Industry Briefs

July 4, 2005
The folks at Dynegy Inc. have been busy restructuring and preparing for growth. At the company’s annual shareholders’ meeting, Bruce A. Williamson, chairman, president and CEO, discussed the progress of the past year - including the completion of a multi-year self-restructuring initiative - and the company’s current focus on developing growth opportunities for its midstream natural gas and power generation business.

The folks at Dynegy Inc. have been busy restructuring and preparing for growth. At the company’s annual shareholders’ meeting, Bruce A. Williamson, chairman, president and CEO, discussed the progress of the past year - including the completion of a multi-year self-restructuring initiative - and the company’s current focus on developing growth opportunities for its midstream natural gas and power generation business.

Under Dynegy’s latest restructuring plan, the company is looking to sell its midstream assets, such as this gas processing plant in Venice, La. Dynegy CEO Bruce Williamson told shareholders in mid-May that the company’s processing business is worth up to $3 billion. Photo courtesy Dynegy Inc./Steve Winter
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In May, Dynegy began evaluating strategic alternatives for its midstream business, including the sale of those assets in order to slash debt further and concentrate on the power generation business. This, in turn, would set up the company to merge or consolidate with another company in order to gain a more competitive position in the marketplace.

Although Williamson declined to speculate as to whether Dynegy would be the acquiring or acquired company in such a scenario, he indicated that there are too many companies and too much debt in this sector of the energy industry for many companies to sustain themselves and that consolidation is needed.

Dynegy’s midstream business is positioned across Texas, southeast New Mexico, and the Gulf Coast as an integrated enterprise engaged in gathering, processing, fractionation, and marketing of natural gas and natural gas liquids.

Williamson believes the company’s processing business is worth $2.5 to $3 billion and said that selling its midstream business could position its power generation business with a capital structure approaching 50 percent net debt-to-capital, thus improving its ability to participate in the consolidation of the power sector.

The company’s progress also includes new directors and shareholder proposals. At the meeting, shareholders approved the election of Dynegy’s 13 directors - including 11 Class A common stock directors and two Class B common stock directors - to serve until the 2006 meeting. In addition, shareholders elected to retain Pricewaterhouse-Coopers LLP as Dynegy’s independent auditors for 2005.

Dynegy provides electricity, natural gas, and natural gas liquids to markets and customers throughout the US. The company owns and operated a diverse portfolio of assets. According to the company, it holds power plants totaling more than 13,000 megawatts of net generating capacity and gas processing plants that process approximately 1.6 billion cubic feet of natural gas per day.

Dune Energy common stock listed on AMEX under symbol DNE

Shares of Dune Energy Inc. are now being traded on the American Stock Exchange (AMEX) under the ticker symbol DNE. “We are pleased to have Dune Energy list on the American Stock Exchange where a growing roster of energy-related companies has chosen to list their shares,” Amex Equities Group senior vice president John McGonegal said. “We look forward to supporting the company’s effort to reach a wider investor audience.” Dune Energy is an oil and gas exploration and production company with operations currently concentrated in Texas. The company has developed its asset base through the acquisition of producing properties and participating in strategic joint ventures. Dune’s AMEX specialist is Cohen Specialists LLC.

Foster Wheeler wins project management consulting contract from Abu Dhabi

Abu Dhabi Industries Ltd. (GASCO) has awarded a project management consulting (PMC) contract to Foster Wheeler International Corp., a subsidiary of Foster Wheeler Ltd. The contract is for the engineering, procurement, and construction (EPC) phases of the third natural gas liquids (NGL) train project at Ruwais, Abu Dhabi, United Arab Emirates. Terms of the award were not disclosed, but the project will be included in the company’s first-quarter 2005 bookings.

The project will be carried out by Foster Wheeler’s UK office and is one of three projects (the other two are the AGD-II and OGD-III facilities) in a suite of five integrated projects being undertaken in conjunction with GASCO’s sister companies, ADCO (for gas gathering and reinjection) and TAKREER (for condensate storage and shipping). All five projects are being done on behalf of the Abu Dhabi National Oil Co. (ADNOC).

As the project management consultant, Foster Wheeler’s role is to manage the EPC contractor, who will handle commissioning and the final handover of the third NGL train at Ruwais. The third train will process NGL transported via a new pipeline from OGD-III and AGD-II, supplemented by a new LPG stream from the adjacent refinery, owned by TAKREER.

The NGL will be processed in a 24,400-tons-per-day fractionation and treatment train to produce ethane, liquefied propane, butane, pentane, and heavier hydrocarbons. In addition, the project includes four 83,600m3 liquefied petroleum gas storage tanks, a single 76,000m3 pentane storage tank, and a two-berth extension to the export jetty. The project is expected to be completed by the end of the first quarter 2008.

