Avista Corp., rocked by early cold weather and increased loads that reduced profit within its utilities division, now expects to report better-than-expected earnings for the fourth quarter, driven by its non-regulated energy trading arm, Avista Energy. The Spokane, WA-based company’s consolidated fourth quarter diluted earnings will exceed $.50 per share, based on results form the first two months of the quarter. The earnings would be well above the consensus figure of $.09, with earnings ranging between $.05 and $.17, according to seven analysts surveyed by First Call/Thomson Financial. The improved performance by the energy arm offset predicted losses within Avista Utilities, which “continues to be affected by cold weather that has increased loads.” The increased loads have led to higher purchased power costs that are not currently being recovered from customers or included in power cost deferrals. Ironically, Avista’s second quarter earnings, reported in June, were driven down by Avista Energy because of what the company called errors in its wholesale trading decisions made a few months earlier (see NGI, June 26). However, company officials predicted then that the energy arm would recover and lead the way toward better economic health for the entire company by the end of this year. Despite its comeback, there has been fallout within the company, with CEO Tom Matthews resigning in early November. Also last month, a federal investigation was launched into the trading practices of the company. Federal investigators have begun looking into possible energy futures trading rule violations that may have occurred two years ago at a Houston subsidiary.
In a planned move to dump its mature shelf properties and concentrate on new exploration opportunities, EEX Corp. is selling its interests in nearly 100 offshore lease blocks in the shallower waters of the Gulf of Mexico to an undisclosed buyer for $60 million. The properties contain estimated proved reserves of 58 Bcfe, of which 33% are proved producing, as of Oct. 1. The Houston-based company said it would retain the rights to its deeper, non-producing horizons in 10 of the blocks. By selling the properties, EEX said it would eliminate about $26 million of accrued abandonment liabilities from its balance sheet with no significant gain or loss on the asset sale. EEX’s activities are focused in Texas, the Gulf of Mexico and Indonesia. “As a result of our previously announced decision to shift capital spending away from our mature shelf properties to onshore programs with higher potential return, these properties became candidates for sale,” said CEO Tom Hamilton. He said that even though the transaction exits EEX from the shallower shelf play, “we continue to pursue deep drilling exploration prospects on 34 shelf blocks.” Along with the property sale, EEX announced that the Garden Banks Block 344 Well No. 3, an exploratory well on the Jason Prospect, encountered hydrocarbon-bearing sands. The Greater Llano area, which includes the Jason Prospect, is located in waters offshore Louisiana about 200 miles southeast of Houston. The well was drilled to a total depth of 21,000 feet and encountered the hydrocarbons at 100 net feet of pay. EEX, which owns 100% working interest and 80% net revenue interest, now is considering a sidetrack from the existing well bore or another well elsewhere on the block. Hamilton said that if the discovery proves to be commercial, it would provide “another opportunity to utilize our infrastructure assets,” which include the nearby sub-sea pipeline and the Enserch Garden Banks floating production system.
OGE Energy Corp. has scored a second natural gas transportation contract in less than a month for its Transok pipeline system, the latest with PECO Energy Co.’s Power Team to transport gas to a new 800 MW power plant under construction in Jenks, OK. Enogex Inc., an OGE subsidiary, will operate the new facility. Earlier this month, the Oklahoma City-based company obtained a transportation contract for Transok to transport gas to Calpine Corp.’s new 1,100 MW power generation plant under construction in Coweta, OK. In the deal announced last Monday, PECO’s Power Team will contract to market the electrical output of the Jenks plant and will be responsible for purchasing the natural gas supplies. Cogentrix Energy Inc., based in Charlotte, NC, formed Green Country Energy LLC earlier this year to develop the power plant project. The Transok pipeline will provide 100% of the firm gas transportation requirements for the new station in Jenks, which is designed to burn 150 MMcf/d. Testing is scheduled to begin in May 2001, with full operation expected by January 2002.
The Oil & Gas Asset Clearinghouse, which conducts live floor and Internet bidding on oil and gas properties and prospects, sold more than $34.4 million of properties at its ninth hybrid auction held Dec. 13. The Clearinghouse’s Selective Offering auctioned 321 lots that consisted of more than 1,200 wells. Hybrid auctions allow buyers to compete through the Internet against the live auction floor, and the company, a subsidiary of Petroleum Place, said Internet participation was strong, as it has been throughout the year. Internet bidders accounted for 23% of the total registered bidders, placing bids on 66% of the lots offered. Year to date, Internet bidders have purchased more than $39 million worth of properties through Clearinghouse auctions, including two that sold for more than $6 million. “This has been an incredible year for The Clearinghouse,” said CEO Ken Olive, “both in terms of the total sales volume transacted through our auctions and the tremendous acceptance and adoption of the Internet as an effective tool for oil and gas property acquisition and divestiture.” Olive said that through the Petroleum Place web site, the Houston-based company had “Internet-enabled” all aspects of its business.
