UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 13D
(Rule 13d-101)
Information to be Included in Statements Filed Pursuant to Rule 13d-1(a) and
Amendments Thereto Filed Pursuant to Rule 13d-2(a)
Under the Securities Exchange Act of 1934
(Amendment No. 3)*
THE HOUSTON EXPLORATION COMPANY
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(Name of Issuer)
Common Stock, par value $ .01 per share
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(Title of Class of Securities)
44212010
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(CUSIP Number)
John J. Bishar, Jr.
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Senior Vice President & General Counsel
KeySpan Corporation
One MetroTech Center
Brooklyn, New York 11201
(718) 403-1000
With a copy to:
William R. Dougherty
Simpson Thacher & Bartlett LLP
425 Lexington Avenue
New York, New York 10017
(212) 455-2000
--------------------------------------------------------------------------------
(Name, Address and Telephone Number of Person
Authorized to Receive Notices and Communications)
May 24, 2004
--------------------------------------------------------------------------------
(Date of Event which Requires Filing of this Statement)
If the filing person has previously filed a statement on Schedule 13G to
report the acquisition that is the subject of this Schedule 13D, and is filing
this schedule because of sections 240.13d-1(e), 240.13d-1(f) or 240.13d-1(g),
check the following box. |_|
Note: Schedules filed in paper format shall include a signed original and
five copies of the schedule, including all exhibits. See section 240.13d-7 for
other parties to whom copies are to be sent.
*The remainder of this cover page shall be filled out for a reporting
person's initial filing on this form with respect to the subject class of
securities, and for any subsequent amendment containing information which would
alter disclosures provided in a prior cover page.
The information required on the remainder of this cover page shall not be
deemed to be "filed" for the purpose of Section 18 of the Securities Exchange
Act of 1934 ("Act") or otherwise subject to the liabilities of that section of
the Act but shall be subject to all other provisions of the Act (however, see
the Notes).
Page 2 of 12
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1 NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
KeySpan Corporation
I.R.S. Identification No. 11-3431358
----------- --------------------------------------------------------------------
2. CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a)[ ]
(b)[ ]
----------- --------------------------------------------------------------------
3 SEC USE ONLY
----------- --------------------------------------------------------------------
4. SOURCES OF FUNDS*
Not Applicable
----------- --------------------------------------------------------------------
5. CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEMS 2(d) or 2(e)[ ]
----------- --------------------------------------------------------------------
6. CITIZENSHIP OR PLACE OF ORGANIZATION
New York
----------------------- ---------- ---------------------------------------------
NUMBER OF 7. SOLE VOTING POWER
SHARES
BENEFICIALLY 17,380,392 (indirectly through KeySpan Energy
Corporation and THEC Holdings Corp.)
OWNED BY ---------- ---------------------------------------------
EACH 8. SHARED VOTING POWER
REPORTING
PERSON ---------- ---------------------------------------------
WITH 9. SOLE DISPOSITIVE POWER
17,380,392 (indirectly through KeySpan Energy
Corporation and THEC Holdings Corp.)
---------- ---------------------------------------------
10. SHARED DISPOSITIVE POWER
----------- --------------------------------------------------------------------
11. AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
17,380,392 (indirectly through KeySpan Energy Corporation and
THEC Holdings Corp.)
----------- --------------------------------------------------------------------
12. CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN
SHARES* [ ]
----------- --------------------------------------------------------------------
13. PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
55%
----------- --------------------------------------------------------------------
14. TYPE OF REPORTING PERSON*
HC
----------- --------------------------------------------------------------------
Page 3 of 12
----------- --------------------------------------------------------------------
1 NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
KeySpan Energy Corporation
I.R.S. Identification No. 11-3344628
----------- --------------------------------------------------------------------
2. CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a)[ ]
(b)[ ]
----------- --------------------------------------------------------------------
3 SEC USE ONLY
----------- --------------------------------------------------------------------
4. SOURCES OF FUNDS*
Not Applicable
----------- --------------------------------------------------------------------
5. CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEMS 2(d) or 2(e)[ ]
----------- --------------------------------------------------------------------
6. CITIZENSHIP OR PLACE OF ORGANIZATION
New York
----------------------- ---------- ---------------------------------------------
NUMBER OF
SHARES 7. SOLE VOTING POWER
BENEFICIALLY
OWNED BY 17,380,392 (indirectly through THEC Holdings
Corp.)
