Exposure to possible losses due to energy giant Enron’s financial failure continued to spread like a worldwide epidemic last week with companies and financial institutions around the world reporting potential losses, reflecting the broad reach both of the company’s business and its stock.

The credit rating agency, Fitch, pointed out that JP Morgan Chase and Citigroup are the most affected because they were involved in the Enron-Dynegy transaction gone bad. Fitch estimated that JP Morgan Chase has exposure of $500 million unsecured, plus additional secured exposure of least $400 million. Citigroup has exposure of $800 million, with estimated $300 million unsecured and $500 million secured.

The impact spread from Houston across the country with very few major energy companies avoiding impact. And the contamination wasn’t confined to the United States; financial institutions all over the World were dealing with offshoots of the debacle. Fitch listed some of the financial institutions abroad with possible secured and non-secured exposure to Enron, including Abbey National plc ($165 million), ABN Amro Holding NV of the Netherlands ($100 million), National Australia ($200 million), other Australian lenders ($250 million), Credit Lyonnais SA of France ($125 million), Dresdner Bank AG of Germany (less than $100 million). In addition, Fitch said it is expected that more disclosures will be forthcoming from international banks within the next week.

Asia also is feeling the pinch. The Reuters news service reported last week that Mitsubishi Tokyo Financial Group Inc.’s loan exposure to Enron Corp. and its related businesses totaled 30.6 billion yen ($248.1 million). In addition, Reuters reported that Sumitomo Mitsui Banking Corp., Japan’s second-largest banking group, said its exposure totaled $210 million. Due to concerns over credit risk, Tokyo stocks lost more than 3% in trading last Monday.

In the United States the list grew much longer with John Hancock Financial Services Inc. reporting $320 million in funds affected by Enron. The company said it expects that it will take a fourth quarter write-down in the form of a capital loss of $100-$125 million after tax.

Meanwhile, joining the ranks of the “who’s who” in energy companies that are distancing themselves from the Enron debacle, NewPower ($110 million), Mariner Energy Inc. ($31.7 million), UtiliCorp United ($31.5 million), XTO Energy Inc. ($30 million), EOTT Energy Partners LP (up to $30 million), TXU (less than $20 million), Pinnacle West Capital Corp. ($15 million), AES Corp. (less than $15 million), Ameren Corp. (less than $10 million), Westcoast Energy Inc. (C$13 million; U.S.$8.3 million), Patina Oil & Gas Corp. ($6.9 million), TEPPCO Partners LP ($6 million), TECO Energy Inc. ($3.5 million) and Spinnaker Exploration Co. ($3.4 million) jumped on board last week. Total announced net exposure to date from energy companies is close to $1 billion or more (see NGI, Dec 3).

Petrie Parkman analyst Stu Wagner warned that the industry could see a possible domino effect. “Companies don’t know what they don’t know,” Wagner explained. “In other words, [a company] may have a deal with some marketing company that then turned around and laid the risk off to somebody else who turned around and did a deal with Enron through a derivative or something.

“If that collapses, then that party is stuck,” he said. “If that party can’t perform, then it starts to make its way back. So you don’t know exactly what everybody’s exposure is because there is a lot of turmoil in the market.”

Wagner said this situation could be good news or bad news. “It might be the hedge that may be sold below the market, and today, if they were to retrade the deal, they would get a better price for that gas, or vice-versa,” the analyst said. “It seems to me that Enron’s decision to go into Chapter 11 at a minimum buys some time for some of these contracts to be reworked. It will give them time to retrade deals, particularly for the shorter-term deals, so that some of that daisy chain effect can be avoided. I am more concerned about longer-term deals — something that goes out 2, 3 or 4 years — because it is not a very liquid market. It’s my guess that it is going to be much more difficult to rework long-term contracts than it will the near-term.”

