NiSource Inc. on Thursday reached an agreement to sell its exploration and production (E&P) subsidiary to Triana Energy Holdings Inc., an affiliate of Morgan Stanley Capital Partners. The sale, consisting primarily of subsidiary Columbia Natural Resources (CNR) and its 1.1 Tcf of natural gas reserves, effectively ends NiSource’s involvement in non-regulated businesses, the CEO said.

Triana, an E&P based in Charleston, WV, agreed to purchase all the stock of Columbia Energy Resources Inc. (CER) for $330 million in cash. Triana also agreed to deliver the approximately 94 Bcf remaining under forward sales contracts through 2006. The sale is expected to be completed in the third quarter of 2003.

Together with a previous sale of some other E&P properties in New York, the Merrillville, IN-based NiSource will have sold its entire E&P business for approximately $425 million in cash, plus the assumption of the gas delivery obligations remaining under forward sales contracts. NiSource said the E&P business will be accounted for as discontinued operations at the end of the second quarter. The company sold its interest in its natural gas E&P joint venture in New York state for $95 million to an undisclosed buyer earlier this year (see Daily GPI, Jan. 29).

W. Henry Harmon, Triana chairman and CEO, was formerly president of CNR, and Richard W. Beardsley, Triana vice president, Geo-Sciences and Shawn E. Casey, Triana vice president, Land, were formerly vice presidents of CNR. The newly created firm says the team “is largely responsible for the re-definition of the Appalachian Basin,” which the company believes holds the promise of substantial new oil and gas production.

It points to recent discoveries in southern New York and Northern Pennsylvania that target limestones and dolomites of the Black River and Trenton groups. “Triana’s geo-science team is recognized as an industry leader in deep exploration throughout the Appalachian Basin. Examples of deeper gas plays developed by the Triana team are: the Rose Run Formation (Ohio), the Trenton-Black River Formation (New York and West Virginia), and the Oriskany Formation (Eastern Overthrust Region of West Virginia).

The sale to Triana will result in approximately $220 million in after-tax cash proceeds, which NiSource plans to use to pay down its debt. An after-tax book loss of approximately $335 million on the sale will be recognized by NiSource, largely reflecting the taxes incurred from the sale and the difference between the current carrying value of CER stock and the purchase price. NiSource acquired CNR as part of its hostile takeover of the Columbia Energy Group in November, 2000, paying in a transaction valued at $6.1 billion (see Daily GPI, June 2, 2000). NiSource retains ownership of Columbia pipeline and distribution company assets.

“Today’s agreement completes our plan to divest our E&P assets and is consistent with NiSource’s strategy to focus on our core, regulated assets,” said CEO Gary L. Neale. CNR, he said, had been an “important contributor to NiSource.” The company now will concentrate on its core operating companies, which engage in natural gas transmission, storage and distribution, as well as generation.

“In Triana and Morgan Stanley Capital Partners, we have found a well-capitalized buyer experienced in the Appalachian basin,” Neale added. “We believe that including today’s sale, the New York state transaction and applying current market value to the 94 Bcf of gas to be delivered against the remaining forward sales obligations, we have obtained the equivalent of approximately 85 cents/Mcf for our Appalachian E&P assets.”

Neale said that when the sale is complete, “NiSource will have exited most of our non-regulated businesses. Virtually all of our operating income will be derived from our core, regulated assets. This is consistent with our business strategy and our goals to reduce our corporate risk profile and strengthen our balance sheet.”

Since December 2001, Neale noted that NiSource has paid down $1.6 billion in debt using cash from operations, proceeds from the sale of non-strategic assets and issuing common stock. Credit Suisse First Boston represented NiSource in the transaction, and Dresdner Kleinwort Wasserstein provided an independent fairness opinion.

©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.