Transco Energy Company

views updated

Transco Energy Company

2800 Post Oak Boulevard
Houston, Texas 77056
U.S.A.
(713) 439-2000
Fax: (713) 439-4154

Public Company
Incorporated: 1948 as Transcontinental Gas Pipe Line Corporation
Employees: 5,400
Sales: $3.08 billion
Stock Exchange: New York

Transco Energy Companys primary business is the transportation and sale of natural gas, largely to markets in the eastern and midwestern United States. It runs the largest gas-gathering system in the Gulf of Mexico and operates a huge pipeline network, including a line that extends 10,000 miles, from the gulf to New York City. In 1990 Transcos total pipeline system deliveries provided more than 10% of natural gas used in the United States, including the gas that lights the eternal flame at the grave of the late U.S. President John F. Kennedy. Transco also has interest in oil and gas exploration and production, electric power generation, and coal mining and marketing, although in 1991 the company decided to exit the coal and oil and gas production businesses.

The company was organized in October 1948, as Transcontinental Gas Pipe Line Corporation, to build what would be, at the time, the worlds longest pipeline, stretching 1,832 miles from Hidalgo County, Texas, to New York City. Claude Williams, the companys first president, broke ground for the pipeline in May 1949. More than 540,000 tons of steel were used to build the line, and 40 rivers were crossed during its construction. The pipeline made its first delivery of gas in December 1950, to Danville, Virginia, and began serving New York a month later. In 1952 the company engineered another coup, laying a pipeline 100 feet deep to connect the New York boroughs of Brooklyn and Staten Island. The line crossed under the Narrows, the body of water where the Atlantic Ocean and the Hudson River meet.

Transcontinental Gas Pipe Line built the first offshore pipeline in the Gulf of Mexico in 1957, a 21-mile line off the coast of Louisiana. The following year, it bought a natural gas storage field in north central Pennsylvania. In December 1958 the companys daily deliveries of gas exceeded one billion cubic feet for the first time; seven years earlier, the largest daily demand had been less than 350 million cubic feet.

In 1963 the company began development of an underground storage field in Pennsylvania and started construction on an above-ground storage tank for liquefied natural gas in New Jersey. In 1968 corporate assets reached $1 billion for the first time, up from $54.8 million at the companys inception 20 years earlier.

In 1973 Transco Companies Inc. was incorporated as a holding company, and Transcontinental Gas Pipe Line Corporation became its subsidiary. The latters common stock was converted share-for-share into the common stock of the new parent company. Creation of the holding company was designed to allow greater breadth and flexibility in financing of construction and other ventures.

Later in 1973, Transco prepared to launch a joint venture with National Iranian Oil Company, in which natural gas products would be processed in Iran and transported to the United States for conversion into pipeline-quality gas. The agreement called for the two companies to be equal partners in a $650 million facility. The project was canceled the following year, however, because the Iranian company needed the gas to re-pressure Iranian oil fields. In 1974 Transco discontinued its participation in various oil and gas exploration projects in Canada. Company officials said programs in Canada had been disappointing.

In 1975 Transco was listed on the New York Stock Exchange. Later that year, it entered into a joint venture with McMoRan Exploration Company for gas exploration along the gulf coast of Texas and Louisiana. Also that year, Transco and United Gas Pipeline Company applied for Federal Power Commission (FPC) approval to build an offshore pipeline to transport natural gas produced in the High Island area in the gulf, off the Texas coast.

Transcos exploration ventures were in part a response to the energy crisis of the 1970s. Unlike many other pipeline operators, Transco had only small gas supplies of its own, and the FPC strictly limited the price it could pay for gas producers output. With energy prices rising across the board, producers were not eager to sell to Transco. In 1974 the FPC raised price limits for newly discovered gas, and the producers became more interested in Transco, which in turn was willing to finance exploration. Leading Transcos efforts in this area was Jack Bowen, who became chairman and president late in 1974. Bowen came to Transco from Florida Gas Company, a pipeline operator that had significant gas exploration experience as well.

During the winter of 1974-1975, Transcontinental Gas Pipe Line cut back on gas deliveries, leading to an FPC investigation. In 1977 an FPC administrative law judge found the company innocent of improperly withholding gas supplies, noting the decline in natural gas supplies. The parent company, Transco, had already begun aggressively seeking new sources.

This aggressiveness was apparent in several events that occurred during 1977. Transcontinental Gas Pipe Line applied for FPC approval for additional offshore pipelines. Another Transco unit, Transco Exploration Company, reported discovery of three natural gas reservoirs in the Gulf of Mexico, in an area Transco was exploring along with McMoRan and Mesa Petroleum Company. Transco Exploration and Texaco Inc. teamed up to produce oil and gas from another tract in the gulf. Transco Exploration, on its own, drilled two exploratory wells in yet another part of the gulf. Late in the year, the exploration company entered into another joint venture with McMoRan and three other companies to seek oil and gas in federal waters in the gulf.

The success of the exploration work buoyed the parent companys bottom line. Earnings per share were $2.84 in 1977, up 30% from the previous year and more than 400% since 1974.