EACH ---------- ---------------------------------------------
REPORTING 8. SHARED VOTING POWER
PERSON
WITH ---------- ---------------------------------------------
9. SOLE DISPOSITIVE POWER
17,380,392 (indirectly through THEC Holdings
Corp.)
---------- --------------------------------------------
10. SHARED DISPOSITIVE POWER
----------- --------------------------------------------------------------------
11. AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
17,380,392 (indirectly through THEC Holdings Corp.)
----------- --------------------------------------------------------------------
12. CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN
SHARES* [ ]
----------- --------------------------------------------------------------------
13. PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
55%
----------- --------------------------------------------------------------------
14. TYPE OF REPORTING PERSON*
CO
----------- --------------------------------------------------------------------
Page 4 of 12
----------- --------------------------------------------------------------------
1 NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
THEC Holdings Corp.
I.R.S. Identification No. 76-0489610
----------- --------------------------------------------------------------------
2. CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a)[ ]
(b)[ ]
----------- --------------------------------------------------------------------
3 SEC USE ONLY
----------- --------------------------------------------------------------------
4. SOURCES OF FUNDS*
Not Applicable
----------- --------------------------------------------------------------------
5. CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEMS 2(d) or 2(e)[ ]
----------- --------------------------------------------------------------------
6. CITIZENSHIP OR PLACE OF ORGANIZATION
Delaware
----------------------- ---------- ---------------------------------------------
NUMBER OF
SHARES 7. SOLE VOTING POWER
BENEFICIALLY
OWNED BY 17,380,392
EACH ---------- ---------------------------------------------
REPORTING 8. SHARED VOTING POWER
PERSON
WITH ---------- ---------------------------------------------
9. SOLE DISPOSITIVE POWER
17,380,392
---------- ---------------------------------------------
10. SHARED DISPOSITIVE POWER
--------------------------------------------------------------------------------
11. AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
17,380,392
----------- --------------------------------------------------------------------
12. CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN
SHARES* [ ]
----------- --------------------------------------------------------------------
13. PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
55%
----------- --------------------------------------------------------------------
14. TYPE OF REPORTING PERSON*
CO
----------- --------------------------------------------------------------------
Page 5 of 12
Item 1. Security and Issuer
Item 1 is hereby amended and restated as follows:
This Amendment No. 3 (the "Amendment") to Schedule 13D relating to the
Common Stock, par value $0.01 per share (the "Common Stock"), of The Houston
Exploration Company, a Delaware corporation (the "Issuer") is filed by KeySpan
Corporation (f/k/a BL Holding Corp.), a New York corporation ("KeySpan"),
KeySpan Energy Corporation, a New York corporation ("KEC"), and THEC Holdings
Corp., a Delaware corporation ("THEC" and, together with KeySpan and KEC,
"Reporting Persons"), to further amend the Schedule 13D that was previously
filed on October 8, 1997 and amended by Amendment No. 1 thereto, filed on April
7, 2000 and Amendment No. 2 thereto, filed on March 3, 2003. Unless otherwise
indicated, all capitalized terms used but not defined in this Amendment have the
same meaning as set forth in the Schedule 13D as previously amended. The
principal executive offices of the Issuer are located at 1100 Louisiana, Suite
2000, Houston, Texas 77002-5219.
Item 2. Identity and Background
Item 2 is hereby amended by adding the following text:
Annexes A-1, A-2 and A-3 are hereby amended and restated as attached
hereto.