Foster Wheeler offers, through its subsidiaries, a broad range of design, engineering, construction, manufacturing, project development and management, research, and plant operation services. The company serves the refining, upstream oil and gas, LNG and gas-to-liquids, petrochemical, chemicals, power, pharmaceuticals, biotechnology, and healthcare industries. The corporation is based in Hamilton, Bermuda, and its operational headquarters are in Clinton, NJ.

Bolivia’s new hydrocarbon law presents challenges to monetizing stranded gas

The recently signed hydrocarbons law in Bolivia substantially increases taxes for upstream companies operating in that land-locked South American country. A 32 percent effective royalty increases the government’s take by $240 million per year, according to Wood Mackenzie, a global energy consultancy based in Edinburgh, Scotland.

“Despite impressive exploration success in the last 10 years, Bolivia has struggled to access markets for its gas,” explained Gareth Ellis, analyst on Wood Mackenzie’s Latin American upstream team. “Much of the country’s gas reserves remain stranded.”

Bolivia ranks sixth in the world in terms of discovered gas reserves over the last 10 years, according to Wood Mackenzie’s recently published Global Oil and Gas Risk and Rewards report.

“High transportation costs have resulted in relatively high citygate gas prices, meaning that Bolivian gas has found it difficult to penetrate established Southern Cone markets, such as Brazil and Argentina, even under the previous-more favorable-tax terms,” said Ellis. “The challenge now faced by Bolivian operators is how to monetize their already stranded gas in face of the new tax environment.”

Tax increases will negatively impact foreign companies operating in the Bolivian gas industry. “We calculate that top producers Repsol-TPF and Petrobras will see a reduction in net cash flow of US $95 million and US $53 million per year based on current production,” said Ellis. “The longer term impact will be more severe as foreign companies will now find it more difficult to monetize their stranded gas reserves.”

Wood Mackenzie notes that while the money extracted by the government will increase in the short term, the tax increases are likely to deter participants from making the large capital investments required in infrastructure to develop Bolivia’s gas industry, resulting in lower government revenues in the longer term.

Teekay LNG Partners completes IPO, proceeds from offering exceed $150 million

Teekay LNG Partners LP completed its initial public offering of 6,900,000 of its common units at $22 per unit, including 900,000 units subject to the over-allotment option, which the underwriters exercised. Gross proceeds from the offering were $151.8 million. The units were traded on the New York Stock Exchange under TGP. The 6,900,000 common units represent a 22.3 percent ownership interest in the master limited partnership.

Teekay Shipping Corp., which recently formed Teekay LNG Partners to expand its operations in the liquefied natural gas shipping sector, owns the remaining interests in the partnership, including common units, subordinated units, and its general partner interest. Citigroup ran the books for the IPO, and UBS Investment Bank was co-lead manager. AG Edwards, Wachovia Securities, Raymond James, Jefferies & Co. Inc., and Deutsche Bank Securities were also co-managers.

Teekay LNG Partners is a Marshall Islands partnership that provides LNG and crude oil marine transportation services under long-term, fixed-rate contracts with major energy and utility companies through its fleet of seven LNG carriers and five Suezmax class crude oil tankers. Three of the seven new LNG carriers are scheduled for delivery in late 2006 and early 2007, in which Teekay LNG Partners will hold at least 70 percent interest.

ChevronTexaco becomes Chevron Corp.

San Ramon, Calif.-based ChevronTexaco Corp. has changed its name to Chevron Corp. in an effort to adopt a single corporate identity across all markets in which it does business. The announcement was made on May 9, the same day the company made public a new version of its corporate logo. The new look will be introduced over the coming months, said a Chevron spokesman.

The company said it will continue to expand and support its global retail business through its service stations - Chevron in North America; Texaco in the US, Europe, Latin America, and West Africa; Caltex in Asia, Australia, and parts of the Middle East and Africa - as well as its portfolio of products and lubricant brands. The company will also retain its “CVX” ticker symbol on the New York Stock Exchange.

David J. O’Reilly, chairman and CEO, noted, “We have a large global footprint in key energy basins of the world. To convey a clear, strong and unified presence across the 180 markets where we do business, we are adopting a single corporate identity.” He added that Chevron’s new corporate symbol will provide a more contemporary image for the company.

Chevron subsidiaries conduct business in approximately 180 countries worldwide, producing and transporting crude oil and natural gas, and refining, marketing, and distributing fuels and other crude energy products. The company merged with Texaco Inc. in 2001 and changed its name from Chevron to ChevronTexaco upon completion of the deal.

