Downgrades

San Diego-based Sempra Energy indicated Monday it was not surprised by a downgrade from Moody’s Investors Service for it and one of its two major utilities, San Diego Gas and Electric Co. Sempra pointed out that Moody’s maintained the “stable” outlook and an investment-grade level rating, and the company attributed the action to the general energy sector’s troubles, rather than weaknesses in its businesses or strategies.

Following similar action taken by Moody’s Investors Service earlier in the week, Standard & Poor’s Ratings Services (S&P) said Thursday it is lowering its corporate credit rating on Peoples Energy Corp. to “A-” from “A+” with a current outlook of stable. The agency noted that Chicago-based Peoples Energy has about $946 million in outstanding debt. In addition, S&P lowered the corporate credit rating on Peoples Energy’s Peoples Gas Light & Coke Co. subsidiary to “A-” from “AA-“.

Concerns about the amount of cash that Dynegy Inc. and its subsidiaries will be able to generate, and the continuing worries about the energy merchant’s ability to refinance debt obligations not due until next year, led Moody’s Investors Service to downgrade the Houston-based company’s credit ratings on Thursday. Those included in the latest cuts were parent corporation Dynegy Inc., Dynegy Holdings Inc., its primary operating subsidiary, and that of Illinois Power, its largest utility.

Credit Suisse First Boston (CSFB) released a revised three-tiered rating methodology last week to “provide greater clarity for investors.” In the process, analyst Curt Launer apparently downgraded several major energy companies including American Electric Power (to Underperform from Hold), CMS Energy (to Underperform from Hold), Dynegy (to Neutral from Strong Buy), National Fuel (to Underperform from Hold), Questar (to Underperform from Hold), Atmos Energy (to Underperform from Hold) and WGL Holdings (to Underperform from Hold).

Credit Suisse First Boston (CSFB) has released a revised three-tiered rating methodology to “provide greater clarity for investors.” In the process, analyst Curt Launer apparently has downgraded several major energy companies including American Electric Power (to Underperform from Hold), CMS Energy (to Underperform from Hold), Dynegy (to Neutral from Strong Buy), National Fuel (to Underperform from Hold), Questar (to Underperform from Hold), Atmos Energy (to Underperform from Hold) and WGL Holdings (to Underperform from Hold).

Energen Resources, the production unit of Energen Corp., detailed its extensive supply arrangements with Williams and Dynegy in response to downgrades by credit rating agencies of the two energy marketers last week. Energen said both companies are current in their monthly payments for a total of about 1.6 Bcf per month on gas and gas liquids production. Williams affiliates are under contract to purchase 0.8 Bcf per month of Energen Resources’ net natural gas production through October 2002 and an estimated 0.4 Bcfe of Energen’s gas liquids production through May 2004. Dynegy affiliates are under contract to purchase 0.4 Bcf per month of Energen’s gas production through March 2003. Outstanding invoices for June production, which are due and payable later this month, total $4 million for Williams and $1.5 million for Dynegy. Energen said it has had a long-standing relationship with Williams in the San Juan Basin and with Dynegy in the Black Warrior Basin and is currently delivering to both parties under existing sales contracts. Birmingham, AL-based Energen Corp. is a diversified energy holding company with natural gas distribution in central and north Alabama and oil and gas production onshore in North America.

Moody’s Investors Service on Thursday downgraded the debt of AES Corp., citing concerns about smaller future dividends from subsidiaries, weaker power prices and “deteriorating conditions” in international markets were the company holds substantial generation interests. The downgrade affects about $20 billion of debt securities, and Moody’s warned that AES will remain on review for another possible downgrade.

The current decline in market liquidity is an unfortunate but inevitable consequence of the energy trading and accounting scandals that have arisen since the fall of the house of Enron. Sources in all market areas report seeing a gradual shrinking of liquidity as their risk management officials put various counterparties off-limits due to questions about their creditworthiness or reputation.

Pioneer Natural Resources Co. will operate its first deepwater Gulf of Mexico project, after picking up an additional 30% working interest in the Falcon field development and acreage in the deepwater Gulf of Mexico for $55 million, it said Tuesday. The Dallas-based independent also signed an agreement to purchase the assets and remaining 23% of the rights it doesn’t already own in its core area West Panhandle Field in Texas. The company is in final negotiations on another agreement to acquire the related West Panhandle field gathering system for a total of $138 million. To fund the acquisitions, Pioneer will publicly offer and sell 10 million newly issued shares of its common stock.