Heavy

Oil and gas producers, particularly independents, are paying a heavy price in a bonding market that has grown increasingly tight in the wake of the Sept. 11 terrorist attacks and the bankruptcies of Enron Corp. and K-Mart, six major producer groups told the Interior Department Monday. They called on the agency to ease up on some of its bonding requirements for producers in light of market conditions.

Second quarter physical gas sales volumes showed large cracks beginning to form in the foundation of the energy merchant business. The credit and liquidity crisis was growing rapidly during the quarter and the effects of the regulatory investigation into round-trip trading had taken hold. While there still were large volume increases compared to the previous year’s second quarter (a 38 Bcf/d increase for the top 20), an estimated 10.7 Bcf/d decline in volumes appeared compared to the first quarter of this year. All signs currently point to much greater declines as the year progresses.

Williams put together a mega-deal last week that will not only pay the bills, but ensure its liquidity through this year and into the next, finalizing several cash and credit transactions that total about $3.4 billion. New credit agreements were secured giving Williams about $2 billion, but to make those deals, Williams sold or guaranteed some of its solid income-producing assets — interests in two pipeline companies, Seminole and Mid-American, for $1.2 billion; natural gas properties in Wyoming for $350 million; gas properties in the Anadarko Basin for $37.5 million; and the Cove Point liquefied natural gas (LNG) facility for $217 million. Williams also backed a secured credit agreement, which was put together by Warren Buffett’s Berkshire Hathaway Inc., with “substantially all” of the assets of subsidiary Barrett Resources.

With almost $800 million in debt payments due and its cash nearly depleted, Williams put together a mega-deal that will not only pay the bills, but ensure its liquidity through several cash and credit transactions totaling about $3.4 billion. New credit agreements were secured giving Williams about $2 billion, but to make those deals, Williams sold or guaranteed some of its solid income-producing assets — interests in two pipeline companies, Seminole and Mid-American, for $1.2 billion; natural gas properties in Wyoming for $350 million; gas properties in the Anadarko Basin for $37.5 million; and the Cove Point liquefied natural gas (LNG) facility for $217 million. Williams also backed a secured credit agreement, which was put together by Warren Buffett’s Berkshire Hathaway Inc., with “substantially all” of the assets of subsidiary Barrett Resources.

Amid a heavy round of market-on-close commercial selling, natural gas futures dropped perilously close to new 34-month prompt-month lows yesterday as traders — armed with the knowledge that temperatures are well-above normal across much of the East — gained confidence that there would not be a short-covering rally until after the February contract goes off the board Tuesday. With that, February completed its penultimate trading session at $1.908, down 12.9 cents for the session.

Lawyers for Samson Investment Co., a Tulsa-based natural gas-heavy energy company, filed a lawsuit against auditor Arthur Andersen LLP this week in what is predicted to be the first of many such lawsuits accusing the Big 5 accountant of complicity in Enron Corp.’s ultimate bankruptcy. Samson claims Andersen “recklessly disregarded evidence of questionable financial transactions between Enron and its insiders.” The lawsuit, seeking unspecified damages, requests class-action status on behalf of more than 100 unnamed companies.

Although the agenda for Wednesday’s FERC meeting — the last one of 2001 — is top-heavy with electricity, there are several key natural gas items slated for action, ranging from stepped-up reporting of derivatives and hedging activities to the El Paso Natural Gas complaint investigation, to two embattled gas pipeline projects that have been pending at the Commission since the Hoecker administration.

Although the agenda for Wednesday’s FERC meeting — the last one of 2001 — is top-heavy in electricity, there are several key natural gas items slated for action, ranging from stepped-up reporting of derivatives and hedging activities to the El Paso Natural Gas complaint investigation, to two embattled gas pipeline projects that have been pending at the Commission for years.

In tandem with heavy losses in the nearby crude oil and related products markets, natural gas futures shifted lower Wednesday as traders weighed the impact that fuel switching could have on prices this winter. The latest storage report from the American Gas Association (a 7 Bcf injection) rocked prices first lower and then higher, before the December contract finished the session back in the middle of the its daily trading range, down 4.4% at $2.676. December crude oil futures finished with an 8.6% loss at $19.80, its lowest close on a spot month basis since July 1999.