Industry Briefs

Merrill Lynch buys Entergy-Koch trading unit

Merrill Lynch & Co. has finalized the deal to acquire the energy trading businesses of Entergy-Koch LP (EKLP), a Houston-based joint venture of Entergy Corp. and privately owned Koch Energy Inc, a subsidiary of Koch Industries Inc. The purchase amount was not disclosed but is believed to be in the neighborhood of $1 billion.

The transaction immediately positions Merrill Lynch as a leader in energy trading. The business will operate as the Global Commodities group within Merrill Lynch's Global Markets & Investment Banking unit, and current Entergy-Koch Trading management are expected to continue to run the business.

Some industry analysts see the acquisition as an indicator of the "financialization" of energy trading with the greater participation of financial players such as banks that will put more capital into play. Merrill Lynch and similar institutions are attracted to energy trading because the volatility of energy commodities can reap huge rewards for market participants, said Peter Fusaro of Globe Change Associates.

Entergy-Koch Trading has 700 employees in the US and the United Kingdom who are involved in natural gas, electricity, weather derivatives, emissions, derivative sales, and options trading. Merrill Lynch said it intends to expand its commodities business by offering oil and coal contracts.

Entergy-Koch plans to sell its Gulf South Pipeline Co., a gas transportation and storage business through a separate competitive bidding process by early in 2005.

InterOil now traded on Amex

InterOil Corporation, a Canadian company with operations in Papua New Guinea, has been approved for listing on the American Stock Exchange. The company's common shares began trading on the Amex on Sept. 8 under the symbol IOC.

In addition, InterOil's common shares are traded in Canada in Canadian dollars on the Toronto Stock Exchange under the symbol IOL and on the Australian Stock Exchange (ASX) in CHESS Depositary Interests (CDI) in Australian dollars under the symbol IOC. CDIs trade on a 10:1 basis to common shares.

The company previously announced it had closed on $45 million (US dollars) of senior convertible debentures to a limited number of institutional investors. InterOil said it intends to use the net proceeds of the private placement for additional working capital and general corporate purposes.

InterOil focuses on Papua New Guinea and the surrounding region, and is developing an integrated energy business consisting of an oil refinery, petroleum exploration and retail assets. The majority of product from the refinery is secured by contracts with Shell Overseas Holdings Ltd. BP Singapore is the exclusive agent for all crude oil supplied to the refinery. In addition to the refinery and retail assets, InterOil has begun the largest exploration program by a single company in Papua New Guinea.

TXCO will hedge O&G production

The Exploration Company, an independent oil and gas enterprise based in San Antonio, will hedge a portion of its oil and gas production for the coming year. TXCO entered into financial price hedges for 15,000 barrels of oil per month and 140,000 MMBtu per month of gas through October 2005. * Macquarie Bank Ltd. serves as counterparty under the agreement.

The hedges put into place are ratio swaps, which give TXCO floor prices of $39.10 per barrel for West Texas Intermediate and $5.37 per MMBtu on a basis adjusted to Houston Ship Channel prices. The ratio swaps allow the company to participate in 75 percent of potential upside price movement above the floor levels.

Macquarie Bank Ltd. is part of The Macquarie Group, a diversified international provider of specialist trading, investment banking and financial services, with more than 6,000 employees in 23 countries.

NARO-Texas recognizes DrillingInfo

Austin-based DrillingInfo, an information and data analysis service for the oil and gas industry, has been awarded a certificate of appreciation by the National Association of Royalty Owners-Texas.

"DrillingInfo is making the oil patch transparent for royalty owners for the first time in history," said Dave Vinson, president of NARO-Texas. "It helps royalty owners to do business as equals with oil companies. Knowledge is the most powerful tool for US royalty owners, and NARO-Texas' goal is to be an advocate and information resource for all royalty owners."

Vinson presented the award to Allen Gilmer, chairman of DrillingInfo, and commended the company for "changing the way business is being done in the oil patch." The company's stated goal is to "change the historically contentious relationship between royalty owners and operators in favor of a collaborative, partner-based approach."

DrillingInfo is a member-based organization that provides royalty owners and other interested parties with data about production, dispositions, completions, rig activity, permits, pre-permits, leasing, and mapping information.

Aquila completes refinancing

Kansas City-based Aquila Inc. has completed two new 364-day unsecured financings, including a $110 million revolving credit facility and a $220 million term loan facility. The company borrowed the full amount under the term loan but did not immediately draw on the revolving credit facility.

Aquila also announced it has prepaid its $430 million secured term loan. As a result, the collateral securing the three-year loan, including the company's utility assets in Colorado, Iowa, Michigan, and Nebraska, has been released.

"Completing this financing package is another important step that we've been pursuing to ensure the company has sound liquidity while improving our capital structure," said Rick Dobson, Aquila's CFO. "We clearly have more work ahead, but with this financing – along with the proceeds from our recent equity and convertible debt offerings – we have the ability to efficiently reduce other liabilities of the company."

Credit Suisse First Boston served as the sole book-runner for the new loans and joint lead arranger with Citibank and Lehman Brothers.

Aquila operates electricity and natural gas utilities serving customers in seven states. The company also owns and operates power generation assets.

Glencore, PTC India, Valero to deploy TPT software

Swiss multinational Glencore International AG will implement Triple Point Technology's new PhysOps XL supply chain management solution in its London and Stamford, Connecticut, trading centers with the intent to reduce costs and increase efficiencies in its global oil supply chain operations. TPT launched the product in June, and the company's first customer was Galaxy Energy Group Management, a Monaco-based international oil trading company.

