SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
------------------
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report
(Date of earliest event reported):
December 16, 1999
DUKE ENERGY CORPORATION
(Exact Name of Registrant as Specified in Charter)
NORTH CAROLINA 1-4928 56-0205520
(State or Other Jurisdiction (Commission File No.) (IRS Employer
of Incorporation) Identification No.)
526 South Church Street
Charlotte, North Carolina 28202-1904
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 704-594-6200
------------------
<PAGE>
ITEM 5. OTHER EVENTS.
Duke Energy Corporation, a North Carolina corporation ("Duke"), Duke
Energy Field Services L.L.C., a Delaware limited liability company ("Field
Services") and Phillips Petroleum Company, a Delaware corporation ("Phillips"),
entered into a Contribution Agreement , dated as of December 16, 1999 (the
"Contribution Agreement"), pursuant to which Duke and Phillips will combine
certain of their continental United States and Canadian midstream natural gas
gathering, processing and marketing operations in Field Services. Duke and
Phillips, directly or through indirect wholly owned subsidiaries, will initially
own 69.7% and 30.3%, respectively, of the voting and economic interests of
Field Services.
The foregoing summary of the Contribution Agreement and the
transactions contemplated thereby is qualified in its entirety by reference to
the Contribution Agreement which is Exhibit 2.1 to this Form 8-K and is
incorporated herein by reference.
In connection with the Contribution Agreement, Duke, Field Services and
Phillips simultaneously entered into a Governance Agreement, dated as of
December 16, 1999 (the "Governance Agreement"), which sets forth certain terms
and conditions governing Field Services.
The foregoing summary of the Governance Agreement and the transactions
contemplated thereby is qualified in its entirety by reference to the Governance
Agreement which is Exhibit 2.2 to this Form 8-K and is incorporated herein by
reference.
The press release issued by Duke and Phillips in connection with the
execution of the Contribution Agreement and the Governance Agreement is attached
hereto as Exhibit 99.1 and is incorporated herein by reference. Duke also
announced plans to book a material reserve in the fourth quarter for
contingencies resulting from the construction activity on Duke Power's electric
generating plants in the 1970s and 1980s. The reserve is expected to be more
than $750 million. Reserves for similar contingencies have been accrued in
lesser amounts as appropriate throughout the 1990s.
Duke and Phillips held an investor and analyst meeting on December 17,
1999 relating to the execution of the Contribution Agreement and the Governance
Agreement. Certain presentation materials used at the meeting are attached
hereto as Exhibit 99.2 and are incorporated herein by reference.
1
<PAGE>
ITEM 7. EXHIBITS.
Note: Certain of the exhibits listed below are incorporated by reference to
other filings. Refer to attached Exhibit Index for details.
EXHIBIT NUMBER DESCRIPTION
-------------- -----------
2.1 Contribution Agreement, dated as of December 16, 1999, by and
among Duke Energy Corporation, Duke Energy Field Services, L.L.C.
and Phillips Petroleum Company.
2.2 Governance Agreement, dated as of December 16, 1999, by and among
Duke Energy Corporation, Duke Energy Field Services, L.L.C. and
Phillips Petroleum Company.
99.1 Press Release, dated December 16, 1999.
99.2 Presentation Materials used at an investor and analyst meeting on
December 17, 1999.
FORWARD-LOOKING STATEMENTS
This Form 8-K and the exhibits hereto include forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934. Although Duke Energy believes that its
expectations are based on reasonable assumptions, it can give no assurance that
its goals will be achieved. Important factors that could cause actual results to
differ materially from those in the forward-looking statements herein include
regulatory developments, the timing and extent of changes in commodity prices
for oil, gas, coal, electricity and interest rates, the extent of success in
connecting natural gas supplies to gathering and processing systems and in
connecting and expanding gas and electric markets, the performance of electric
generation, pipeline and gas processing facilities, the timing and success of
efforts to develop domestic and international power, pipeline, gathering,
processing and other infrastructure projects and conditions of the capital
markets and equity markets during the periods covered by the forward-looking
statements.
