Company News: EnCana to sell Express, Cold Lake pipelines to two buyers

Dec. 2, 2002
Two buyers have signed separate agreements to purchase EnCana Corp.'s interests in the Express and Cold Lake pipeline systems for $1.6 billion (Can.).

Two buyers have signed separate agreements to purchase EnCana Corp.'s interests in the Express and Cold Lake pipeline systems for $1.6 billion (Can.).

EnCana's board late last month approved the two transactions, part of EnCana's bid to refocus its operations on oil and gas exploration and production and selected midstream opportunities. That bid entails disposition of noncore assets that EnCana reckons will raise more than $2.1 billion this year.

EnCana was formed in April from the $27 billion merger of Calgary firms Alberta Energy Co. Ltd. and PanCanadian Energy Corp. The merger was announced in January (OGJ Online, Jan. 28, 2002).

In other recently reported company news:

Centrica PLC, through a wholly owned subsidiary, has acquired Dynegy Storage Ltd. (DSL) and Dynegy Onshore Processing UK Ltd. (DOPUL), subsidiaries of Houston-based Dynegy Inc., for $500 million, or a net cash consideration of £304 million plus £11.8 million in net working capital consisting of £15.9 million in cash and net liabilities of £4.1 million.

BP Solar, the Linthicum, MD-based solar electric unit of BP PLC, reported that it would launch a branded sales and marketing initiative within the next few months designed to connect homeowners with solar electric systems. BP Solar said it intends to roll out its marketing program "in California in January and duplicate it elsewhere around the world."

Express deal

A consortium of BC Gas Inc., Vancouver; Borealis Infrastructure Management Inc.; and Ontario Teachers' Pension Plan agreed to buy EnCana's 100% stake in the Express pipeline system for $1.175 billion, including the assumption of $582 million in debt. Each buyer holds a one-third interest in the consortium.

The 1,717 mile Express system, consisting of the Express and Platte pipe- lines, transports Canadian crude oil from Hardisty, Alta., via Casper, Wyo., to Wood River, Ill.

The 24-in., 785 mile Hardisty-Cas- per line delivers as much as 172,000 b/d of oil to Montana, Wyoming, and Utah.

The 20-in., 932 mile Platte system can transport 150,000 b/d of oil from Casper to Wood River, serving refineries in Colorado, Kansas, and Illinois.

The Hardisty-Casper line is expandable to a capacity of 280,000 b/d with a "comparatively modest" investment in pump stations, BC Gas said.

BC Gas is British Columbia's main gas utility and also holds interests in gas storage and oil pipeline facilities. Borealis Infrastructure manages infrastructure investments on behalf of the Ontario Municipal Employees Retirement System. The Ontario Teachers' Pension Plan, with assets of $68 billion, invests on behalf of Ontario's 300,000 teachers.

Cold Lake deal

Calgary-based Inter Pipeline Fund, formerly Koch Pipelines Canada LP, agreed to acquire EnCana's 70% interest in the Cold Lake system for $425 million. Koch Pipelines Canada is a subsidiary of the Canadian unit of Koch Industries Inc., Wichita.

The Koch Canadian pipeline unit owns and operates four Canadian pipeline systems: the Bow River, Koch Alberta, and Koch Valley pipelines in Alberta and the Mid-Saskatchewan system in Saskatchewan.

Two pipelines comprise EnCana's Cold Lake system: the 145 mile, 235,000 b/d west leg from Cold Lake to Edmonton, Alta., and the 260 mile, 200,000 b/d leg from Cold Lake to Hardisty. The Cold Lake area is a major source of synthetic crude oil production derived from Canada's massive oil sands resource.

To ensure market access, EnCana has retained oil transportation capacity through its existing long-term contracts on the pipelines it's selling. EnCana said the purchasers expect to retain "the vast majority" of the 150 employees of the two systems.

Both transactions are subject to regulatory approvals and are expected to be finalized in January 2003.