Duke Energy to acquire Cinergy, Rogers will assume role as CEO

Utility giant Duke Energy has agreed to acquire Cincinnati-based Cinergy Corp. in an estimated $9 billion deal. The all stock deal, unanimously approved by both companies’ boards of directors, will create an energy company with about 5.4 million retail customers and more than $70 billion in assets.

The combined company, which will keep the name Duke Energy Corp., will own or operate about 54,000 megawatts of electric generation domestically and overseas-relying on a fuel mix of nuclear, coal, natural gas, and hydroelectric power to meet customers’ needs. 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. Headquarters will be in Charlotte, NC.

Once the merger is complete, 24 percent of the new company will be owned by Cinergy shareholders, and the remaining 76 percent will be owned by Duke’s shareholders. Also at the completion of the merger, Cinergy’s James Rogers will take the role of president and CEO, and Duke Energy’s Paul Anderson will become chairman of the combined company. The new board will be made up of 10 members named by Duke and five named by Cinergy.

Chadbourne & Parke helps secure financing for Cheyenne’s $278 million credit facility

Cheyenne Plains Gas Pipeline Co. LLC, a wholly-owned subsidiary of El Paso Corp., was represented by the Houston office of Chadbourne & Parke LLP, in securing a $278 million credit facility to refinance the costs of constructing a pipeline to distribute Rocky Mountain natural gas. The financing was completed on May 9 after extensive negotiations, said Chadbourne partner Todd Alexander.

The 380-mile-long, 36-inch pipeline began commercial operations on Jan. 31. It transports natural gas from collection interconnections near Cheyenne, Wyo., to distribution interconnections near Greensburg, Kan. A portion of the loan proceeds will pay for phase II, which will increase the pipeline’s capacity from 560 MDth/d to 730 MDth/d.

The deal will help alleviate natural gas shortages by aiding in the distribution of the gas out of the Rockies, where some of the most economical untapped natural gas supplies exist in the US.

Halliburton Energy Services will provide reservoir monitoring to Southeast Asia

Halliburton’s Energy Services Group was recently awarded a contract to provide its EZ-Gauge technology on projects in Vietnam for Japan Vietnam Petroleum Co. Ltd. (JVPC), a joint venture company of Nippon Oil Exploration Ltd., ConocoPhillips, and PetroVietnam Exploration and Production Co. JVPC selected the EZ-Gauge system because it provides a cost-effective, accurate pressure data collection system that is free of downhole electronics.

The most commonly used alternative to EZ-Gauge technology is conventional electronic, permanent downhole gauges. Halliburton’s EZ-Gauge system is intended to reduce cost, improve reliability, and improve longevity over conventional electronic systems. It delivers these improvements, especially in downhole environments exceeding about 300 degrees Fahrenheit.

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Houston-based Halliburton, founded in 1919, is one of the world’s largest providers of products and services to the petroleum and energy industries. The company serves its customers with a broad range of products and services through its Energy Services Group and KBR.

ExxonMobil appeals largest punitive damage award in Alabama’s history

Asserting the state improperly turned a contract dispute into a fraud action, Exxon Mobil Corp., on May 12, asked the Alabama Supreme Court to overturn a $3.5 billion punitive damages award. The award resulted from a lawsuit regarding payment of Mobile Bay Project royalties to the state. ExxonMobil general counsel Charles Matthews said, “The $3.5 billion punitive award is based on the State’s unproven allegations of fraud. We are appealing to have it reversed.”

In 2003, a jury found that the company committed fraud in the calculation of royalties it paid the state on production from its Mobile Bay natural gas wells. ExxonMobil, however, maintains the evidence shows there was no fraud. “The State could not prove and the evidence they submitted does not prove fraud. That’s because there was no fraud,” the company wrote in its appeal.

Big Sky signs debenture to finance 2005 drilling program for subsidiaries

Calgary-based Big Sky Energy Corp. has signed a convertible debenture to secure a US $17.5 million facility from Sun Drilling LLP to finance the 2005 drilling program of its two subsidiaries, KoZhaN LLP and Vector Energy West LLP. KoZhaN LLP plans to drill two wells in its Morskoe field, and Vector Energy plans to drill 10 wells this summer in its Atyrau block in 2005.

Sun Drilling has agreed to provide full well construction services for these wells on a turnkey basis, specified under a formal drilling contract, completed on May 5. The company will pay 20 percent of Sun Drilling’s pre-agreed well construction cost in cash as each well is completed and the 80 percent balance within one year, secured by a convertible debenture. This debenture will carry an interest charge of LIBOR plus four percent per year.

Sun Drilling will have the right to convert to the company’s common shares after one year from issue of each invoice, with the conversion price not to exceed two dollars per share.

Big Sky Energy is an international oil and gas exploration company with current operations in Kazakhstan’s pre-Caspian basin.