2
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
DUKE ENERGY CORPORATION
By:
-----------------------------
Richard J. Osborne
Executive Vice President and
Chief Financial Officer
3
<PAGE>
EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION
-------------- -----------
2.1 Contribution Agreement, dated as of December 16, 1999, by
and among Duke Energy Corporation, Duke Energy Field
Services, L.L.C. and Phillips Petroleum Company.
(Incorporated by reference to Exhibit 99.1 of Form 8-K of
Phillips Petroleum Company filed December 22, 1999.)
2.2 Governance Agreement, dated as of December 16, 1999, by and
among Duke Energy Corporation, Duke Energy Field Services,
L.L.C. and Phillips Petroleum Company. (Incorporated by
reference to Exhibit 99.2 of Form 8-K of Phillips Petroleum
Company filed December 22, 1999.)
99.1 Press Release, dated December 16, 1999.
99.2 Presentation Materials used at an investor and analyst
meeting on December 17, 1999.
EX 99.1
DECEMBER 16, 1999
- --------------------------------------------------------------------------------
DUKE ENERGY AND PHILLIPS PETROLEUM ANNOUNCE DEFINITIVE AGREEMENT FORMING
PREMIER GAS GATHERING AND PROCESSING COMPANY
-- DUKE ENERGY AND PHILLIPS PETROLEUM EACH TO RECEIVE $1.2 BILLION IN CASH;
IPO PLANNED FOR NEW COMPANY -
CHARLOTTE, N.C. - Duke Energy (NYSE: DUK) and Phillips Petroleum (NYSE: P) today
announced that they have signed definitive agreements to combine Duke Energy's
gas gathering and processing businesses and Phillips Petroleum's Gas Processing
and Marketing (GPM) unit to form a new midstream company to be called Duke
Energy Field Services (DEFS). This new company will become the nation's largest
midstream natural gas liquids business and the premier gatherer and processor of
natural gas in the continental United States, with an expected enterprise value
of between $5 billion and $6 billion. The definitive agreements have been
unanimously approved by both companies' boards of directors. Due diligence has
been completed. The transaction is expected to close by first quarter 2000,
subject to regulatory approval.
Under the terms of the agreement, the new company will seek to arrange $2.4
billion of debt financing and, upon closing of the transaction, will make
one-time cash distributions of $1.2 billion to both Duke Energy and Phillips
Petroleum. In addition, the existing NGL arrangements between Phillips Petroleum
and GPM will be maintained by the new company for an initial term of 15 years.
At closing, Duke Energy will own about 70 percent of the new company, and
Phillips Petroleum will own about 30 percent.
During the first half of 2000, following completion of the transaction and
subject to market conditions, it is expected that the new company will offer
approximately 20 percent of its equity to the public in an initial public
offering. The proceeds of the offering will be used to reduce debt incurred by
the new company in the transaction. DEFS will provide investors the opportunity
to participate directly in the future growth and consolidation of the gas
gathering and processing industry. Given the company's size and access to the
capital markets, it will immediately have the flexibility to pursue its growth
opportunities. The agreements governing DEFS set forth a formula that adjusts
Duke Energy's and Phillips Petroleum's post-IPO equity interests depending on
the public market valuation of the new company. Accordingly, assuming a value
range for the new company between $5 billion and $6 billion, Duke Energy's
post-IPO equity ownership in the new company would range between 55 percent and
57 percent, and Phillips Petroleum's post-IPO ownership would range between 23
percent and 25 percent. Duke Energy expects to consolidate the new company for
financial reporting purposes; Phillips Petroleum expects to account for its
ownership in DEFS on an equity basis.
TRANSACTION ACCRETIVE TO BOTH DUKE ENERGY AND PHILLIPS PETROLEUM
The transaction will be immediately accretive to both Duke Energy and Phillips
Petroleum. The transaction will help move Duke Energy toward the top of its
targeted range for growing earnings per share 8 percent to 10 percent annually.