Item 4. Purpose of Transaction
Item 4 is hereby amended and restated as follows:
KeySpan, THEC and Issuer have announced that they plan to enter into to an
agreement under which THEC will transfer to Issuer up to 10,800,000 shares of
Common Stock in exchange for all of the stock of a wholly owned Issuer
subsidiary, Seneca-Upshur Petroleum, Inc ("Seneca"). At the time of the
exchange, Seneca will hold all of Issuer's Appalachian Basin assets and an
amount of additional cash calculated to equalize the value of the Common Stock
being exchanged. KeySpan and Issuer have ascribed a value of $60 million dollars
to the Appalachian Basin producing assets. At December 31, 2003, these
properties had proved reserves of 50.5 billion cubic feet of natural gas
equivalent (Bcfe), or approximately 7% of Issuer's total proved reserves.
The value that KeySpan will receive for its 10,800,000 shares of Common
Stock in the proposed exchange will be determined by a formula, one of the
components of which is the ultimate public offering price of the shares of
Common Stock in the offering. Assuming a public offering price of $45.01 (which
was the last reported sales price of Common Stock on the New York Stock Exchange
on May 21, 2004), KeySpan will receive a per share value for its 10,800,000
shares of Common Stock that is equal to $40.09. The value per share received by
KeySpan will increase or decrease, as the case may be, by approximately $0.51
per share for a corresponding $1.00 increase or decrease in the assumed public
offering price.
If the proposed exchange is consummated, KeySpan would own 6,580,392
shares, or approximately 24%, of Issuer's outstanding Common Stock. The Issuer
may contribute a portion of the net proceeds from any exercise by the
underwriters of their over-allotment option prior to the closing of the offering
to Seneca and up to 310,000 additional shares of Common Stock may be redeemed
from KeySpan in the proposed exchange (in which case KeySpan would own 6,270,392
shares, or approximately 23%, of Issuer's outstanding Common Stock). In
addition, KeySpan would reduce its representation on Issuer's Board of Directors
to two directors from five and the Chief Executive Officer of KeySpan will no
longer serve as Chairman of the Board of Directors of the Issuer.
In addition, KeySpan plans to enter into an underwriting agreement pursuant
to which it would agree, among other things, not to transfer, without the prior
written consent of the underwriters and subject to certain exceptions, any
shares of Common Stock during the period ending 90 days after the date of the
Page 6 of 12
prospectus supplement relating to the offering of shares of Common Stock. As
part of the proposed transactions, THEC would also agree that, upon consummation
of the proposed transactions, for a period of three years, THEC would agree not
to increase its ownership interest in the Issuer above the ownership interest it
has at the time of consummation.
Since consummation of the proposed transactions is subject to each party's
satisfaction with the public offering price, no assurance can be given that the
proposed transactions will be completed.
The preceding summary of the proposed transactions is not intended to be
complete and is qualified in its entirety by reference to the full text of the
press release issued by KeySpan, a copy of which is filed as Exhibit 8 hereto,
and which is incorporated herein by reference.
KeySpan, KEC and THEC intend to review the performance of their investment
in the Issuer from time to time. Depending on various factors, including the
business, prospects and financial position of the Issuer, the current and
anticipated future price levels of the Common Stock, the conditions in the
securities markets and general economic and industry conditions, as well as the
benefits of diversification and the other investment opportunities available to
them, KeySpan, KEC and THEC will take such actions with respect to their
investment in the Issuer as they deem appropriate in light of the circumstances
existing from time to time. Subject to the terms of any agreement entered into
in connection with the proposed transactions, KeySpan, KEC and THEC may purchase
additional equity in the Issuer or may dispose of some or all of their holdings
in the open market, in public offerings, in private negotiated transactions or
in other transactions, including derivative transactions.
Other than as described above, none of KeySpan, KEC and THEC has any plans
or proposals that relate to or would result in any of the actions described in
subparagraphs (a) through (j) of Item 4 of Schedule 13D (although KeySpan, KEC
and THEC reserve the right to develop such plans).
Item 5. Interest in Securities of the Issuer
Item 5 is hereby amended and restated as follows:
(a) As of the date hereof, THEC beneficially owns, and KeySpan and KEC
beneficially own indirectly through THEC, 17,380,392 shares of Common Stock,
representing approximately 55% of the total outstanding shares of Common Stock
(based on 31,854,155 shares of Common Stock outstanding as reported in the
Issuer's Quarterly Report on Form 10-Q filed with the Securities and Exchange
Commission on May 7, 2004). Upon consummation of the proposed transactions
described in Item 4, THEC, and KeySpan and KEC indirectly through THEC, will own
6,580,392 shares, or approximately 24%, of Issuer's outstanding Common Stock (or
in the case the underwriters exercise their over allotment option in full,
6,270,392 shares, or approximately 23%, of Issuer's outstanding Common Stock).
