NGI The Weekly Gas Market Report
PG&E Corp. is exploring the possibility of selling itsTexas-based natural gas pipeline, processing and liquids assets,according to an 8-K form filed at the Securities and ExchangeCommission yesterday.
The move came as no surprise as corporate officials have hintedover the past months that they were in the market to talk to buyersinterested in the PG&E Gas Transmission-Texas operations, whichhave been a drain on company-wide earnings for the past couple ofyears.
PG&E has hired Lehman Brothers as a financial advisor tohelp investigate whether “we should sell all or part of ourTexas-based pipeline business or come up with some other strategicbusiness combination,” said Sandra McDonough, a spokeswoman for thecompany.
Its Lone Star state operations include 8,000 miles of naturalgas pipelines with more than 3.5 Bcf/d of throughput, natural gasliquids production capacity in excess of 100,000 b/d from nineplants and a 500-mile NGL pipeline network. PG&E Transmissionpurchased the Texas assets from Valero Natural Gas and TecoPipeline in 1996-97.
PG&E indicated it would suffer a loss if it sells thepipeline and liquids assets for anything less than their book valueof $2.5 billion.
The corporation’s goal is to achieve 30% of its earnings fromits natural energy businesses by 2002, but the Texasoperations-based on their current performance-aren’t expected toreach that level. “The Texas business is just not at this pointproviding the return that we are looking for,” McDonough told NGI.
Low basis differentials in the gas market between Waha in WestTexas and Katy and the Houston Ship Channel in East Texas, alongwith poor liquids prices in past years, have combined to hinderprofitability for PG&E Gas Transmission’s Texas operations.
For the third quarter ended Sept. 30, the Texas gas operationsposted a loss of negative 2 cents/share, which was actually animprovement over negative 6 cents/share recorded for the sameperiod last year. In contrast, PG&E’s gas pipeline network inthe Pacific Northwest is a “very good business,” reporting earningsof 5 cents/share in the third quarter.
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