The $1.2 billion cash payment will reduce the need for Duke Energy to issue
equity to fund its capital expenditure plans. Duke Energy is firmly focused on
becoming the world's premier global energy merchant.
Phillips Petroleum expects to retain approximately $1.15 billion, after taxes,
of the $1.2 billion that it will receive from this transaction. Phillips
Petroleum's proceeds from the transaction will be used initially to reduce debt,
as well as for other corporate purposes. As a result, Phillips Petroleum expects
its net debt-to-capital ratio to decline from 47 percent to approximately 40
percent.
Richard B. Priory, chairman, president and chief executive officer of Duke
Energy, said, "This innovative transaction demonstrates our ability to seize
opportunities for growth and value creation. This transaction
<PAGE>
is the most recent and vivid example of Duke Energy's global energy merchant
strategy. As the energy industry changes, there will be opportunities for those
companies with the expertise, financial strength and assets to act quickly,
decisively and creatively.
"All of our energy businesses are top tier performers. By combining the assets
and people of Duke Energy's gas gathering and processing business with GPM, we
are building a new market leader. And, with the prospect of an IPO, we'll tap
new financing and ownership opportunities that will unlock the full value of the
new company," Priory said.
James J. Mulva, chairman, president and chief executive officer of Phillips
Petroleum, stated, "This transaction is an integral step in achieving our
strategic objectives recently communicated to the financial community. It
monetizes a substantial portion of the value of one of Phillips Petroleum's key
non-E&P assets, thereby increasing Phillips Petroleum's financial flexibility to
pursue attractive exploration and production growth opportunities. It also
enhances and makes more transparent the value of our GPM asset.
"In Duke Energy, we have a company that intends to capture the potential in this
business and has an excellent record as both an operator of assets and a builder
of value. We are also maintaining both financial and operational integration
between Phillips Petroleum and the midstream business. Financially, Phillips
Petroleum will hold a significant ownership position in a publicly held
midstream company, with a strong growth platform of high quality assets,
financial resources and strong management. We believe the new company will have
greater access to capital to grow its business than the GPM unit historically
obtained as part of Phillips Petroleum. Operationally, we have ensured a
continued NGL supply for our downstream businesses," Mulva concluded.
ABOUT THE NEW DUKE ENERGY FIELD SERVICES
The new company will have a strong position in most of the significant
hydrocarbon basins in the continental United States. The combined revenues and
EBITDA for the two businesses in the third quarter of 1999 was $1.6 billion and
$183 million, respectively. The new company will operate 67 plants, 57,000 miles
of pipelines and an estimated 17 TCF of contracted supply. It will process
approximately 5 BCFD of raw gas, and produce 400,000 BPD of NGLs. Duke Energy
and Phillips Petroleum believe that the new company will realize synergies,
primarily from operating efficiencies. James W. Mogg, currently president of
Duke Energy's gathering and processing business (also called Duke Energy Field
Services), will become chairman, president, and chief executive officer of the
new company. Michael Panatier, currently president and chief executive of GPM,
will become vice chairman. "This combination represents the latest and most
dramatic example of the restructuring and consolidation in the midstream gas
business. It immediately creates shareholder value for both Duke Energy and
Phillips Petroleum. By combining DEFS' and GPM's businesses, we will have the
best collection of people and assets in the gathering and processing industry.
This transaction brings together the fastest growing midstream business, DEFS,
with one of the most experienced, GPM. Additionally, GPM's assets and gas
contracts provide additional balance to our existing business," said Mogg.
The new company will be governed by a board of directors that will initially
consist of three directors to be chosen by Duke Energy and two directors to be
selected by Phillips Petroleum. Priory and Mulva have agreed to serve on the
DEFS board. Following the IPO, the board will be expanded from five to 11; Duke
Energy will choose seven members (two of whom will be independent) and Phillips
Petroleum will choose four (one of whom will be independent). DEFS will be
headquartered in Denver, Colo.