Strategy

EnCana said that the oil pipeline sales constituted another step in the strategic realignment of the company to focus on its "highest-growth, highest-return core assets, which the company believes are capable of achieving a minimum 10% forecast compound annual per share sales growth for several years to come." The pipeline interests are held through its AEC subsidiary.

At the time of the merger, the combined companies had projected an asset disposition target for 2002 of only $1 billion, less than half of what it now expects to realize.

Most recently, Calgary-based AltaGas Services Inc. agreed to acquire EnCana's interests in two natural gas pipelines in Suffield, Alta., and nine natural gas gathering and processing systems comprising the Wabasca system in northeastern Alberta for $115 million (OGJ Online, Nov. 5, 2002).

Centrica to buy Dynegy assets

DSL and DOPUL own Rough field—a partially depleted natural gas storage field in the North Sea—along with its associated pipeline and a natural gas processing terminal on the East Yorkshire coast at Easington. The Rough asset is the largest gas storage facility in the UK, with a holding capacity of 100 bcf of stored gas and a deliverability rate of 1.5 bcfd. It is used by about half of UK natural gas shippers. The Easington terminal processes natural gas from Rough and from third parties for delivery into the UK natural gas transportation network.

"The acquisition of this asset is of strategic importance to Centrica, providing us with flexibility to meet the fluctuating gas requirements of our retail customers," said Centrica CEO Roy Gardner. "We also see potential for value creation through improved management of the commercial and operational arrangements of the facility for our storage customers."

The majority of storage will continue to be sold to other gas market participants, Centrica said. As the UK-produced gas supply diminishes and the country becomes more reliant on imported gas, Rough will provide users with seasonal storage capacity so that summer produced gas can be used to meet peak winter demand, the company said.

Dynegy also is pleased with the sale. "The storage business sale is yet another significant accomplishment in our capital plan, which continues to improve our liquidity and enable us to focus on our core businesses going forward, " said Bruce Williamson, Dynegy president and CEO. "When combined with the steps we are taking to restructure the organization and address the company's financial obligations, we are continuing to build momentum for the new Dynegy and drive the company forward."

Dynegy Europe Ltd. now consists of energy marketing and trading. The company's previously announced restructuring initiative will involve an exit from this business in the US, Europe, and Canada over the next 3-6 months. Mike Flinn, current president of Dynegy Europe, will manage the exit in Europe, which is expected to reduce the company's collateral requirements and overall corporate expenses, the company said.

BP Solar rethinks strategy

The launch of BP Solar's initiative comes on the heels of the company's decision to cease manufacturing thin film solar modules and to double its current crystalline capacity in 2004.

"BP Solar is positioning itself to continue sales growth of roughly 30%/year," said Harry Shimp, BP Solar president and CEO. "That means focusing our resources on those markets and technologies that offer the best probability of success. Crystalline production capacity represents more than 85% of BP Solar's global manufacturing operations, and recent technical and manufacturing cost improvements bode well for its future."

The BP unit, which has crystalline plants in the US, Spain, India, and Australia, reported recently that it would add automated production machinery valued at $12 million (Aus.) at its factory in Homebush, Sydney, boosting that production line by 40%. The expansion will result in an annual output of 35 Mw.

BP had invested more than $200 million in photovoltaics by fall 2001, to establish a niche in the growing solar energy sector (OGJ Online, Oct. 23, 2001).

On the exit from thin film manufacturing, Shimp said, "We have worked very hard with the National Renewable Energy Laboratory and other partners on the research and development of thin film technology. However, while the technology continues to show promise, lack of material demand and present economics do not allow for continued investment."

BP Solar will halt thin film manufacturing at its Fairfield, Calif., facility immediately and convert the property into a center for North America warehousing and distribution. It will serve as the company's West Coast base for sales and marketing.

BP Solar also will close its Toano, Va., thin film plant if it cannot identify a buyer by yearend. The associated technology center will close immediately, the company said.