Glencore has deployed various components of TPT's energy software since 1997, including Tempest, which handles the company's global oil trading and risk management operations, and Gas XL, which manages physical and financial risk and back-office operations for natural gas in Glencore's London trading center.

PTC India Limited, India's largest power trading company, will deploy Triple Point's Power XL commodity trading software to manage its physical scheduling and settlement operations in the deregulating India electricity market. TPT was awarded the PTC contract in consortium with Siemens Information Systems Limited and SAP India Limited.

Valero Marketing and Supply Co., a subsidiary of Valero Energy Corp., has implemented Triple Point's XL commodity trading and risk management software platform for its San Antonio headquarters. The software supports the risk management, trading, and hedging activities of the company's oil supply and marketing operations.

Triple Point, headquartered in Westport, Connecticut, recently completed a buyback of Cinergy's minority ownership stake in the company. Ohio-based Cinergy, a licensee and major user of the company's energy supply and trading technology, made the investment in December 2000 to provide financial strength and R&D capital to Triple Point as it embarked on a five-year expansion plan.

PEMEX licenses OpenLink's Endur

Mexican state-owned Petroleos Mexicanos (PEMEX) has licensed OpenLink's Endur energy trading and risk management software solution for PEMEX Gas Petroquimica Basica (GPB), the company's natural gas division. Implementation is already underway at PEMEX headquarters in Mexico City and includes an interface to the company's SAP accounting system.

PGPB will utilize Endur to manage its physical and financial natural gas transactions, including the identification and documentation of hedges that fall under FAS 133 requirements. The PEMEX division ranks among the top 10 natural gas producers globally, is in the top five in natural gas liquids (NGLs), and operates an extensive network of pipelines, which makes it one of the top 10 transporters of natural gas in North America.

OpenLink, based in Uniondale, New York, completed a repurchase of Coral Energy's minority ownership stake in the company in 2004. Houston-based Coral, a Shell affiliate, made the investment in 1998 to assist the company with a five-year growth plan. Coral is a long-time client of OpenLink, and the company's Endur software also is used by Shell Trading US Company, Shell International Trading & Shipping Company and Shell Chemical LP.

Quorum reports deals with OXY, Targa, ETP

OXY, Inc., a subsidiary of California-based Occidental Petroleum Corporation, has licensed and implemented Quorum Business Solutions' Division Order software product following OXY's acquisition of an oil gathering system from ExxonMobil.

A Quorum spokesman says that OXY initially considered developing its own software system to support the new addition, but later determined that Quorum's Division Order software could be implemented much quicker and with less risk than an internally developed system. Quorum's Division Order system, as implemented, includes an interface to OXY's Oracle ERP system. OXY also uses Quorum TIPS, Quorum Land, Quorum Imbalance and Quorum Query & Reporting.

In a separate deal, Energy Transfer Partners has licensed several products from Quorum's energy software suite of products. Implementation will be completed in early 2005. ETP's natural gas operations include 6,500 miles of pipelines, as well as gathering and processing assets in Texas, Oklahoma and Louisiana.

Targa Resources, an independent midstream energy company, has licensed Quorum software to manage its gas plant accounting and allocations needs. Targa operates 1,200 miles of pipelines in the Permian Basin and a gathering system covering 2,000 square miles in Louisiana. Implementation of the products at Targa was completed in late 2004.

Quorum is a product-centered consulting company with more than 150 staff operating out of offices in Houston, Dallas and Calgary.

Schlumberger, CyrusOne to partner

Houston-based CyrusOne, a full-service data center that provides managed hosting, co-location, and enterprise management services to companies to ensure application availability, data security, and superior network performance, has signed an agreement with Schlumberger Information Services (SIS) to provide enhanced outsourced IT infrastructure services to the upstream oil and gas industry in North America.

With this agreement, SIS extends its petrotechnical computing infrastructure to include Tier I data center space, the highest level of security, power, connectivity, and monitoring infrastructure. The agreement also includes infrastructure and operations management, and managed computer services, including system and network operations management, backed by an availability and security guarantee for critical client-hosted applications.

Dan Domeracki, business manager, North and South America for SIS, commented, "As the industry's demand for secure, reliable, and flexible computing increases, our partnership with CyrusOne positions SIS to provide more flexible, cost-effective secure computing solutions to our customers."

CyrusOne also recently announced it had signed an agreement to provide critical computing services for Enbridge Energy Company. An Enbridge spokesman said the purpose was to improve connectivity and other demands without having to tie up capital in infrastructure.

SolArc moves headquarters from Tulsa to Houston

SolArc, a provider of supply and trade management software solutions to the energy industry, has relocated its base of operations from Tulsa, Oklahoma, to Houston.

"We wanted to be closer to our customers, and many of them are already based here or at least have a significant presence here," said CEO Brad Anderson. "With our recent emphasis on international expansion, the location of our headquarters in Houston makes perfect sense."

In addition to serving a broad spectrum of the energy industry, SolArc helps many commercial airlines manage their aviation fuel supplies, a critical concern in the wake of skyrocketing jet fuel prices.

In October, SolArc hosted a two-day conference in Houston attended by senior-level executives in the oil refining, utilities, and airline industries who discussed issues related to fuel inventory management, price/inventory position reporting, credit/price risk management, and Sarbanes-Oxley compliance.