Coastal Corporation - Steady Acquisitions and Growth

Steady Acquisitions and Growth

The U.S. government took action against Coastal's agreement with Libya in 1991 by prohibiting U.S. citizens from working for the venture. This act did not dissuade Wyatt from further deals with countries in the Middle East, however. Coastal bought large amounts of Iraqi crude in the 1980s, and prior to the commencement of the Persian Gulf War, Wyatt offered to sell Iraqi President Saddam Hussein part of the company's international marketing and refining operations. U.S. sanctions against Iraq following the war prevented Coastal from purchasing Iraqi oil, but Wyatt maintained close relations with Iraq in hopes of gaining access to the oil at some time in the future.

In 1992 Coastal shut down its Derby refinery in Kansas when its refining and marketing division reported an operating loss of $192 million, but the company continued to grow, seeking acquisitions and joint ventures to streamline operations. In the following year, in fact, Coastal adopted an aggressive growth strategy. Through its subsidiary ANR Pipeline Company, Coastal completed construction on the Empire State Pipeline, a 156-mile line that ran from Niagara Falls to Syracuse, New York. ANR held a 50 percent interest in the pipeline, and Union Enterprises Ltd. held the remaining half. Also in 1993 the company acquired Soldier Creek Coal Co. and Sage Point Coal Co., both subsidiaries of Sun Co., Inc.

Wyatt gave up his post as CEO in 1995 but continued as chairman. David A. Arledge, the company president, became its CEO as well. In early 1995, through subsidiary Coastal Oil & Gas Corp., Coastal gained an interest in several producing fields off the coast of Louisiana from Koch Hydrocarbons, Inc. The company also acquired working interests in two dozen wells in the Utah area from Snyder Oil Corporation and bought the marketing assets of Exxon Corporation's subsidiary Esso Petrolera, S.A., located on the Caribbean island of Aruba.

In 1996 Coastal entered into discussions with Westcoast Energy Inc. to form a joint venture to market natural gas and electricity and to provide energy management services. The venture, which would create one of the largest marketers of natural gas and electricity in North America, was named Engage Energy. To procure funds for additional ventures, Coastal sold its Utah coal mining operations for approximately $610 million in late 1996. The company planned to keep its coal operations in the eastern United States.

When Wyatt stepped down as chairman in 1997, Arledge gained the additional post. In that year Coastal acquired an 11 percent interest in the 1,900-mile Alliance Pipeline, designed to move natural gas from western Canada to the Chicago region. Construction of the pipeline continued through the late 1990s. In 1999 Coastal announced plans to develop a 700-mile pipeline running from Mobile, Alabama, to Tampa Bay, Florida. The proposed Gulfstream Natural Gas System pipeline was designed to serve the growing natural gas and energy demand in Florida. It was projected that the pipeline would be completed by 2002.

In the late 1990s Coastal focused on its natural gas business. With excess reserves of crude oil and low refining margins, the global oil industry was in a state of chaos. The North American natural gas market, on the other hand, was a regional market, largely unaffected by global oil market conditions. In addition, according to Coastal, by 2010 the demand for natural gas was expected to grow considerably, from 22 trillion cubic feet to 30 trillion cubic feet per year. The company therefore chose to invest heavily in its natural gas operations, targeting the primary natural gas supply areas, which included the Gulf of Mexico, south Texas, the Rocky Mountains, and Canada. In June 1998 the company acquired additional interest in natural gas assets in Alabama, including a processing plant and a pipeline.

To bolster its exploration and production operations, Coastal upped its exploration and production budget by $100 million in 1998 and by $290 million in 1999. Coastal acquired oil and gas assets in northeastern Utah and western Colorado in late 1998. The company also acquired properties in the Texas Coastal Plain, a region that accounted for 45 percent of Coastal's net gas production in 1998. By February 1999 Coastal had seven oil rigs in operation. In the Gulf of Mexico region, Coastal built five drilling and production platforms in 1998. Coastal also sought international opportunities for its exploration and production operations in the late 1990s. The company announced plans to start exploration in Australia, and in October 1998 Coastal signed a deal with Petrobras, Brazil's national oil company.

Although Coastal concentrated on boosting its natural gas operations, the company continued to implement its growth strategy in other divisions. In Coastal's electric power business, the company increased its interest in a cogeneration plant in Midland, Michigan, from 10.9 to 20.4 percent in 1998. In 1999 Coastal announced plans to build a power plant in Colorado and indicated that it had reached an agreement with the Public Service Company of Colorado regarding the purchase of power. Coastal also participated in numerous international projects. In early 1999 Coastal purchased a 24.5 percent stake in a hydroelectric plant in Panama and also began operations at its Nicaragua plant. The company acquired a 66.7 percent interest in a power plant in Bangladesh and continued work on two projects in Pakistan, which were scheduled to be operational in 1999. Coastal hoped to have its Guatemala coal-fired power plant, which began construction in 1997, operational by early 2000. In September 1999 Coastal announced that, with GENER S.A., a South American electricity company, it had purchased 50 percent of the Itabo Generation Company from the Dominican Republic. Itabo owned six thermal plants near the country's capital.

Coastal's refinery facilities expanded operations in the late 1990s as well. In July 1998 the company signed a five-year deal with PMI Comercio Internacional, S.A. de C.V., a marketing subsidiary of Mexico's national oil company, Petroleos Mexicanos, in which PMI agreed to supply crude for Coastal's refinery in Aruba. Coastal began expanding the Aruba refinery in September. In 1997 Coastal entered into discussions with Venezuela's national oil company, Petróleos de Venezuela S.A. (PDVSA), regarding a venture involving Coastal's Corpus Christi refinery facilities. Coastal's refinery in Eagle Point, New Jersey, was busy in 1998 as well. In June Coastal finalized an agreement concerning the supply of crude with Norway's state oil company, Statoil Group. In other 1998 developments, Coastal sold or closed nearly 100 retail stores, including 64 Coastal Mart stores in the Midwest, to adhere to the company's decision to dispense with nonessential businesses. The stores continued to operate under the Coastal brand name. Coastal joined Chevron Corp. and Mobil Oil Corp. in a $200 million deal to purchase crude oil from Iraq. The agreement was part of the United Nation's oil-for-food deal, in which the proceeds of the sales would be used to purchase food and medicine for Iraqi citizens, who had suffered significantly from economic sanctions in place against Saddam Hussein since 1991. Coastal also expanded its chemical operations with a newly established ammonia plant in Oyster Creek, Texas. In its coal division Coastal progressed with plans to transform the business from a processing and marketing company to one that mined, processed, and marketed its own coal.