KeySpan Corp. and Houston Exploration Co. announced Friday that Keyspan is reducing its ownership interest in the Houston-based E&P company in its continuing effort to monetize its non-core assets.

The companies said the anticipated stock repurchase of three million shares by Houston Exploration — an independent energy company engaged in the exploration, development, exploitation and acquisition of domestic natural gas and oil properties — will be funded from the proceeds of a stock offering by Houston Exploration and will reduce KeySpan’s current ownership in the company from approximately 66% to about 56%. Brooklyn-based KeySpan said it expects proceeds of approximately $79 million. If the over-allotment option of 300,000 shares is exercised, KeySpan’s ownership will be reduced to approximately 55%.

“This transaction demonstrates our ongoing commitment to monetize our non-core assets and focus on growing our core businesses,” said Robert B. Catell, CEO of KeySpan. “KeySpan intends to use the proceeds from this transaction to pay down debt and further strengthen our balance sheet. We believe this transaction will enhance the value of Houston Exploration by broadening its shareholder base, resulting in increased liquidity. We continue to evaluate our non-core investments and will monetize them in a manner that maximizes value to our investors.”

In conjunction with KeySpan’s announcement, Houston Exploration said it is offering three million shares under its shelf registration statement filed with the Securities and Exchange Commission in May 1999. JP Morgan will be the sole underwriter for the offering and was granted an option to purchase an additional 300,000 shares of common stock to cover over-allotments, if any.

Houston Exploration said it intends to use the entire net proceeds from the offering to repurchase, concurrently with the closing of the offering, three million shares (plus any over-allotment) of common stock currently held by KeySpan. The company added that shares repurchased will be canceled immediately upon repurchase and there will be no dilution to earnings or cash flow per share. Houston Exploration added that public float of its common stock will increase by approximately 31%.

Soon after the announcement, Standard & Poor’s Ratings Services said the transaction would not have an effect on either of the companies’ credit qualities.

KeySpan said it is committed to growing its core gas and electric businesses primarily through natural gas conversions, new electric generation and cost containment programs. The company also reaffirmed its 2003 earnings guidance of $2.45 to $2.60 per share. In addition, KeySpan reaffirmed its commitment to maintaining the dividend at its current annual rate of $1.78 per share.

©Copyright 2003 Intelligence Press Inc. All rights reserved. The preceding news report may not be republished or redistributed, in whole or in part, in any form, without prior written consent of Intelligence Press, Inc.