Energy Sector Has Shoppers Stocking Up - TheStreet

Energy assets are flying off the shelves like last-minute gifts.

This week, energy companies have started to resemble holiday retailers as they push excess merchandise in a make-or-break effort to pay down debt.

Calpine

(CPN)

kicked off the busy week by selling its stake in a Texas power plant -- at a profit -- and several other energy companies followed up with transactions of their own.

Calpine announced early Monday that it has arranged to sell its 50% stake in a 545-megawatt power plant to the corporation that already owns the other half of the asset. The buyer, which is an affiliate of the Lower Colorado River Authority, originally partnered with Calpine to develop the Texas power plant before it began operating in mid-2001. Even after the sale, Calpine said Monday that it will still be "the leading independent power producer in Texas."

The company described the transaction as a positive one for both parties involved.

"LCRA will be able to meet its growing energy requirements without building new capacity," said Darrell Hayslip, senior vice president of Calpine's marketing and sales division. "They will now be able to take even greater advantage of this modern, gas-fired, combined-cycle facility as the sole owner and operator. ...

And Calpine will benefit from an attractive return on its investment."

RBC analyst Maureen Howe applauded the deal even though she remains cautious on the stock.

"We interpret the sale positively," she wrote on Tuesday, "as we view it as an indication that the power market in this area of Texas is improving."

Calpine's stock, which jumped 4% after news of the deal on Monday, inched up an added 1.3% to $4.84 Tuesday.

Meanwhile,

Duke

(DUK) - Get Report

announced that it has profited from a transaction of its own. The company said Monday afternoon that it has already closed on the sale of a 103-megawatt power plant in France. It expects to record a gain on the transaction of "less than $2 million" in the fourth quarter.

"This sale is consistent with our strategic decision to exit the European market," Duke President Fred Fowler said. "Combined with our announcement last month to sell our Dutch gas marketing business, we will now concentrate on a full wind-down of our operations in Europe."

Like Calpine, Duke extended Monday's gains. The stock climbed 1.1% to $20.39 early Tuesday.

News of yet another asset sale came after the market closed on Monday.

Williams

(WMB) - Get Report

said it has sold its wholesale propane assets and marketing business to a private company in its hometown of Tulsa, Okla. The buyer, SemGroup, pointed to the propane assets as valuable additions to the company's portfolio.

"The SemStream acquisition provides SemGroup a wonderful opportunity to diversify our domestic energy assets and represents an excellent complement to our Canadian gas marketing business," stated SemGroup CEO Tom Kivisto. "Wholesale propane fits well with our company's existing crude oil and gas arbitrage marketing culture."

Although terms of the deal were not disclosed, investors welcomed the news. Shares of Williams inched up 6 cents to $9.96 on Tuesday morning.

Others in the sector fared worse.

El Paso

(EP)

slipped 7 cents to $7.95 after pricing a new stock offering -- totaling 8.8 million shares -- to help satisfy a legal settlement in the western U.S. The company has agreed to issue a total of 26.4 million new shares to settle charges that it deliberately contributed to the California energy crisis a few years ago. After the new offering, scheduled for completion on Friday, El Paso will have issued 17.6 million of those shares.

News of the offering came just one day after El Paso ended another dispute. The company agreed to assign the contractual rights to its Elba Island gas terminal to a private company for $127 million, $50 million of which is "conditional upon events affecting gas off-take arrangements."

Meanwhile,

FirstEnergy

(FE) - Get Report

has a new dispute on its hands. The company fought back on Tuesday after Standard & Poor's downgraded its credit and triggered up to $470 million in collateral calls.

"We are disappointed with Standard & Poor's rating action today and respectfully disagree with their conclusion," the company stated. "While we have faced a number of operational challenges this past year, we have made steady progress toward enhancing our financial strength and flexibility and improving our overall credit profile."

The utility has fielded heavy blame for the largest blackout in American history. But S&P, which began reviewing FirstEnergy's credit just days after the big outage, cut the company's rating for other reasons as well. The ratings agency pointed to FirstEnergy's inability to restart a big nuclear plant -- idled for nearly two years over safety concerns -- as just the "most recent" challenge facing FirstEnergy when lowering the company's credit to its lowest investment-grade rating. In general, S&P said FirstEnergy has become a riskier investment "due to operational and management challenges, as well as heightened regulatory uncertainty."

But the company has undergone a temporary management change at least. A day before the downgrade, FirstEnergy announced that CEO Peter Burg will be leaving for "an extended period" to seek treatment for leukemia. Anthony Alexander, the company's president and operating chief, will fill in until Burg can return.

The market barely reacted. Shares of FirstEnergy slipped 15 cents, to $35.05 around midday Tuesday.

Meanwhile, Merrill Lynch analyst Steve Fleishman continues to recommend the stock. Fleishman pointed to FirstEnergy's "significant deleveraging through use of sizable free cash flow" as a key attraction.

The analyst reiterated his buy rating and $39 price target even after lowering his earnings estimate for the company due to the nuclear plant delay.

"While we are disappointed with the ... delay, we believe it is still just a timing issue and that the plant will eventually restart," Fleishman wrote. "Despite our reduced 2004 outlook, the core story ... remains intact."