The search for new supplies continued; Transco Exploration found commercial quantities of gas off the Texas coast in 1979. The parent company also ventured into other energy businesses, including coal; it bought three coal companies from General Energy Corporation of Lexington, Kentucky, in 1982, for about $70 million. The same year, the parent companys name was changed to Transco Energy Company.

During the early 1980s Transcos gas supply situation was the reverse of what it had been during the 1970s. Large increases in Transcos own gas-production capacity, and that of its outside suppliers, had left the company with a great deal of gas it could not sell. Oil prices had fallen, so many of Transcos industrial customers had begun to use inexpensive fuel oil instead of natural gas. Transco responded by renegotiating contracts with its suppliers, often arriving at a lower price, and also reduced the prices it charged industrial customers by tying its gas price to that of fuel oil. Also, Transco converted its exploration operations into a limited partnership, Transco Exploration Partners, Ltd. (TXP), and sold 12% of the partnership to the public in 1983 generating $120 million in cash.

In 1985 Transco Energy gave up on a North Dakota coal-gasification plant it had operated with four other energy companies. The project, in which Transco held a 20% share, had been viewed a decade earlier as a means to secure U.S. energy supplies into the future. Although subsidized by the U.S. government, the project was hurt by slumping energy prices and had to be terminated after the Department of Energy rejected a last-minute bailout plan. Transco took a $91 million charge against its third-quarter 1985 earnings for the shutdown. Also in 1985, the company expanded further into coal with the $233 million purchase of Interstate Coal Company.

The natural gas transmission industry underwent significant regulatory changes in the 1980s. Beginning in 1984, the Federal Energy Regulatory Commission (FERC)successor to the FPC created in 1977issued orders that freed pipeline customers from their obligations to buy minimum amounts of gas from their pipeline suppliers, instead allowing the customers to buy their gas from other companies and have it transported via the pipeline. There was a resulting decrease in natural gas prices and an increase in competition; responding to this, Transcos pipeline subsidiaries became permanent open access pipelines in 1988, transporting gas that customers had purchased from other companies. Still, Transcos financial performance suffered; it reported a loss of $61 million, or $3.52 per share, for 1987, followed by a net loss of $91 million, or $3.1 per share, in 1988.

Transco enlarged its pipeline network in 1989 with the purchase of Texas Gas Transmission Corporation and two related companies for about $600 million from CSX Corporation. Texas Gas Transmission had about 6,000 miles of pipeline extending from the Louisiana gulf coast to Ohio and Indiana.

Transcos financial performance improved in 1989, with net income of $89 million. Also, to improve cash flow, it decided to liquidate TXP, while continuing some exploration projects through Transco Exploration and Production Company, formed in 1989 to develop sources in the gulf.

Transco Exploration and Production made 11 gas discoveries in 1990. Also in 1990, the FERC gave preliminary approval to a project by which Transcos two major pipeline systemsTranscontinental Gas Pipe Line and Texas Gas Transmissionwould be expanded and connected with other companies systems, creating the first major new route for domestic gas to the northeastern United States since the 1970s.

Early in 1991 Transcontinental Gas Pipe Line and five other companies joined to launch onshore and offshore pipeline systems to transport natural gas from the Mobile Bay area in the gulf off Alabama. The year also was marked by the abrupt resignation of George S. Slocum, Transcos president since 1984. Observers speculated that Slocum had become frustrated by the companys legal and regulatory problems. These included a lawsuit by the state of Alabama that alleged archaeological and environmental damage from a pipeline project and an FERC order that Transco make refunds to certain customers as reparation for improperly billing for certain costs. Transco took a $6.3 million charge against its second-quarter 1991 earnings to reflect the settlement of these matters. In 1991 Transco and Duke Power Company completed financing for their joint venture in a cogeneration facility.

Having posted a modest profit in 1990, Transco showed a net loss of $47.2 million in the first nine months of 1991. Some of this was due to the establishment of a reserve to cover the outcome of a rate case pending before the FERC. Also, however, Transcos nonpipeline businesses were performing poorly. Late in 1991, John P. DesBarres, who had succeeded Slocum as president with Bowen remaining chairman, announced Transco would get out of its oil and gas production businesses and coal operations, while focusing on its pipeline, gas marketing, and power generation segments. He also planned to reduce capital spending by 40% in 1992, while cutting common stock dividends and 500 jobs.

Principal Subsidiaries

Transcontinental Gas Pipe Line Corporation; Texas Gas Transmission Corporation; Transco Energy Marketing Company; Transco Gas Gathering Company; Transco Energy Ventures Company; Transco Exploration and Production Company; Transco Coal Company.

Further Reading

Transcontinental Gas Pipe Line Corporation: 1948-1988, Houston, Transco Energy Company, 1988.

Trudy Ring

More From encyclopedia.com

About this article

Transco Energy Company

Updated About encyclopedia.com content Print Article

You Might Also Like

    NEARBY TERMS

    Transco Energy Company