Duke Energy's existing midstream business is the largest U.S. producer of NGLs,
one of the largest natural gas gatherers and marketers and one of the largest
NGL marketers. In 1999, DEFS became the industry's top NGL producer by acquiring
UPR's natural gas gathering, processing, fractionation and NGL pipelines for
$1.35 billion. The company operates 52 plants today in Wyoming, Colorado,
Kansas, Oklahoma, New Mexico, Texas, along the Gulf Coast and in northwestern
Alberta, Canada.
<PAGE>
Phillips Petroleum's NGL business, GPM, has operated Phillips Petroleum's gas
gathering and processing units in the continental United States since 1992. GPM
operates 15 plants in Texas, New Mexico and Oklahoma.
The NGL industry provides processing of natural gas and fractionation of natural
gas liquids to produce liquid products such as ethane, propane, butanes and
natural gasolines. Customers of the NGL business include gas and crude
producers, refineries, petrochemical plants and propane distributors. Morgan
Stanley Dean Witter acted as financial advisor to Duke Energy and Merrill Lynch
& Co. acted as financial advisor to Phillips Petroleum.
OTHER BOARD ACTION
Duke Energy's board of directors approved the definitive agreement at their
meeting in Charlotte today. The company also announced plans to book a material
reserve in the fourth quarter for contingencies resulting from the construction
activity on Duke Power's electric generating plants in the 1970s and 1980s. The
reserve is expected to be more than $750 million. Reserves for similar
contingencies have been accrued in lesser amounts as appropriate throughout the
1990s.
Duke Energy (NYSE:DUK) is a global energy company with more than $29 billion in
assets. Headquartered in Charlotte, N.C., the company reaches into more than 50
countries, producing energy, transporting energy, marketing energy and providing
energy services. In the United States, Duke Energy companies provide electric
service to approximately two million customers in North Carolina and South
Carolina; operate interstate pipelines that deliver natural gas to various
regions of the country; and are leading marketers of electricity, natural gas
and natural gas liquids.
Phillips Petroleum is an integrated petroleum company engaged in oil and gas
exploration and production worldwide; refining, marketing and transportation
operations primarily in the United States; chemicals and plastics manufacturing
and sales around the globe; and technology development. Founded in Bartlesville,
Okla., in 1917, the company has 16,200 employees, $15 billion of assets and $13
billion of revenues on an annual basis.
###
This press release includes forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. Although Duke Energy believes that its expectations are
based on reasonable assumptions, it can give no assurance that its goals will be
achieved. Important factors that could cause actual results to differ materially
from those in the forward-looking statements herein include regulatory
developments, the timing and extent of changes in commodity prices for oil, gas,
coal, electricity and interest rates, the extent of success in connecting
natural gas supplies to gathering and processing systems and in connecting and
expanding gas and electric markets, the performance of electric generation,
pipeline and gas processing facilities, the timing and success of efforts to
develop domestic and international power, pipeline, gathering, processing and
other infrastructure projects and conditions of the capital markets and equity
markets during the periods covered by the forward-looking statements.