(b) THEC has, and KeySpan and KEC each have indirectly through THEC, sole
power to vote or direct the vote and to dispose or direct the disposition of
shares of Common Stock owned by it.
(c) Not applicable.
(d) Not applicable.
(e) Not applicable.
Item 6. Contracts, Arrangements, Understandings or Relationships with Respect to
Securities of the Issuer
Item 6 is hereby amended and restated as follows:
Page 7 of 12
Upon consummation of the proposed transactions described in Item 4, Robert
B. Catell, the Chief Executive Officer of KeySpan and KEC, who also serves as
director to KeySpan and KEC, and Stephen W. McKessey, who also serves as a
director of KeySpan, will serve as directors of Issuer.
In addition, KeySpan plans to enter into an underwriting agreement pursuant
to which it would agree, among other things, not to transfer, without the prior
written consent of the underwriters and subject to certain exceptions, any
shares of Common Stock during the period ending 90 days after the date of the
prospectus supplement relating to the offering of shares of Common Stock. As
part of the transactions, THEC would also agree that, upon consummation of the
proposed transactions described in Item 4, for a period of three years, THEC
would agree not to increase its ownership interest in the Issuer above the
ownership interest it has at the time of consummation.
Except as described in this Schedule 13D, or in the exhibits hereto, none
of KeySpan, KEC or THEC, nor, to the best knowledge and belief of KeySpan, KEC
and THEC, any of their respective directors or executive officers, is a party to
any other contract, arrangement, understanding or relationship with respect to
any securities of the Issuer, except that Mr. Cattel and Mr. McKessey have
interests in stock options granted by the Issuer for compensation related to
their service as directors of the Issuer. Mr. McKessey also receives an annual
retainer and meeting fees associated with his services as a director of the
Issuer.
Item 7. Material to Be Filed as Exhibits
Item 7 is hereby amended by adding the following text:
7. Joint Filing Agreement, dated May 25, 2004 among the Reporting
Persons relating to the filing of a joint statement on Schedule
13D.
8. Press Release, dated May 24, 2004, issued by KeySpan Corporation.
Page 8 of 12
Signature
After reasonable inquiry and to the best of our knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
Date: May 25, 2004
KEYSPAN CORPORATION
By: /s/ Michael J. Taunton
----------------------
Name: Michael J. Taunton
Title: Senior Vice President
and Treasurer
KEYSPAN ENERGY CORPORATION
By: /s/ Michael J. Taunton
----------------------
Name: Michael J. Taunton
Title: Senior Vice President
and Treasurer
THEC HOLDINGS CORP.
By: /s/ Saiyed Zain Mirza
---------------------
Name: Saiyed Zain Mirza
Title: Senior Vice President
and Chief Financial Officer
Page 9 of 12
Annex A-1
The name, position and present principal occupation of each director and
executive officer of KeySpan Corporation are set forth below. The Business
address for each of the executive officers and directors listed below is KeySpan
Corporation, One MetroTech Center, Brooklyn, New York 11201. All executive
officers and directors listed below are United States citizens.