The NewPower Co., the national retail energy provider founded by Enron, IBM and America Online in May of last year, said Enron’s bankruptcy has forced it to terminate its supply contracts with the company and take an expected fourth quarter charge of about $110 million. The company, however, said its previous fourth quarter estimate of a loss of 65 cents to 73 cents per share remains on target. When the national retailer was formed last year, analysts and observers were concerned about Enron’s exposure to NewPower, the first company to embark on what many saw as a very risky business with years of losses and a difficult future given the state of deregulation and the small margins to be made in retail. But now NewPower has been forced to cut all its commodity supply and forward contracts with its founding partner, the largest energy marketer in the nation. NewPower expects to replace Enron’s supply with other providers without missing delivery to customers or suffering any material economic loss, it said.

Following Aquila’s exposure announcement in late November, UtiliCorp reported that it has $31.5 million on the line, given as consideration to enable UtiliCorp to participate in the cash flows of Enron’s Northern Border Pipeline. The company also said it is evaluating whether Enron’s demise will have an effect on Midlands Electricity plc and its generation-related investments, which could have relevance to the closing of that pending acquisition from FirstEnergy Corp. Aquila also revised its exposure limit, from less than $50 million to less than $40 million.

“As Enron goes through the logical next step in its evolution, we plan to continue to grow according to our game plan,” said Robert K. Green, UtiliCorp president. “We’ll use this market dislocation as an opportunity to increase the clients that we serve, as well as to help them through the market dislocation. We also expect to increase our presence in natural gas, power and other energy markets in North America and around the world.”

Houston-based Mariner Energy Inc., which is majority owned by an affiliate of Enron North America (ENA), said that as of Nov. 30, it is owed by ENA approximately $26.2 million for commodity price hedges through 2003 and $5.5 million for oil and gas production for the month of November 2001. As of Dec. 1, Mariner said it has redirected its production previously sold to ENA to other parties. Mariner made it clear that it was not among the Enron entities that have filed for bankruptcy court protection.

Ft. Worth, TX-based XTO Energy Inc. said that despite its $30 million in pretax exposure, its 20% gas production growth projections and solid financial performance should not be materially affected by transactions with Enron. Of the 80% of XTO Energy’s 2002 gas production that is hedged at $3.88/Mcf with a portfolio of counterparties, the company said Enron is a counterparty on about 15% of those volumes.

TXU joined the club early last week by announcing that its potential earnings exposure to Enron is less than $20 million (after tax). The company said it continues to take necessary actions to reduce this immaterial exposure. The company pointed out that on a cash basis, it has no net exposure to Enron. In most instances, TXU said it has netting agreements that allow it to offset the amounts owed by Enron to TXU with the amounts TXU owes Enron. It will continue to assess developments involving Enron as they occur and evaluate its positions on a region by region basis.

AES Corp. said that including its subsidiaries and affiliates, the company has less than $15 million in exposure to Enron under existing power and gas supply contracts. “We consider our current trading exposure to Enron as minor,” said Barry Sharp, CFO. “As the depth of Enron’s financial difficulties became more evident, we reviewed our exposure and took the necessary steps to ensure that our exposure remained limited.”

EOTT Energy Partners LP said Friday that it is conducting commercial supply and marketing activities in support of the MTBE processing facility acquired in June from Enron Corp. EOTT added that, with the inclusion earlier this week of Enron Gas Liquids Inc. (EGLI) in Enron Corp.’s Chapter 11 filing, clarification of EGLI’s long-term performance under its 10-year agreements with EOTT will be required under Enron’s bankruptcy proceedings.

At this point in time, EOTT said it cannot determine whether EGLI’s bankruptcy will have an adverse impact on its ten-year agreements; however, EOTT acknowledged that it could be required to recognize a non-cash impairment of up to $30 million related to these contracts. In the interim, EOTT said it expects to continue commercial operations of the processing facilities, requiring the acquisition of feedstocks and downstream marketing of available products.

“This business unit was an important acquisition for EOTT and we intend to fully support its market potential,” said EOTT President Dana Gibbs.

Although many stressed the impact to their individual companies was minimal, taken in total, the financial hit to the industry has grown to enormous proportions and the show clearly isn’t over yet.

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