KeySpan Corp., focusing on its regulated activities in the East, currently is working on the tax aspect of a plan to divest its remaining 56% interest in Houston Exploration Co., an independent E&P company operating in the U.S. with 94% of its reserves in natural gas.

KeySpan Chairman Robert B. Catell told analysts at a Merrill Lynch conference last Wednesday the Brooklyn-based utility will sell its remaining interest for the right price “if we can do it in a tax efficient way.” KeySpan CFO Gerald Luterman explained that Houston Exploration has a zero tax basis and a book value of about $600 million. If, for instance the stock was sold at its current $34 stock price, KeySpan would realize only $23 to $24, with the rest going in taxes. The difference is worth about $200 million to KeySpan stockholders.

KeySpan sold 10% of its interest for nearly $80 million earlier this year, through a stock deal which incurred no taxes (see NGI, Feb. 24). Sale of the E&P company which KeySpan founded in the 1980s, is part of a plan to divest non-core assets.

Houston Exploration has net proved reserves of 650 Bcfe, and reported second quarter production of 292 MMcf/d at an average price of $4.54 per Mcf, up from 2Q 2002 production of 283 MMcf/d at an average of $3.28 Mcf. Activities are mainly in South Texas (46%), offshore in the Gulf and onshore in the Arkoma Basin. The company said earlier last week it would acquire the entire shallow-water Gulf of Mexico asset base of Transworld Exploration and Production Inc., which is 75% natural gas, for $155 million (see related story, this issue).

Catell said the company also would be selling off KeySpan Canada, a collection of 14 processing plants in western Canada “at the right time and the right price.” It also is not “core” to the company whose main businesses are regulated gas and power utilities centered on its New York base.

KeySpan took a “first step” at divesting the Canadian property it bought from Gulf Canada Resources in 1998 and 2000 for about $400 million (see NGI, Nov. 9, 1998 and Oct. 23, 2000) by setting up an income trust earlier this year. “We now have just 61%” of KeySpan Canada and “will eventually divest the rest of it at the right time and price.” The company processes about a Bcf/d.

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