Williams Cos. Inc. is continuing to divest itself of certain assets in an effort to shore up its balance sheet. Earlier this month, the Tulsa-based energy company announced a plan to resolve some of its liquidity problems (OGJ Online, Aug. 13, 2002).
Included in these transactions:
- A subsidiary of Russian firm OAO Yukos has signed an agreement to purchase Williams's 26.85% equity interest in Lithuanian oil refining and transportation company AB Mazeikiu Nafta for $85 million.
- Williams's general partner interest in Northern Border Partners LP (NBP) has been sold to a unit of TransCanada PipeLines Ltd., Calgary, for $12 million.
- Williams is considering the sale of its ownership interest in an olefins production plant in Geismar, La., and an associated ethylene pipeline system in Louisiana.
In other recent company news:
- Kansas City-based energy marketer and trader Aquila Inc. reported that it plans to exit the wholesale energy marketing and trading business, operated by its Aquila Merchant Services subsidiary, by the end of the third quarter.
- Petróleo Brasileiro SA (Petrobras) has signed a definitive agreement to acquire full control of Petrolera Santa Fé, the Argentine subsidiary of Oklahoma City-based Devon Energy Corp., for $89.5 million.
Yukos acquisition
Yukos's purchase of Mazeikiu Nafta also will include the transfer of management rights for the complex. The government of Lithuania, however, has retained the option to purchase one half of Williams's shares within 30 days of the agreement, Williams told OGJ. The Yukos deal, which is also subject to the preliminary approval of Russian antimonopoly authorities, is expected to close by the end of September.
Mazeikiu Nafta was founded in 1998 following the merger of Mazeikiu Oil Refinery, Butinge Oil Terminal, and Birzai Oil Pipeline. Williams became manager of the company in October 1999, with a 33% interest. Yukos purchased a 26.85% equity share in the company earlier this year, redistributing ownership: Williams held 26.85% and the government of Lithuania, a majority 40.66% interest (OGJ Online, Apr. 22, 2002).
Northern Border sale
NBP holds 70% interest in Northern Border Pipeline Co.-a 1,249 mile interstate system that transports natural gas from the Montana-Saskatchewan border to the US Midwest. The remaining interest is held by TC PipeLines LP. TC PipeLines's general partner is a wholly owned unit of TransCanada.
Williams's interests in its other natural gas pipelines are not involved in this sale, it said, although it is considering the sale of its Central Pipeline Corp.
As a result of this transaction, Trans- Canada said it would effectively hold 0.35% of the aggregate 2% general partnership interest in NBP, giving TransCanada entitlement to a 17.5% vote on NBP's partnership policy committee. The remaining interests in NBP's general partnership are held by Enron Corp., Houston.
Potential divestiture
Although the terms of a potential sale of its olefins plant and associated pipeline have not been defined, Will- iams said it "has received unsolicited expressions of interest." Williams holds 41.67% interest in and operates the facilities. BASF Corp. and GE Petrochemicals hold the remaining interests.
The plant has a production capacity of 1.35 billion lb/year of ethylene and is tied to many major natural gas liquids producers and olefin consumers in Louisiana by a 215 mile ethane transportation pipeline and an 85 mile ethylene line.
Phil Wright, president and CEO of Williams's energy services unit, said, "Our petrochemical segment has been a positive contributor to Williams's bottom line, even when other ethylene producers are struggling in current market conditions. We prefer to retain our ethane pipeline and storage system in Louisiana because it supports our deepwater Gulf Coast strategy, but we are willing to gauge the market value of our other olefins interests to see if we have a genuine opportunity to enhance our cash position."
Aquila leaves trading floor
Aquila joins the handful of US energy merchants in recent months-a list that includes Williams and El Paso Corp., Houston-that have taken steps to reduce their investment in and exposure to energy trading. So far, however, Aquila has been the only company to withdraw completely from the business of trading energy commodities. Both El Paso and Williams, meanwhile, have reported reductions to their trading staffs.
As a result of its intended restructuring plan, Aquila reported that the staff of its merchant services unit-about 500 in North America and Europe-would be "significantly reduced." Aquila noted that, across all of its merchant operations, about 550 jobs have been cut since May.
Following the shutdown of its energy trading business, Aquila said that Capacity Services, which manages the company's non-utility assets, "will only market energy from the assets the company owns or controls."
