Continuing on a trek to grab the lion’s share of the energyservices market, two subsidiaries of Enron Corp. yesterday inkedfinancial deals, totaling more than $1 billion that capitalize onthe Houston-based company’s energy management expertise and growthin the global risk market.

In the first major announcement, Enron Energy Services signed a10-year, $1 billion energy management agreement with StarwoodHotels & Resorts Worldwide Inc., which covers the Westin,Sheraton, St. Regis, Luxury Collection, Four Points and W hotels inNorth America. Enron said this pact would supply or procureelectricity and natural gas, manage energy infrastructure throughthe use of energy-related products, and provide energy pricestability at the hotels.

Starwood, which recently completed a $1.8 billion renovation,will invest $50 million under the Enron pact to reduce energyconsumption at all of the covered resorts, reducing energy costs byabout $200 million over the 10-year term of the contract. It alsoplans to begin an incentive program to encourage its associates todiscover innovative ways to conserve energy.

In May, Enron Energy Services’ Peggy Mahoney said Enron was ontrack to reach nearly $16 billion in energy marketing agreements thisyear, nearly double 1999’s total of $8.5 billion. That’s up from $3.8billion in energy agreements in 1998 (see Daily GPI, May 31).

In its second announcement yesterday, Enron North America andSwiss Re New Markets (SRNM) said they used risk capital managementtechniques to arrange a first-of-its-kind $102 million oil and gasproduction loan for a client in the exploration and productionsector. Enron said the technique involved a “precise assessment ofrisk capital associated with highly structured financing” for aspecific portfolio of natural gas reserves.

Developed jointly with Enron’s Global Risk Markets (EGRM), thefinancing used a combination of derivatives, insurance and bankcredit to finance future production of 160 Bcf over a five-yearperiod from a portfolio of working interests in fields located inTexas, Louisiana and New Mexico.

Douglas Jones, head of EGRM’s upstream team, said the techniquewill now give prospective producers a “minimum production profilefor a specific set of properties” to reduce the financing costs. Hesaid it was the “first-of-its-kind” to involve “true risk transferof the future production of certain reserves” into the market.

EGRM used hedging to optimize the risk capital over the life ofthe financing to eliminate any volatility with the future price ofnatural gas, according to SRNM’s Victoria Mace. “This transactionis applicable for both on- and off-balance sheet financing.”

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