Columbia Gas System's $154 million deal to sell its remaining interest in a Calvert County plant that converts liquefied natural gas to gaseous form might be in trouble, the company said yesterday.
Delaware-based Columbia Gas said conditions in its agreement to sell 40.8 percent of Columbia LNG, the subsidiary that owns the Cove Point regasification plant, to Shell LNG Co. on July 29 were "unlikely to be met."
If the conditions aren't met, Shell will have the option of canceling that agreement and a deal to buy 50 percent of the subsidiary next year, Columbia Gas spokesman William R. McLaughlin said.
Shell Oil Co. spokesman Michael Sternesky said Shell LNG's directors will meet today to consider whether to cancel the options or pursue other possibilities. "Any statement prior to the board meeting will be premature," he said.
Neither company would say what unmet conditions could delay the sale, which was announced last year.
The deal called for Shell to pay Columbia Gas $110 million and refinance and repay $44 million Columbia LNG owes its parent company.
The plant has been closed since 1980 because of a dispute with an Algerian supplier of liquefied natural gas and because of falling gas prices that made domestic natural gas supplies more plentiful and imported liquefied gas less competitive.
Columbia Gas said it has about $95 million invested in the plant. It was originally a half-owner, but its partner walked away from the deal and gave its interest to Columbia Gas after the plant closed.
Columbia Gas said it was considering what to do with Cove Point if the deal falls through. Options include finding another buyer or using the plant to store liquefied natural gas.
The company could reopen the plant to help Columbia Gas meet heavy demand during the peak heating and air-conditioning seasons, Mr. McLaughlin said. Opening the plant to meet peak demand would cost an additional $20 million to $40 million, Columbia Gas said.
Shell LNG already has bought 9.2 percent of Columbia LNG for $18.5 million. Mr. McLaughlin said that transaction wouldn't be canceled if Shell decided not to buy the rest of the subsidiary's stock.
Mr. McLaughlin said the Cove Point transaction had nothing to do with Columbia Gas' decision to seek protection from creditors under Chapter 11 of the U.S. Bankruptcy Code last year. The company has said it sought protection in a bid to break gas purchase contracts that committed it to buy gas at prices that became unrealistic as prices fell.
Mr. McLaughlin said Columbia Gas was seeking an extension until November of its deadline for proposing a reorganization plan to the bankruptcy court.