KeySpan Energy, which has been focusing increasingly ondownstream and electric power activities, is considering the saleof its 64% ownership interest in E&P arm Houston Exploration.An announcement last week said KeySpan and Houston Exploration hadbegun a process to review “a full range of strategic transactions”and hired J.P. Morgan Securities Inc. as financial advisor.

The E&P unit showed six month revenues were off 10% from theyear previous to $62 million while net income fell 41% to $5.9million. In a July 29 statement accompanying 2Q earnings KeySpanChairman Robert B. Catell said “Houston Exploration iswell-positioned for growth, and we expect that it will achieve itsearnings target for the year.” The company “increased production by6%, and with gas prices rebounding, will increase capitalexpenditures in the second half of 1999 to take advantage ofdrilling opportunities, both onshore and offshore. Further, whileHouston Exploration has adopted hedging strategies, there is upsidepotential if gas prices continue to rise,” he said.

The upstream unit started up as Brooklyn Exploration in 1986 inHouston when KeySpan’s name was Brooklyn Union Gas. The name changeto Houston Exploration was made in 1994. The company’s holdings are98% natural gas. It has offshore properties in the Gulf of Mexicoand its onshore properties are located in the Lobo Trend in SouthTexas, the Arkoma Basin in Oklahoma and Arkansas, and in SouthLouisiana, East Texas and West Virginia. It has 480 Bcfe of provedreserves, holds 100 leases in the Gulf of Mexico and 32,000 acresin the Lobo Trend and operates more than 90% of its production.

KeySpan, which took over Long Island Lighting last year and hasrecently been buying electric generating units, now “is centered ongrowing its core downstream businesses, including gas and electricdistribution, electric generation and energy services in theNortheast regions,” Catell said.

Houston Exploration President James G. Floyd said “with a strongcommodity pricing and lower service cost environment, HoustonExploration will continue to develop its substantial inventory ofhigh quality prospects…..All operating activities will continueas planned while the various options are being evaluated.”

Further information at www.houstonexploration.com. Businesscontacts during the review process are: J.P Morgan Vice PresidentLaurence F. Whittemore, 212-648-3801; KeySpan Senior Vice PresidentH. Neil Nichols, 718-403-2529; Houston Exploration Senior VicePresident Thomas W. Powers 713-830-6853.

Ellen Beswick

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