Putting the finishing touches on a controversial asset sell-offplan, MCN Energy Group Inc. announced last week the sale of itsAppalachian natural gas exploration and production (E&P) andrelated pipeline properties for a total of about $180 million.

CONSOL Energy Inc., a Delaware-based holding company for coaland gas production operations, will pay $104.5 million for coalbedmethane properties representing 276 Bcf of proved, long-livedreserves and opportunities for lower-risk development drilling. Inaddition, CONSOL Energy will pay $64.5 million for MCN subsidiaryMCNIC CSG Pipeline Co., which owns a 50% interest in CardinalStates Gathering Co., a venture that provides gathering andcompression services for coalbed methane production in southwesternVirginia. The transactions are subject to Hart-Scott-Rodinoantitrust review.

“This acquisition is part of our strategy to strengthen CONSOLEnergy’s position as a low-cost provider of delivered Btu’s to ourcustomers,” said J. Brett Harvey, president and chief executiveofficer of CONSOL Energy Inc. “Energy is what the customer buys —whether it’s coal or gas.”

Equitable Resources Inc. completed the purchase of the balanceof MCN’s Appalachian package, representing 22 Bcf of provedreserves, for approximately $10 million.

MCN CEO Alfred R. Glancy III said proceeds from the sale will beused to repay debt and for general corporate purposes.

“The Appalachia package is the last of the three groups ofE&P properties we intend to sell, with our 500 Bcf of provedgas properties in Michigan remaining a core piece of our integratedregional strategy,” Glancy said. “CONSOL and Equitable previouslyowned and have historically operated these Appalachian properties,and therefore represented logical purchasers for the assets.”

The property sell-off was originally part of MCN’s plan to exitE&P entirely. This plan, announced in 1999, caused the company totake a $225 million second quarter charge on earnings. MCN’s westernand Midcontinent/Gulf assets were sold in April and May of that yearrespectively (see Daily GPI, May 21).

In August, however, the company changed its strategy, and saidit would hold on to its core E&P assets in Michigan. The movetriggered a wave of accounting changes on MCN’s books, resulting ina $86.2 million ($1.03/share) net loss for the second quarter andnegative financial results going forward. The Michigan assets,which contain 500 Bcf of reserves and produce 30 Bcf/year of AntrimShale gas, were to be sold along with the three other E&Ppackages that made up MCN’s entire exploration and productionbusiness (1.2 Tcf of reserves).

Despite the changes in E&P strategy, MCN was an attractiveM&A candidate for DTE Energy Co., which announced its intention topurchase MCN in a $4.6 billion deal last October (see Daily GPI, Oct. 16). Upon completion, the new DTE willhave approximately 11,500 employees, serving 2.1 million electriccustomers and 1.2 million natural gas customers in Michigan. It willhave an energy portfolio consisting of more than 11,000 MW ofgenerating capacity, 600 Bcf/year of natural gas deliveries and 185Bcf of natural gas storage capacity, with assets totaling more than$17 billion and annual revenues exceeding $6 billion.

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