Company News: Duke Energy, Cinergy sign agreement to merge

May 16, 2005
Duke Energy Corp., Charlotte, NC, and Cinergy Corp.

Duke Energy Corp., Charlotte, NC, and Cinergy Corp., Cincinnati, have signed a definitive merger agreement to create an energy company with approximately $36 billion in market capitalization and 5.4 million retail customers through a stock swap.

The merger, unanimously approved by both companies’ boards of directors, will create a combined energy company with assets totaling more than $70 billion.

The combined company will retain the name of Duke Energy Corp.

In other recent company news:

• Oneok Inc., Tulsa, agreed to acquire natural gas liquids businesses from several subsidiaries of Koch Industries Inc., Wichita, Kan., for $1.35 billion. Closing is subject to approval by US regulators.

• Kazakhstan’s national oil company KazMunaiGaz has signed the final documents to purchase half of British Gas Group’s stake in a project to develop Kashagan oil field in the Caspian Sea.

• BASF AG and Royal/Dutch Shell Group agreed to sell their 50-50 joint venture Basell Polyolefins Co. to a consortium led by Access Industries, a New York holding company, for $5.7 billion, including debt.

• Baraka Petroleum Ltd., West Perth, said its initial public offering was oversubscribed at $17 million (Aus.) and that it has applied for listing on the Australia Stock Exchange.

• Saxon Energy Services Inc., Calgary, agreed to buy seven land rigs and related assets in Columbia and Peru from Parker Drilling Co., Houston, for $34 million. One transaction has closed, and the others are expected to close within 30 days. Parker said it will use sale proceeds to retire debt.

• Buckeye GP LLC, the general partner of Buckeye Partners LP, Emmaus, Pa., has completed its acquisition of a products pipeline system and interests in five terminals from affiliates of ExxonMobil Corp. (OGJ Online, Jan. 25, 2005). The system delivers products from Valero Energy Corp.’s 166,000 b/cd refinery in Paulsboro, NJ, to New Jersey, Pennsylvania, and New York.

• Ellora Oil & Gas Inc., a private company based in Boulder, Colo., has purchased Presco Western LLC, a Colorado-based exploration and development company and will own and operate the acquired interests in nine Southwest Kansas counties under the Presco name. It said the acquisition will enable it to increase development of 550,000 Hugoton Deep acres in Kansas.

Duke Energy-Cinergy

Based on Duke Energy’s and Cinergy’s financial reports at the end of 2004, the combined company will have annual revenue of $27 billion and annual earnings of $1.9 billion. It will own or operate 54,000 Mw of electric generation capacity in the US and elsewhere, with a diverse fuel mix of nuclear, coal, natural gas, and hydroelectric power.

Duke Energy operates more than 17,500 miles of natural gas transmission pipeline with 250 bcf of gas storage capacity and is, through its joint venture with ConocoPhillips, the largest producer of natural gas liquids in North America, said company officials. The combined company will have operations in two thirds of the US as well as Canada and several other international locations, primarily in Latin America.

Paul M. Anderson, current chairman and chief executive officer of Duke Energy, will be chairman of the combined company. James E. Rogers, chairman, president, and chief executive officer of Cinergy, will be president and chief executive officer of the new firm. The new board will have 10 members named by Duke Energy and 5 named by Cinergy. Headquarters will be in Charlotte.

The merged company will serve 3.7 million retail electric customers and 1.7 million retail gas customers in Ohio, Kentucky, Indiana, North Carolina, South Carolina, and Ontario, Canada, with more than 25,000 Mw of generation. Coupled with the pipeline operations, the regulated businesses will “create the financial strength and scale to participate in the continuing consolidation of the utility sector,” said company officials.

Some 1,500 of the current 29,350 employees will be eliminated through attrition, early retirements, and other severance programs, they said. Duke Energy Gas Transmission and certain commercial operations will remain in Houston. Duke Energy Field Services will remain headquartered in Denver, and Crescent Resources will continue to be located in Charlotte.

At the completion of the merger, pending regulatory approval, Fred Fowler, president of Duke Energy, will become president and chief executive officer of the company’s gas operations.

Oneok-Koch deal

Oneok’s transaction with Koch will link NGL supply in Oklahoma, the Texas Panhandle, and Kansas with market centers in Conway, Kan., and Mont Belvieu, Tex.

Oneok is buying:

• Koch Hydrocarbon LP’s Midcontinent NGL business. Assets include 100% interest in fractionators at Medford, Okla., and Hutchinson, Kan., having a combined capacity of 240,000 b/d. In addition, Oneok is acquiring 10% ownership of a 110,000 b/d fractionator, two underground storage facilities, and a 9,000 b/d isomerization facility, all at Conway.

• Koch Pipeline Co. LP and its 1,800 miles of interstate NGL distribution pipelines as well as 2,600 miles of NGL gathering lines owned by Koch Hydrocarbon or Koch Pipeline.

• MBFF LP, which owns 80% interest in a 160,000 b/d fractionator at Mont Belvieu, and Koch Vesco Holdings LLC, which owns 10.2% interest in Venice Energy Services Co. LLC. Vesco owns a complex near Venice, La., that processes 800 MMcfd of gas and provides gathering, processing, fractionation, storage, and distribution services to Gulf of Mexico producers.

Koch plans to retain interests in a propylene splitter in Venezuela and in companies marketing NGL in Canada. Koch Supply & Trading LP will continue trading gas liquids and olefins globally.

KazMunaiGaz

KazMunaiGaz and members of an international consortium led by Italy’s ENI SPA finalized the deal in which the Kazakh firm bought 8.33% of BG’s stake for $913 million. BG said it plans to sell its remaining 8.33% to the other consortium members.

ENI holds a 16.67% interest in the project. Partners are ExxonMobil Kazakhstan Inc. 16.67%, ConocoPhillips 8.33%, Tokyo-based Inpex Corp. 8.33%, Royal Dutch/Shell Group 16.67%, and Total SA 16.67%. ENI unit Agip Caspian serves as operator.

BG initially announced it was willing to sell its share in the Agip KCO consortium in two transactions to units of CNOOC Ltd. and China Petrochemical Corp. (Sinopec). CNOOC and Sinopec each agreed to acquire an 8.33% interest in the production sharing agreement for $615 million (OGJ, Mar. 17, 2003, p. 42).

Instead, the other stakeholders agreed to purchase BG’s interest, preempting BG’s plans to sell to the Chinese companies, but the Kazakh government suspended that deal, claiming it had preemptive rights to the stake (OGJ Online, May 16, 2003).

Kashagan field holds an estimated 5.29 billion tonnes of oil, with production due to start in 2007-08.

BASF-Shell

The transaction is subject to approval by antitrust authorities. Closing is expected during the second half of 2005.

BASF and Shell announced plans to review options for the Netherlands-based joint venture in July 2004. The two companies established Basell as an independent company in 2000. It has production sites in 21 countries.

Baraka’s IPO

Baraka controls eight blocks that cover more than 272,000 sq km in lightly explored basins in Mali and Mauritania, northwest Africa (see map, OGJ, Dec. 6, 2004, p. 43).

Baraka has named Max de Vietri as managing director, Shane Doherty as executive chairman, Colin Roberts and Peter Cockcroft nonexecutive directors, and Satyavan Reymond as head of operations.