NGI The Weekly Gas Market Report

In announcing a $891 million net loss in 1997 ($17.14 pershare), Pioneer Natural Resources said it plans to sell off 95% ofits domestic fields in 1998 to “unlock the value” contained in itslong-lived reserve base and acreage position. The fields represent10-12% of its total reserve base and the sale is estimated to bringin $375-$550 million. About 95% of its domestic fields generateonly 15% of the company’s total cash flow, said CEO ScottSheffield. “Most of Pioneer’s domestic value is attributable toabout 25 of the company’s 450 fields. The purpose of this programis to shed non-strategic properties, redeploying the proceeds intohigher return assets. Exact timing of the sales will depend onmarket conditions.” The vast majority of these fields were acquiredby Parker and Parsley prior to 1995.

In one of the largest transactions of its kind to date, EnronCapital and Trade Resources Corp. (ECT) last week agreed to managethe natural gas supply, storage and interstate pipeline capacity ofBrooklyn Union Gas for one year with an obligation to produce over$10 million in savings and profits for the New York utility’sshareholders and its ratepayers. Anything above that, ECT is freeto keep.

Any hopes the Federal Energy Regulatory Commissioners may havehad they could finally bury the controversy over the agency’soffshore jurisdiction were dashed by the Fifth Circuit Court ofAppeals earlier this month.The court, without discussion, refusedthe Commission’s rehearing petition in Sea Robin Pipeline v. FERC(96-60536), letting stand the court’s decision vacating andremanding the case.

Those who are touting natural gas as the nationwide cure-all forevery energy and environmental problem that ails us had better takea long, hard look at the status at the Gulf of Mexico, the largestU.S. producing basin.

A Mexican pipeline subsidiary of Tejas Gas is squaring offagainst a pipeline company owned by Nova Corp. and NGC Corp. Bothfirms have competing gas pipeline projects designed to bring about90 MMcf/d of gas nearly 80 miles to the Toluca metropolitan area,50 miles west of Mexico City, from a point of origination inQueretaro, north of Mexico city.

Western region gas traders have caused a growth spurt over thepast couple of weeks in the Kansas City Board of Trade’s WesternNatural Gas Futures Contract. The contract has developed a habit ofbreaking open interest records every few days. Open interest jumpedby more than 1,000 contracts from Wednesday to Thursday last week.Such moves at the little Midcontinent exchange may seem small whencompared to other exchanges but they have raised some eyebrows inthe gas marketplace.

The way FERC figures pass-through of costs in oil pipeline ratecases could hamper future use of converted lines, according toCommissioner Vicky A. Bailey, who issued dissenting opinions in twooil pipeline cases involving Rio Grande and Longhorn PartnersPipelines [OR97-1-001 and OR95-7]. In both cases the Commissionruled that the companies would not be allowed to pass through thefull purchase price of the pipelines, only the depreciated originalcost of the line. “In an area where Congress has asked us toexercise regulatory restraint we turn around and apply textbookprinciples in a manner that may discourage future conversions ofoil pipelines to new uses,” Bailey said. The orders examine thecorporate relationships between the companies to arrive at theconclusion that the companies are selling assets to themselves. ButBailey believes arguments about corporate ties in these cases don’tapply. She was joined by Commissioner Curt Hebert.

Gordon Shearer, a veteran LNG proponent, has waited a long timefor his ship to come in – literally. Shearer, president of CabotLNG Corp., already has brought his share of the liquefied productinto Cabot’s Massachusetts terminal over the years, but in volumesthat barely rate mentioning in the overall supply picture. That’sabout to change, at least in New England, where Cabot finds itselfpositioned to meet growing market demand with LNG imported fromthousands of miles away.

Season Deemed a Success