Cincinnati-based Cinergy Corp. said that next year’s profits might exceed expectations because of its growth from the purchase of power plants. Cinergy now expects earnings per share for 2000 to hit the consensus estimates of $2.55, however next year, the company expects to grow 8% through merchant purchases. “We are seeing the results of the execution of our growth strategies with positive gains in 2000 and projected growth next year,” said CEO James Rogers. “Our growth strategies, supported by recent acquisitions of additional generating capacity, are expected to drive estimated results of $2.75 per share in 2001.” If the growth is correct, it would be 10 cents above consensus estimates. Rogers’ comments remain in line with a report by Cinergy in October that it expected to have average annual earnings growth of 8% over the next three years (see NGI, Nov. 6). In the past year, the company has increased its non-regulated generating capacity by about 30%. Just last week, Cinergy’s non-regulated power unit Cinergy Capital and Trading announced the purchase of two of Enron North America’s power plants (see NGI, Dec. 18), which will add 1,000 MW to the company’s 21,000 MW of owned, operated or under development power. That transaction is expected to close in early 2001. Last week Cinergy also agreed to spend $1.4 billion to clean up pollution from coal-fired power plants in Ohio and Indiana in the largest settlement of its kind under the Clean Air Act. The U.S. Environmental Protection Agency alleged that the utility and some subsidiaries had failed to install required pollution control equipment in some of the older plants. Cinergy and its two operating companies, PSI Energy and Cincinnati Gas & Electric Co., also will perform $21.5 million in environmental projects and pay an $8.5 million fine. While denying any wrongdoing, CEO Rogers said that the “projects are in line with the environmental requirements that we believe our plants are expected to face over the next 15 years.”
Enerplus Resources Fund, headquartered in Vancouver, paid C$104 million for 100% of the outstanding shares of an undisclosed private Canadian pension resource corporation that owns producing oil and natural gas properties in Western Canada. The properties produced approximately 2,650 boe/d in a three-month period ending Sept. 30. The production included 1,740 bbl/d of crude oil and natural gas liquids and 9,100 Mcf/d. Average third quarter production represents a 22% increase over Enerplus’ third quarter average of 12,014 boe/d. Total established reserves are 12,248 Mbbl of crude oil and natural gas liquids and 70.7 Bcf, for a total of 19,312 Mboe. The deal was funded through a combination of cash from existing credit facilities and the assumption of debt, which totaled 75% of the purchase price. The rest was financed with Enerplus Trust Units.
Spain’s second largest power company, Iberdrola SA, has been awarded a contract to build, own and run a combined-cycle 1,036 MW power plant in Altamira, Mexico for $590 million. The Spanish utility will sell electricity in Mexico for 25 years under the contract. Investment in the plant will be spread over 2001 and 2003, and it is expected to be operational in May 2003, according to Iberdrola.
Niagara Mohawk Power customers and marketers got an early holiday present this month, when Tennessee Gas Pipeline began service Dec. 1 on the direct connection from its 200 Line near Cedar Hill, NY to the gas distribution system of Niagara Mohawk Power near Albany. The new 2.7-mile lateral has the capacity to supply the proposed Bethlehem Energy Center being developed near the connection site. Stephen C. Beasley, president of Tennessee Gas, said the connection offers a “variety of new opportunities for shippers on Tennessee,” and will eliminate rate stacking of costs through multiple pipelines.
Southern Energy Inc. has signed a long-term agreement to manage all the natural gas transportation and storage capacity for Chesapeake Utilities’ Delaware and Maryland divisions. Chesapeake Utilities serves natural gas customers throughout central and southern Delaware and Maryland’s Eastern Shore, providing propane service to customers in the Delmarva Peninsula.
Ultra-deepwater oil and gas production in the Gulf of Mexico is getting a boost with a partnership between the Minerals Management Service and the U.S. Department of Energy. The two agencies agreed earlier this month to promote ways to improve production and ultimately decrease U.S. dependence on imported energy. The agreement details how the agencies will promote the development and commercialization of new or existing technologies to lower the cost of ultra-deepwater (more than 5,000 feet deep) exploration and production of oil and gas while maintaining the safety and protection of the marine environment. To learn more about the initiative, visit the website at www.mms.gov.
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