Name Position Present Principal Occupation
----- -------- ----------------------------
Robert B. Catell Chairman, Chief Executive Officer and Director Chairman and Chief Executive Officer of
KeySpan Corporation
Robert J. Fani President and Chief Operating Officer President and Chief Operating Officer of
KeySpan Corporation
Wallace P. Parker, Jr. President - Energy Delivery and Customer President - Energy Delivery and Customer
Relations Group Relations Group of KeySpan Corporation
Steven L. Zelkowitz President - Energy Assets and Supply Group President - Energy Assets and Supply Group
of KeySpan Corporation
John A. Caroselli Executive Vice President - Strategic Services Executive Vice President - Strategic
Services of KeySpan Corporation
Gerald Luterman Executive Vice President and Chief Financial Executive Vice President and Chief Financial
Officer Officer of KeySpan Corporation
Anthony Nozzolillo Executive Vice President - Electric Operations Executive Vice President - Electric
Operations of KeySpan Corporation
Lenore F. Puleo Executive Vice President - Client Services Executive Vice President - Client Services
of KeySpan Corporation
Nicholas Stavropoulos Executive Vice President - KeySpan Energy Executive Vice President - KeySpan Energy
Delivery New England Delivery New England of KeySpan Corporation
John J. Bishar, Jr. Senior Vice President, General Counsel and Senior Vice President, General Counsel and
Secretary Secretary of KeySpan Corporation
Joseph F. Bodanza Senior Vice President and Chief Accounting Senior Vice President and Chief Accounting
Officer Officer of KeySpan Corporation
Michael J. Taunton Senior Vice President and Treasurer Senior Vice President and Treasurer of
KeySpan Corporation
Theresa A. Balog Vice President and Controller Vice President and Controller of KeySpan
Corporation
Lawrence Dryer Vice President and General Auditor Vice President and General Auditor of
KeySpan Corporation
Andrea S. Christensen Director Partner, Kaye Scholer LLP
Alan H. Fishman Director President and Chief Executive Officer,
Independence Community Bank Corp.
Page 10 of 12
J. Atwood Ives Director Former Chairman and Chief Executive
Officer, Eastern
James R. Jones Director Chairman and Chief Executive Officer of
Manatt Jones Global Strategies LLP
James L. Larocca Director Professor of Public Policy, Long Island
University's Southampton College
Gloria C. Larson Director Of Counsel and Co-Chair of the Government
Practices Group, Foley Hoag LLP
Stephen W. McKessy Director Retired Vice Chairman, PricewaterhouseCoopers
Edward D. Miller Director Member of the Supervisory Board and Senior
Advisor to the Chief Executive Officer, AXA
Group
Vikki L. Pryor Director President and Chief Executive Officer, SBLI
Mutual Insurance Company, Inc.
Page 11 of 12
Annex A-2
The name, position and present principal occupation of each director and
executive officer of KeySpan Energy Corporation are set forth below. The
Business address for each of the executive officers and directors listed below
is KeySpan Energy Corporation, One MetroTech Center, Brooklyn, New York 11201.
All executive officers and directors listed below are United States citizens.
Name Position Present Principal Occupation
----- -------- ----------------------------
Robert B. Catell President, Chief Executive Officer and Chairman and Chief Executive Officer of
Director KeySpan Corporation
John J. Bishar, Jr. Senior Vice President and Secretary Senior Vice President, General Counsel and
Secretary of KeySpan Corporation
Michael J. Taunton Senior Vice President and Treasurer Senior Vice President and Treasurer of
KeySpan Corporation
Alfred C. Bereche Assistant Secretary Assistant General Counsel of KeySpan
Corporation
Sandra M. Cano Assistant Secretary Manager, Corporate Secretary's Office of
KeySpan Corporate Services LLC
Ronald S. Macklin Assistant Secretary Assistant General Counsel of KeySpan
Corporate Services LLC
Colleen A. Meade Assistant Secretary Counsel of KeySpan Corporate Services LLC
Page 12 of 12
Annex A-3
The name, position and present principal occupation of each director and
executive officer of THEC are set forth below. The Business address for each of
the executive officers and directors listed below is THEC Holding Corp., One
MetroTech Center, Brooklyn, New York 11201. All executive officers and directors
listed below are United States citizens, except for H. Neil Nichols who is a
Canadian citizen with work permit.
