US energy merchants-struggling to gain the capital they need to reduce debt and shore up their battered balance sheets-are divesting themselves of some of their key assets in recent weeks.
Some of the more recent transactions include:
- MidAmerican Energy Holdings Co. reached a definitive agreement with Houston's Dynegy Inc. to acquire Omaha, Neb.-based Northern Natural Gas Co. (NNG) for $928 million and $950 million in assumed debt.
- Dearborn, Mich.-based CMS Energy Corp. signed a definitive agreement to sell its oil and gas exploration and production unit, CMS Oil & Gas Co., to privately held French E&P firm Perenco SA and its affiliated companies for $232 million.
- Williams Cos. Inc. said it is considering selling its natural gas processing and liquids extraction operations in Western Canada. Separately, Williams has reached an agreement with California and other western states that will likely result in a new long-term energy contract between Williams and California.
MidAmerican to buy NNG
The sale of the 16,600 mile NNG interstate pipeline is expected to close next month. NNG also has three natural gas storage facilities with total capacity of 59 bcf and two LNG peaking units.
"We are extremely pleased to be acquiring Northern Natural Gas," said David L. Sokol, MidAmerican chairman and CEO."
The purchase of the NNG system follows close on the heels of Des Moines-based MidAmerican's $960 million purchase of Kern River Gas Transmission Co. last March (OGJ Online, Mar. 8, 2002). Sokol called the purchase of NNG "another step forward in (MidAmerican's) strategy of making sound investments in the US energy infrastructure." The NNG system transports 4.3 bcfd of natural gas from the Permian basin in Texas to the Upper Midwest, where it serves 70 utility companies and other industrial customers with transportation and storage services.
"Northern Natural Gas is a well-managed company with excellent assets," said Greg Abel, president of Mid- American.
Shortly following MidAmerican's announcement, Standard & Poor's Ratings Services placed NNG's B+ ratings on credit watch with positive implications. Prior to the announcement, NNG had been on credit watch with negative implications. S&P credit analyst John Kennedy said that he expected NNG's ratings would be "in line with the higher credit ratings of MidAmerican Energy, on successful completion of the transaction."
Kennedy added, "The above-average business profile on Northern Natural reflects the moderate amount of direct pipeline competition that the company faces in its service area. The Upper Midwest is a particularly cold region that uses a lot of natural gas, and Northern Natural's customers (mainly gas utilities and municipalities) have few options."
Also following the announcement, in a separately released research note, Kennedy said that the sale of NNG would have "no immediate effect" on Dynegy's credit quality.
"The sale… helps to relieve some near-term liquidity issues," Kennedy said, "since it provides a source of cash and relieves $450 million in maturities coming due in November 2002."
The sale does raise some concerns, however, about the repayment of a $1.5 billion obligation to ChevronTexaco Corp., which is a major stockholder in the ailing Dynegy (OGJ, July 1, 2002, p. 30). Dynegy borrowed the money to purchase NNG from Enron Corp. in late 2001.
"S&P's analysis determines that Dynegy will be challenged to preserve an adequate liquidity position to meet its obligations over the next 18 months," Kennedy said.
CMS Energy divestment
CMS's sale of its E&P unit excludes its Colombian assets, which the company is currently negotiating to sell to another, unnamed company.
CMS expects the sale of both sets of assets to close in the third quarter.
With this sale, CMS joins the ranks of other energy merchant companies in recent months that have been selling assets to lighten their debt loads amid investigations into so-called "round-trip" electricity trades. Earlier this year, CMS was asked by the US Federal Energy Regulatory Commission to come forward with information about the round-trip trades, particularly those sold into California (OGJ Online, May 29, 2002).
Most recently, CMS sold its upstream and downstream interests in Equatorial Guinea to Houston-based Marathon Oil Co. for $993 million (OGJ, Nov. 12, 2001, p. 40), but this sale occurred before the investigations began.
Williams mulls over asset sale
The Tulsa-based energy company, now faced with concerns over financing issues and investment downgrades, has been selling assets to strengthen its balance sheet for the last few months.
The company said it would focus its midstream business on assets in Wyoming, the San Juan basin, and the deepwater Gulf of Mexico.
The potential sale's terms are unknown, Williams said, although the company has "received unsolicited expressions of interest" in the assets. "In light of our balance-sheet strengthening plan, we believe we must consider selling them to parties for whom they may be a better strategic fit," said Phil Wright, president and CEO of Williams's energy services unit.
Williams acquired the assets in Western Canada from TransCanada PipeLines Ltd. last year, essentially marking the company's first significant entry into Canada (OGJ Online, Aug. 3, 2000). The assets comprise a total of about 6 bcfd of gas processing capacity, about 225,000 b/d of natural gas liquids production capacity, an NGL pipeline system, and more than 5 million bbl of NGL storage capacity, Williams said.
"While the growth prospects for the Western Canadian basin have proven even better than our original perspective 2 years ago," Wright said, "our midstream interests in the US are more integrated and more complementary to other Williams assets."
Earlier this month, Williams signed a letter of intent to sell its Kansas Hugoton natural gas gathering system to FrontStreet Hugoton LLC, a unit of FrontStreet Partners LLC, Darien, Conn., for $100 million (OGJ Online, July 9, 2002). Earlier this summer, Williams said it will offer for sale its refineries at Memphis and in Alaska and their related assets in a move that would effectively divest the company of all of its US refining capacity (OGJ Online, June 24, 2002).
Williams's agreement
The agreement between Williams and California "resolves all of California's outstanding litigation and claims against Williams, including the state's claims for refunds that are at issue at the (US) Federal Energy Regulatory Commission," Williams said.
As with CMS,Williams was called by FERC earlier this year to defend its electric power trading practices and to provide information about round-trip electricity trades.
During the next few weeks, several state agencies will be involved in the settlement discussions, including the California Dept. of Water Resources; the California attorney general, which will represent itself and Oregon, Washington, and California municipalities that have brought action against Williams; the California Public Utilities Commission; and the Electricity Oversight Board.
Williams said it would work with California to present the terms of the settlement to FERC Judge Curtis Wagner at a settlement conference scheduled for Aug. 5-6.
"The new long-term contracts will ensure that California consumers will have power under more flexible terms and Williams will continue to benefit from long-term power sales in the California market," said Steve Malcolm, chairman, president, and CEO of Williams.
