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Reuters: Shell weighs mega sale of power venture

Reuters: Shell weighs mega sale of power venture

“SULLIED REPUTATION”: “Shell’s reputation as a blue chip multinational was dragged through the mud this year after it revealed a 20 percent overbooking of its oil and gas reserves.”

By Charlie Zhu

Thu 2 September, 2004

SINGAPORE (Reuters) – Royal Dutch/Shell is expected to put its worldwide power venture InterGen up for sale with a multi-billion dollar price tag as part of a drive to put its house in order, bankers say.

The sale of the electricity generating business could lift group-wide profitability at the world’s third-largest oil firm, by dumping operations that underperform the core oil and gas portfolio.

InterGen, 68 percent held by Shell in a joint venture with U.S. building firm Bechtel, is operating or building capacity that bankers say is worth around $6 billion (3.3 billion pounds) including debt.

Ownership and financing details of the venture’s assets are sketchy, because Shell’s InterGen accounts are lumped with its broader natural gas portfolio, while Bechtel is privately owned.

However, its affiliated 20 plants have a total capacity of 16,200 megawatts — about one-fifth of the UK’s total.

Shell has hired Citigroup, the world’s No. 1 financial services company, to review InterGen’s global portfolio, including an option sell its entire assets, four senior utility bankers not involved in the global plan told Reuters.

“They are looking at the whole strategic direction for the entire company. They are looking at what to do with the entire company,” said one top banker at a global investment bank.

SULLIED REPUTATION

Shell had tentative plans to float InterGen in 2000 when it wrapped its other power station assets into the joint venture in exchange for a bigger stake.

These plans were derailed by the California power crisis, the Enron accounting scandal and a slump in electricity prices in several countries. Power prices have since improved, and a sale could help finance its search for new oil and gas reserves — now seen as its biggest challenge.

Shell’s reputation as a blue chip multinational was dragged through the mud this year after it revealed a 20 percent overbooking of its oil and gas reserves.

InterGen, set up in 1995, has power plants in the United States, Britain, the Philippines, Colombia, Mexico, China, Egypt, Turkey, Australia, the Netherlands, Spain and Singapore.

Sarah Webster, spokeswoman for U.S.-headquartered InterGen, would not comment. Shell was not immediately available for comment.

A source at another Western investment bank said Citigroup was hired a month ago to review its global assets. “They haven’t officially launched any process yet but it is expected that InterGen is going to sell all of their portfolio,” he said.

The first banker said he expected privately held Bechtel to follow suit if Shell decided to sell off its 68 percent stake. “Whatever Shell wants to do, I’m sure it is going to have an effect on what Bechtel wants to do.”

InterGen has already been selling its assets in Asia. Last December it sold two of its power plants in Australia’s Queensland state to China’s state-owned Huaneng group in a deal valued by analysts at nearly $200 million.

A source at another international bank told Reuters that InterGen had hired ING Group to advise on the sale of its 46 percent stake in the 470-megawatt Quezon Power plant in the Philippines, funded with $809 million in debt and equity.

The recent sale of a string of power assets in the Asia-Pacific region and Europe by U.S. energy firms, including Edison International, has shown investors’ appetite for large electricity portfolio, bankers said.

Edison’s Edison Mission Energy unit agreed in July to sell its remaining 5,381-megawatt international power generation portfolio to Britain’s International Power IPR.L and Japan’s Mitsui & Co for $2.3 billion.

“The Edison Mission exercise may have given them some comforts that it is possible to sell a relatively sizeable portfolio,” said a banker at another major investment bank.

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