Challenge

Integrated energy companies have continued to consolidate, but finding value for the shareholders remains a challenge for companies in North America and around the world. To find that value, said an investment banker in Houston this week, some of the super majors may consider spinning off their exploration and production (E&P) units to concentrate on pure exploration and pure production — basically unbundling the value that many of the smaller independents have found.

Integrated energy companies have continued to consolidate, but finding value for the shareholders remains a challenge for companies in North America and around the world. To find that value, said an investment banker in Houston this week, some of the super majors may consider spinning off their exploration and production (E&P) units to concentrate on pure exploration and pure production — basically unbundling the value that many of the smaller independents have found.

The nation’s largest municipal utility, the City of Los Angeles Department of Water and Power (LADWP), has the dual challenge this month of streamlining its natural gas-buying abilities to conform with a new city charter and also adapting to a new general manager following the departure of the high-profile S. David Freeman, who now heads up California’s new state power authority. Freeman’s plans to take interests in pipelines or production have been placed on the back-burner due to favorable transportation and commodity prices right now, a department source said.

In a move creating an entity that will challenge CMS EnergyCorp. for the title of Michigan’s largest gas and electric utility,DTE Energy Co. announced the purchase of MCN Energy Group yesterdayin a cash and stock transaction valued at $2.6 billion. Thecombined company will be headquartered in Detroit and named DTEEnergy Co. The merger is expected to be one of the speediest amongutilities, closing in six to nine months.

Canada’s National Energy Board has beaten off a challenge to “light-handed” pipeline regulation, rejecting an attempt by the British Columbia Ministry of Energy to assert provincial control and revive traditional cost-of-service regulation over even a minor branch of Westcoast Energy’s B.C. gas grid.

Apache Corp. and its partner Shell Overseas Holdings Ltd. expectto close on their acquisition of New Zealand-based FletcherChallenge Energy by the end of this month after winning theoverwhelming approval of Fletcher’s shareholders in a specialmeeting Tuesday. In the deal, Houston-based Apache will acquireFletcher’s Canadian and Argentina assets for about $630 million.

The winter peak in gas demand has a new rival: summer peakdemand. And many market observers are wondering if the two canco-exist. With rapidly increasing gas-fired generation, theindustry will be hard pressed to meet traditional loads whileserving what once was considered a low priority customer – thepower generators.

Apache Corp.’s definitive agreement to purchase FletcherChallenge Energy’s Canadian and Argentina assets has been in placesince last October, and a company spokesman said yesterday it wasstill a “done deal,” despite an announcement that a consortium madeup of Fletcher investors has made a counter offer to purchase theNew Zealand-based company.

Market access issues are becoming a major challenge fortransmission and distribution markets, which face unprecedentedgrowth and increased deliveries, and while it’s still unclear as towho will be willing to finance and construct the required newfacilities, a huge capital investment has to be made just to meetdemand, an industry analyst said last week.