Integrys Energy sells off Canadian portfolio to Shell

Chicago-based Integrys Energy Group (NYSE:TEG) said its Canadian subsidiary is selling nearly all of its portfolio of natural gas and electric power contracts to a subsidiary of oil and natural gas giant Houston-based Shell Energy North America.

Steven Eschbach, Integrys Energy Group’s vice president of investor relations, told the Cleantech Group this is the first of many transactions to come. Integrys Energy Group is a holding company of regulated utilities that operates through its six subsidiaries as well as non-regulated energy services in the United States and Canada. The transaction is expected to close in the third quarter of 2009.

“It’s significant because it shows we’re moving forward on what we said we were going to do,” he said.

Integrys Energy’s board of directors announced in February that it would be changing its strategy, focusing on its core utility operations by selling its non-regulated energy services, with the first target being Integrys Energy Services of Canada, which was announced today. Eschbach said its non-regulated services require a great deal of collateral support and by selling them it should help ease the burden on the company’s credit facility.

Eschbach said Integrys Energy entertained bids from a number of entities, and the best deal came from a Canadian subsidiary of Shell Energy North America, a unit of the Netherlands-based Royal Dutch Shell (NYSE:RDS.A). The Canadian subsidiary has been operating in Canada since 1911 as an integrated petroleum company and is Canada's largest producer of sulphur.

Royal Dutch Shell, one of the world's largest distributors of first-generation biofuels, has also been making advances into next-generation biofuels in recent years (see Shell to grow algae for biofuel and Shell, Codexis in biofuels agreement, and Jacobs, Shell in European biofuels contract). Its competitor ExxonMobil this week announced a $600 million investment in algae-based fuel research (see ExxonMobil devotes $600M to algal biofuel project with Synthetic Genomics).

Upon close, the transaction with Shell is expected to result in a $300 million reduction of Integrys Energy Group's collateral requirements, which support its commodity contracts. The $300 million is expected to be redeployed to the company’s core utility operations, Eschbach said.

Eschbach said the company hasn’t been losing money on its non-regulated energy services, but because of swinging commodity prices and the constrained credit markets, those services require a company with a bigger balance sheet.

“We want to focus on our core utility business,” he said. “It’s more stable in terms of bottom-line earnings.”

He added that the company anticipates selling additional non-regulated assets in the third and early fourth quarter of 2009. The sale of its non-regulated energy services, which made up about 20 percent to 30 percent of the company’s adjusted earnings in 2008, is expected to be completed by the end of 2010, he said.

The portion of the Canadian wholesale natural gas operation excluded from this transaction is a natural gas storage contract, which Integrys said it plans to divest in a separate transaction.

Integrys Energy Group is also active in the wind sector. In 2008, Green Bay, Wis.-based Wisconsin Public Service, a Integrys subsidiary, signed a deal to acquire a 99-megawatt Iowa wind farm from Escondido, Calif.'s enXco, for $251 million (see Integrys to buy Iowa wind farm from EDF for $251M).