Also, Aquila said that, since June 17 it has "eliminated all market-making activity and speculative trading, commonly referred to as 'proprietary trading,'" which has resulted in a 90% reduction in physical throughput.
Aquila sought the services of New York City-based investment firm The Blackstone Group to assist in considering its exit options. "While we had explored the idea of securing a partner, we believe it is in the best interest of our shareholders to completely exit the wholesale energy marketing and trading business," said Robert K. Green, Aquila president and CEO. "Our focus now is to ensure a coordinated and seamless exit."
As part of its exit plan, Aquila inked an agreement with Citadel Investment Group of Chicago "to provide potential career opportunitiesellipsefor those Aquila employees directly impacted."
Liquidity position
Aquila affirmed Aug. 16 that its current liquidity position of $754 million has not changed. "Our liquidity position as of (Aug. 16) is comprised of $492 million in domestic cash, $80 million in highly liquid commodity inventory, and $182 million of availability on a $650 million revolving line of credit (50% of which expires in April 2003 and the other 50%, in 2005)," the company said.
On Aug. 14, the company converted $400 million of its revolving credit facility to cash, Aquila stated. "We routinely draw and replenish our working capital facility in the normal course of managing the cash needs of our company. The use of proceeds for the draw is to replenish our cash balance from $92 millionellipseto a normalized level of $250 million, to repay scheduled debt maturities coming due later in the year, and for general corporate purposes," it said.
The company added that it expects that a portion of the draw will be repaid following the closure of the sale of certain assets in its $1 billion asset sale program, previously announced.
Petrobras-Devon unit deal
The Brazilian state oil giant earlier this year disclosed its intent to acquire the Argentine firm (OGJ Online, June 17, 2002).
Petrobras Pres. Francisco Gros said this purchase, coming on the heels of his company's announcement that it plans to acquire a controlling interest in Argentina's Perez Companc SA for $1.8 billion (OGJ Online, July 24, 2002), is "part of Petrobras's international expansion strategy."
He said the acquisition should be completed in the fourth quarter, following approvals by the Argentine regulatory authorities.
During 2001, Petrolera Santa Fé produced 6,040 b/d of oil and 22.5 MMcfd of gas from its Sierra Chata, Refugio Tupungato, Atamisqui, and El Tordillo fields in Argentina. In addition, Petrolera Santa Fé operates the concession containing El Mangrullo field, yet to enter into production.
Based on SPE criteria, Petrobras calculated Petrolera Santa Fé's proven reserves as of Dec. 31, 2001, at 84.7 million boe.
Strategic move
With this acquisition, Petrobras increases its portfolio of upstream investments by incorporating Petrolera Santa Fé's assets with its current production assets in the Argentine province of Salta and its exploration assets in the Neuquen basin. The transaction generates synergies and balances Petrobras's portfolio in Argentina, which is currently concentrated in refining and marketing.
Gros concluded, "Besides being a good deal for our stockholders, this acquisition is a further demonstration of Petrobras's confidence in the medium and long-term perspectives of Argentina and is a contribution to the integration process of the commercial and energy sectors in the Southern Cone of Latin America."
According to Jorge Camaso, president of Braspetro, Petrobras' international arm, the international expansion of the company continues with renewed negotiations with Venezuela's state-owned Petroleos de Venezuela SA.
Braspetro recently signed a memorandum of understanding covering Petrobras's proposed participation in upstream operations in Venezuela and PDVSA's in downstream operations in Brazil. Camargo is hopeful that with changes in PDVSA's administration, "the negotiations that were at a stand still may now start again."
Criticism of deal
Some analysts criticized Petrobras's decision to purchase Petrolera Santa Fé because of the monumental financial woes Argentina is going through. Brazil itself has just been granted a $30 billion bailout loan from the International Monetary Fund.
In recent weeks, Brazil's real has been plummeting against the US dollar. In addition, inflation, which had been dramatically reduced by severe austerity measures under the administration of President Fernando Henrique Cardoso, is making a comeback because so many products are quoted in dollars.
For example, Brazil's oil products prices are tied by a "trigger mechanism" to the changes in international oil prices. This has become an issue in the upcoming Oct. 6 presidential election because candidates, including the government's promarket candidate, Sen. Jose Serra, argue that because Brazil produces 80% of its oil needs, this mechanism should be scrapped (OGJ Online, July 31, 2002).