Roxar launches RMSwellstrat, geological interpretation tool with 3D correlation

Norway’s Roxar Group, a technology solutions provider to the upstream oil and gas industry, has incorporated its new well correlation module, RMSwellstrat, into its 3D reservoir modeling solution, IRAP RMS. The new product strengthens the company’s portfolio of fully integrated mapping, modeling, planning, and workflow management modules. The use of RMSwellstrat’s correlation tools with RMSgeoform, Roxar’s mapping solution, allows for an integrated geological interpretation workflow.

Roxar’s Houston-based CEO Sandy Esslemont noted that the launch of the new well correlation module will provide users with powerful 3D correlation in combination with a faster and more streamlined workflow in reservoir modeling and will improve the quality of data interpretation by allowing the handling of complex geology and well geometries in a 3D environment. Users can gain a better understanding of reservoir data by viewing well trajectories and log data in 3D alongside other important reservoir data, such as seismic, fault interpretation, and existing maps.

The IRAP RMS solution comprises 14 fully integrated software modules designed to help geologists, reservoir engineers, and geophysicists work together faster and more easily in order to increase productivity from existing fields and to shorten the discovery-to-production lifecycle.

With its headquarters in Stavanger, Norway, Roxar employs close to 450 staff across a network of wholly owned offices in Europe, the Americas, Africa, the CIS, Asia-Pacific region, and the Middle East.

Maverick Tube to increase capacity with coiled tubing expansion project

Maverick Tube Corp. has begun work on a $12 million project to expand the capacity of its Precision Tube coiled tubing facility by more than 50 percent. The expansion is taking place at the company’s Precision Tube Houston facility and is expected to be completed in the first quarter of 2006.

Dennis Dunlap, president of Precision Tube/SeaCAT, said, “Since 2002, worldwide demand for our coiled tubing products has grown steadily and we anticipate this trend to continue. This facility expansion will enable us to maintain the superior level of service we provide to our current customers while allowing us to capitalize on the success of our new product development efforts.”

Maverick Tube produces welded tubular steel products used in energy applications (oil country tubular goods, line pipe, coiled tubing, and couplings) and industrial applications (steel electrical conduit, hollow structural sections, standard pipe, pipe piling, and mechanical tubing products).

Quorum Business Solutions relocates, doubling operation’s space in Houston

In an effort to accommodate growth and upgrade its customer support and training facilities, Quorum Business Solutions Inc. has relocated its Houston office to a new 25,000-square-foot facility at the ABB Westchase complex in west Houston, which more than doubles its current space.

Quorum serves a growing number of oil, gas, midstream, and pipeline companies primarily through the provision of its Quorum Energy Suite of software products. In the past 18 months, Quorum has introduced and installed a number of new software products to new and existing clients, including Production & Revenue Accounting, Cost Accounting, Core Financials, Volume Management, Gathering Management, Pipeline Transaction Management, and Gas Marketing.

Founded in 1998, Quorum designs, develops, implements, and supports business software solutions for the energy industry. In addition to its Houston headquarters, the company has offices in Dallas and Calgary.

Refiner awards clean fuels project to CB&I

A major US refiner has awarded CB&I contracts to engineer and construct hydrotreating and sulfur removal and recovery facilities at one of its refineries and a gasoline desulfurization unit at a second refinery. The engineering, procurement, and construction (EPC) contracts are valued in excess of $225 million. The name of the refiner has not been disclosed.

At the first location, CB&I’s work scope includes the design, fabrication, and installation of a 57,000-BPSD hydrocracker/hydrotreater, incorporating a light ends recovery unit; a 260-long-tons-per-day sulfur removal/tail gas treating unit; a 2,100-gpm amine treating unit; and a 500-gpm sour water stripping unit. The facilities will help enable the refinery to meet US Environmental Protection Agency specifications for ultra-low sulfur diesel fuel and also improve the refinery’s ability to process heavier crude feedstocks.

At the second location, CB&I’s work scope includes the design, fabrication, and installation of an 18,000-BDP hydrotreater. Once in production, the unit will enable the refinery to meet EPA specifications for ultra-low sulfur gasoline.

CB&I is a global engineering, procurement, and construction (EPC) company, with more than 60 locations and approximately 11,000 employees throughout the world.

Harken authorizes stock repurchase plan

Dallas-based Harken Energy Corp. has authorized a stock repurchase program allowing the company to buy back up to two million shares of its common stock. All repurchases will be made from time to time in the open market when opportunities to do so at favorable prices present themselves in compliance with all applicable laws and regulations, including US Securities and Exchange Commission rules.

Harken is engaged in oil and gas exploration, development, and production operations both domestically and internationally through its various subsidiaries.