Name Position Present Principal Occupation
----- -------- ----------------------------
H. Neil Nichols President and Director President, KeySpan Energy Development
Corporation
S. Zain Mirza Senior Vice President,
Chief Financial Officer and Director Senior Vice President, KeySpan Energy
Development Corporation
John J. Bishar, Jr. Senior Vice President and Secretary Senior Vice President, General Counsel and
Secretary of KeySpan Corporation
Michael J. Nilsen Vice President, Treasurer, Comptroller and Vice President - Finance, KeySpan Energy
Director Development Corporation
Alfred C. Bereche Vice President and Assistant Secretary Assistant General Counsel of KeySpan
Corporation
Sandra M. Cano Assistant Secretary Manager, Corporate Secretary's Office of
KeySpan Corporate Services LLC
Colleen A. Meade Assistant Secretary Counsel of KeySpan Corporate Services LLC
INDEX OF EXHIBITS
Number Description
7 Joint Filing Agreement, dated May 25, 2004, among the
Reporting Persons relating to the filing of a joint
statement on Schedule 13D.
8 Press Release, dated May 24, 2004, issued by KeySpan
Corporation.
Exhibit 7
JOINT FILING AGREEMENT
In accordance with Rule 13d-1(k) promulgated under the Securities Exchange
Act of 1934, as amended, the undersigned hereby agree to the joint filing with
all other Reporting Persons (as such term is defined in the Schedule 13D
referred to below) on behalf of each of them of a Statement on Schedule 13D
(including amendments thereto) with respect to the Common Stock, par value $0.01
per share, of The Houston Exploration Company, a Delaware corporation, and that
this Agreement may be included as an Exhibit to such joint filing. This
Agreement may be executed in any number of counterparts, all of which together
shall constitute one and the same instrument.
IN WITNESS WHEREOF, the undersigned hereby execute this Agreement as of the
25th day of May 2004.
KEYSPAN CORPORATION
By: /s/ Michael J. Taunton
----------------------
Name: Michael J. Taunton
Title: Senior Vice President
and Treasurer
KEYSPAN ENERGY CORPORATION
By: /s/ Michael J. Taunton
----------------------
Name: Michael J. Taunton
Title: Senior Vice President
and Treasurer
THEC HOLDINGS CORP.
By: /s/ Saiyed Zain Mirza
---------------------
Name: Saiyed Zain Mirza
Title: Senior Vice President
and Chief Financial Officer
Exhibit 8
Press Release, dated May 24, 2004, issued by KeySpan Corporation is
attached.
NEWS
--------------------------------------------------------------------------------
KeySpan Corporation For Immediate Release
Contacts: Investors Media Relations
George Laskaris Andrea Staub
718.403.2526 516.545.5052
516.824.1241 (pager)
KeySpan Reduces its Ownership in Houston Exploration from 55% to 24%
through an Exchange for a Houston Exploration Subsidiary
KeySpan Corporation (NYSE:KSE) announced today that the company plans to enter
into an agreement with The Houston Exploration Company (NYSE:THX) under which
KeySpan will transfer to Houston Exploration 10.8 million shares of Houston
Exploration common stock in exchange for 100% of a wholly owned Houston
Exploration subsidiary, Seneca-Upshur Petroleum, Inc. At the time of the
exchange, the subsidiary will hold all of Houston Exploration's Appalachian
Basin assets and an amount of additional cash calculated so as to equalize the
value of the operating business and the Houston Exploration shares being
exchanged.
The transaction is consistent with the business strategies of both KeySpan and
Houston Exploration. As previously discussed, KeySpan does not consider Houston
Exploration to be a strategic holding and has been working to restructure its
stake in the company in a manner that will be beneficial to both KeySpan and
Houston Exploration.
"This transaction represents an important step to restructuring our interest in
Houston Exploration. We welcome Seneca-Upshur into the KeySpan family and intend
to grow this business through additional investments in energy related assets
that support our core businesses," said Robert B. Catell, KeySpan's Chairman and
Chief Executive Officer. "This transaction allows the Company to further
concentrate on executing its strategy of growing its core energy businesses."
The parties have ascribed a value of $60 million dollars to the Appalachian
Basin producing assets. At December 31, 2003, these properties had proved
reserves of 50.5 billion cubic feet of natural gas equivalent (Bcfe), or
approximately 7 percent of Houston Exploration's total proved reserves. The
Appalachian assets include properties originally acquired and owned by a
predecessor company to KeySpan in the early 1970's to strengthen its gas supply
strategy. At the time of the transaction, it is expected that Seneca-Upshur will
have cash in excess of $350 million based on the initial offering price
assumptions set forth below. This KeySpan subsidiary plans to use the cash to
make additional investments in energy related assets.
