The bankrupt Enron Corp., Houston, has started the process of shedding assets with UBS Warburg buying its wholesale trading business and BG Group PLC announcing plans to buy all of Enron Oil & Gas India Ltd. (EOGIL).
In an auction, UBS Warburg won the right to restart the trading business for no money upfront provided that it pay Enron creditors a royalty as a percentage of the profits each year for 3 years. UBS Warburg also has the right to buy out a share of Enron's royalty each year for 3 years.
The federal bankruptcy judge presiding over the Enron reorganization approved the wholesale trading business sale to UBS Warburg on Jan. 18. The deal remains subject to approval under federal antitrust laws and by the Federal Regulatory Energy Commission.
"This is a unique opportunity for UBS Warburg, as this technology-based trading business leverages the firm's worldwide strengths of trading, market-making and risk management," UBS Warburg CEO John P. Costas said in a statement.
Costas emphasized the revived trading organization will assume none of Enron's past current or future liabilities or trading positions. Wire services reported that UBS Warburg, an investment banking unit of Swiss bank UBS AG, would drop the name Enron when it names the trading business.
Enron unexpectedly collapsed after investors lost confidence in the former Houston energy trading giant because of incorrect earnings statements and billions of dollars worth of debt not revealed on the balance sheet. It filed for protection against creditors in a New York federal court Dec. 2, 2001.
The company has since become the subject of a growing number of federal and state investigations and numerous shareholder and employee lawsuits.
BG
BG unveiled a revised agreement Jan. 23 to buy all of EOGIL for a reduced price of $350 million.
Last fall, BG said that it would pay $388 million for EOGIL. However, executives said progress to close the transaction was slower than anticipated and further complicated by Enron's recent filing for Chapter 11 bankruptcy protection. As a result, the original sale agreement expired in December and was renegotiated to take account of Enron's current position.
A committee of Enron creditors reviewed the revised agreement, which remains subject to numerous conditions, including bankruptcy court approval. Enron is expected to file a motion seeking court approval. Completion of the transaction was expected by mid-February
Frank Chapman, BG CEO, said, "This revised agreement secures strong producing fields at a price that is attractive to both BG Group's shareholders and Enron's creditors. These assets are important to the group's long-term strategy for India and will enable us to build a material gas position in the country."
Group officials are discussing operation of the assets with joint venture partners. In its original bid, BG insisted on becoming operator. But two of the partners, Oil & Natural Gas Corp. Ltd. and Reliance Industries Ltd., also expressed interest in taking over the operatorship.
Financial analysts suggest that BG will extract only the best financial results from the deal if it is allowed operatorship.
However, Pravin Tandon, a spokesman for BG Group India, said, "The situation required us to move quickly on renegotiating the agreement. We thought it wasn't appropriate for operatorship to be attached as a condition under the circumstances."'
The assets owned by EOGIL are 30% interests in the Tapti gas field and the Panna-Mukta oil and gas field and a 62.64% in the CB-OS/1 exploration license. All are off the west coast of India and are operated by EOGIL
Partners in the Tapti and Panna-Mukta offshore operations are ONGC, which holds 40%; and Reliance, 30%.
Partners in the CB-OS/1 license are Hindustan Oil Exploration Co., 17.36%; Tata Petrodyne, 10%; and ONGC, 10%.
Other than the lower price and no longer being conditional on partner consent for EOGIL to continue as operator, the renegotiated agreement doesn't differ significantly from the October original.
India's imports of natural gas are expected to increase fivefold over the next decade to 7.7 bcfd after demand grew by 20% during the 1990s. India has proven gas reserves of 22.8 tcf, 15% less than the UK for a population 17 times its size.
BG's other assets in India include a 65% interest in Gujarat Gas Co., which supplies about 41 MMcfd in the western state of Gujarat. It also has a 50% interest in Mahanagar Gas Ltd., which operates a gas distribution network in Mumbai, India's commercial capital. BG plans to build a $400 million complex in Gujarat to import as much as 5 million tonnes a year of LNG.
