add up to 300 MMcf/d.
The open season for Tennessee Gas Pipeline from CMS Trunklinebegan last Monday and closes at 2 p.m. CST on Friday (Feb. 16). Theopen season is concurrent with the final two weeks of CMS Energy’scurrent open season for LNG terminal services at the facility.Service is scheduled to begin in the fall of 2002.
Interested parties may obtain a detailed information package,which includes guidelines and subscription forms, by contacting BobFleming at (713) 420-3740 or by sending a fax request to (713)420-5225. The guidelines are also available on the Internet atwww.tennesseeadvantage.com.
El Paso now is also free of at least a few of the legal hasslesthat have pursued it in recent months. The Federal Trade Commissionfinalized a consent order against El Paso and Pacific Gas &Electric Corp. to remedy the “likely anti-competitive effects” fromEl Paso’s Jan. 27, 2000 announced acquisition of two PG&Esubsidiaries, PG&E Gas Transmission Teco Inc. and PG&E GasTransmission Texas Corp. [No. C-3997, Jan. 30]. In those purchaseagreements, El Paso proposed acquiring the subsidiaries for $840million.
The FTC had ordered the companies to divest themselves ofcertain properties because it said the original agreements wouldreduce competition in three natural gas transportation markets: thePermian Basin, Central Texas and Matagorda Island offshore.
The order, which will allow El Paso’s acquisition to proceed,requires El Paso and PG&E to divest to Duke Energy FieldServices LLC the PG&E Teco stock. The Teco pipeline is threesegments of natural gas pipeline that runs from the Permian Basinthrough Central Texas to a market trading area in Katy, TX nearHouston.
They also were ordered to divest interest in the El Paso OasisPipe Line to Oasis Pipe Line Co., Aquila Gas Pipeline Corp. and DowHydrocarbons and Resources Inc. and to divest to Panther PipelineLtd. the PG&E Matagorda Pipeline system.
Carolyn Davis, Houston
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