Of the 10.8 million shares that Houston Exploration expects to receive from
KeySpan, Houston Exploration intends to retire approximately 4.6 million shares
and plans to offer 6.2 million shares of common stock in a public offering.
The value of the exchange will be dependent on the ultimate public offering
price of the Houston Exploration shares in the offering. Assuming an initial
public offering price of $45.01 (which is the May 21,2004, NYSE last sale for
Houston Exploration), KeySpan will receive a per share value equal to $40.09,
before expenses. The value per share received by KeySpan will increase or
decrease, as the case may be, by approximately $0.51 per share for a
corresponding $1.00 increase or decrease in the public offering price of $45.01
per share.
This transaction will reduce KeySpan's ownership interest in Houston Exploration
to approximately 24% from the current 55% level with the number of outstanding
shares being reduced from approximately 17.4 million shares to approximately 6.6
million shares. In addition, three of KeySpan's five designated directors on the
Houston Exploration Board will resign at the closing of the transaction, and
KeySpan will retain the right to nominate two of the remaining seven directors
on the Houston Exploration Board.
Consummation of this transaction is subject to each party's satisfaction with
the public offering price. Accordingly, no assurance can be given that the
transaction will be completed. The underwriters will be granted an option to
purchase an additional 930,000 shares of common stock to cover any
over-allotments. If this over-allotment is exercised in full, KeySpan's
ownership interest in Houston Exploration will be reduced to approximately
22.5%.
This press release shall not constitute an offer to sell or the solicitation of
an offer to buy nor shall there be any sale of these securities in any state in
which such offer, solicitation or sale would be unlawful prior to registration
or qualification under the securities law of any state.
--------------------------------------------------------------------------------
A member of the Standard & Poor's 500 Index, KeySpan Corporation (NYSE:KSE) is
the fifth largest distributor of natural gas in the United States and the
largest in the Northeast, operating regulated gas utilities in New York,
Massachusetts and New Hampshire, serving 2.5 million customers. These
customer-focused businesses are complemented by a portfolio of service companies
which offer energy-related products, services and solutions to homes and
businesses. KeySpan is also the largest electric generator in New York State. We
own approximately 6,600 megawatts of generating capacity, providing power to 1.1
million customers of the Long Island Power Authority on Long Island and
supplying approximately 25 percent of New York City's capacity needs. In
addition to these assets, KeySpan has strategic investments in natural gas
exploration, production, pipeline transportation, distribution and storage, and
Canadian gas processing. KeySpan has headquarters in Brooklyn, New England and
Long Island. For more information, visit KeySpan's web site at
www.keyspanenergy.com.
Certain statements contained herein are forward-looking statements, which
reflect numerous assumptions and estimates and involve a number of risks and
uncertainties. For these statements, we claim the protection of the safe harbor
for forward-looking statements provided by the Private Securities Litigation
Reform Act of 1995. There are possible developments that could cause our actual
results to differ materially from those forecast or implied in the
forward-looking statements. You are cautioned not to place undue reliance on
these forward-looking statements, which are current only as of the date of this
filing. We disclaim any intention or obligation to update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise. Among the factors that could cause actual results to differ
materially are: general economic conditions, especially in the Northeast United
States; available sources and costs of fuel; volatility of energy prices in a
deregulated market environment as well as in the source of natural gas and fuel
used to generate electricity; potential write-down of our investment in natural
gas properties when natural gas prices are depressed or if we have significant
downward revisions in our estimated proved gas reserves; federal and state
regulatory initiatives that increase competition, threaten cost and investment
recovery and impact rate structure; our ability to successfully reduce our cost
structures; implementation of new accounting standards; the degree to which we
develop unregulated business ventures, as well as federal and state regulatory
policies affecting our ability to retain and operate those business ventures;
our ability to identify and make complementary acquisitions, as well as the
successful integration of those acquisitions; inflationary trends and interest
rates; and risks detailed from time to time in reports and other documents filed
by us with the Securities and Exchange Commission.
2