EXHIBIT 99.2
PROJECT SUMMARY
o Form a new company which combines Duke Energy Corporation's Midstream Gas
Business (Field Services) and Phillips Petroleum Corporation's Midstream
Gas Business (GPM)
o The new company will secure debt financing and distribute $1.2 B to each of
Duke and Phillips
o An IPO will be undertaken, assuming favorable market conditions, to pay
down debt
<PAGE>
OVERVIEW OF PROPOSED STRUCTURE
RELATIVE ECONOMICS:
DUKE: 61.1%
PHILLIPS: 38.9%
[CHART SHOWING MOVEMENT OF STOCK AND PROCEEDS OF DEBT OFFERING
AMONG THE PARTIES]
<PAGE>
KEY STRATEGIC DRIVERS
o GPM assets are complementary with DEFS Mid-Continent and West Texas / New
Mexico assets
o GPM percent of proceeds (POP) contracts help balance DEFS short gas
position
o Provides near-term critical mass for attractive IPO with new corporation
recognized as clear leader in industry
<PAGE>
DUKE ENERGY FIELD SERVICES
[MAP SHOWING DEFS PIPELINES, PLANTS AND OPERATING AREAS]
<PAGE>
DEFS AND GPM
[MAP SHOWING COMBINED DEFS AND GPM PIPELINES, PLANTS AND OPERATING AREAS]
<PAGE>
1998 TOP NGL PRODUCERS
COMPANY MBbls/d
DEFS 208
GPM 169
Dynegy Liquids 123
Shell/Tejas NGL 111
Amoco 108
Conoco 102
PG&E Texas 95
Texaco 80
Williams Midstream 74
Arco/Vastar 68
Exxon 65
<PAGE>
COMPARATIVE STATISTICS
GPM DEFS COMBINED
------ -------- --------
EBITDA ($MM) (3rd Qtr) $84 $99 $183
Gathering Vols (Bcf/d) 1.8 1.5 3.3
Processing Vols (Bcf/d) 1.3 3.6 4.9
NGL Production (MBbls/d) (1) 170 225 395
Gas Plants (2) 16 (15) 64 (52) 80 (67)
Frac Capacity (MBbls/d) 0 178 178
Pipeline Miles 29,000 28,000 57,000
No. of Employees 1,100 1,600 2,700
(1) As of September, 1999
(2) # of facilities operated in parenthesis
<PAGE>
ENERGY COMMODITIES
DEFS
Long NGL's 103,314 Bbls/day
Short Gas 151,589 MMBtus/day
GPM
Long NGL's 56,009 Bbls/day
Long Gas 133,642 MMBtus/day
COMBINED
Long NGL's 159,323 Bbls/day
Short Gas 17,947 MMBtus/day
<PAGE>
COMMODITY PRICE SENSITIVITY
DEFS
1(cent)/gal change +/- $ 15.0 MM
10(cent)/MMBtu change +/- $ <5.0>MM
GPM
1(cent)/gal change +/- $ 8.6 MM
10(cent)/MMBtu change +/- $ 4.9 MM
COMBINED
1(cent)/gal change +/- $ 23.6 MM
10(cent)/MMBtu change +/- $ <0.1>MM
<PAGE>
IMPLEMENTATION
o FTC
- File after holidays
o Financial
- $2.4B debt
o Social Issues
- Officers and employees to be determined
- Headquarters will be Denver, Colorado
o Governance
- Pre IPO Board of Directors
o 3 Duke and 2 Phillips nominees
- Post IPO Board of Directors
o 5 Duke and 2 outside Duke nominees
o 3 Phillips and 1 outside Phillips nominee
- Supermajority items
<PAGE>
NATURAL GAS CONSUMPTION FORECAST
CURRENT US MARKET PROFILE
Industrial 39%
Residential 23%
Commercial 15%
Elect. Gen. 14%
According to PIRA, electric generation is expected to provide 75% of this
growth.
[GRAPH SHOWING PLOT POINTS AS FOLLOWS:]
YEAR TCF/YEAR
---- --------
1999 22
2005 25
2010 28
2015 30
2020 32
<PAGE>
OVERALL STRATEGY
o View of the industry
- Gas consumption will increase
- Producers will rise to the occasion
- Consolidations will continue to occur
o Our strategy
- Expand in growth areas
- Optimize existing assets
- Participate in consolidation
<PAGE>
TRANSACTION KEY ATTRIBUTES
o Merged companies are in the same business, have the same core
competencies, and possess the same focus
o Combines a large operationally focused company with the fastest growing
company in the industry
o Creates a clear market leader
o Results in a self-funding business entity with significant resources
o IPO is attractive
- Trendsetting
- Significant size
<PAGE>
MEETING OUR CORPORATE OBJECTIVES
o Creates the major, top-tier player in the growing NGL industry
o Moves Duke Energy's 2000 EPS growth to the top of our target range -
$4.00
o Allows for more efficient use of capital
- Acquisitions and expansions self-funded at DEFS
- Reduces requirements for new Duke Energy equity
o IPO offers investors a pure play for valuation of the gathering and
processing business
o Demonstrates validity of strategy to create shareholder value out of
the consolidation of the midstream business
