Dynegy to acquire major UK gas storage and delivery properties

Dynegy Inc., Houston, said Monday it will buy $590 million in natural gas storage facilities and related assets from BG Group PLC in the UK.

The acquisition represents a “real springboard for us in Europe,” said CEO Chuck Watson. “This is a pretty big deal for Dynegy.”

He said the purchase will compliment Dynegy’s existing trading and marketing activity in the UK and advances plans to replicate the US energy delivery network in Europe.

CFO Robert Doty said the acquisition will be in lieu of building “one or two” power plants in the US, and it should add 7-9à‚¢/share to 2002 earnings. The company is currently projecting 2002 earnings of $2.50-$2.60/share.

Dynegy agreed to acquire BG Storage Ltd. (BGSL), a unit of BG Group with assets including nine salt caverns, 19 miles (32 km) of pipelines, an onshore natural gas processing terminal, and 30 wells with five offshore platforms

Two of the facilities included in the transaction, Rough and Hornsea, are key providers of physical storage in the UK natural gas market and are used by half of the UK’s natural gas shippers. Rough, an offshore depleted natural gas field, has a deliverability rate of 1.5 bcfd (455 Gw-hr/day).

The deliverability rate of Hornsea, an onshore salt cavity installation, is 620 MMcfd (195 Gw-hr/day). The two facilities are capable of storing 111 bcf of natural gas.

Dynegy will also acquire the Easington natural gas processing terminal, which processes Rough and third-party natural gas streams and delivers into the UK natural gas transportation network. BGSL previously reported plans to develop the Aldbrough storage facility, a salt cavern with an expected storage capability of 6 bcf and deliverability rate of 600 MMcfd (185 Gw-hr).

Dynegy Europe will examine the feasibility of Aldbrough’s development plans in the future. Watson said he feels “very comfortable” about receiving necessary UK regulatory approvals and expects the acquisition to close in the third quarter.

Not backing off US
Dynegy has not backed off its US power plant strategy, Watson said. While there may be “blips” in the market, he said, the fundamentals have not changed. “We are still bullish on gas,” he said.

Watson also called a preliminary order last week by federal regulators on regional transmission organizations “pivotal” to boosting growth of the US wholesale market and to Dynegy’s game plan of winning 10% of the market.

The Federal Energy Regulatory Commission ordered parties in the Northeast and Southeast to begin talks on consolidating into single units for each region. The agency already has recommended similar moves in the Midwest and West.

Watson also said new information proves Texas generators didn’t overcharge California nearly the amount claimed by California politicians, and that the amount generators will have to return is “far less than the receivables owed the 20 companies” that have been parties to the FERC settlement talks.

California, he said is a “major disgrace to the country.” Watson said Dynegy never planned to build more generation in the state, and the events of the last year “damn sure” haven’t changed the company’s strategy.

With respect to the company’s plans to build a liquefied natural gas facility in Louisiana, Watson said, the proposed $250 million facility will cost about half what a greenfield facility would cost. Subject to regulatory approval, the facility will built on the site of an existing LPG facility owned by Dynegy. Watson said he is comfortable building the LNG terminal with gas prices at $3/Mcf or less.

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