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Tuesday, 30 July, 2002, 16:25 GMT 17:25 UK
Pressures mount on Dynegy
Dynegy logo on the streets of downtown Houston
Energy traders such as Dynegy face greater scrutiny
Houston energy trader Dynegy slumped from profit to loss in the three months from April to June.

And the firm, which once tried to engineer a merger with disgraced Enron, has slashed its earnings forecast from $2 a share to just 41 cents a share.

The firm has also been forced to sell its prized Northern Natural Gas (NNG) pipeline to veteran investor Warren Buffett at a discounted price.

Dynegy acquired the pipeline in the aftermath of its failed merger attempt with Enron.

Although it is getting $600m less than the $1.6bn it paid for the pipeline, the income at least means it can pay off a chunk of its debt as well as contributing much-needed cash flow.

Crunched

The downfall of Enron, which admitted to overstating profits last year amid a welter of accounting irregularities and then filed for bankruptcy, has proved poisonous for the rest of the energy trading business.

From a May 2001 high of $57.95, Dynegy shares collapsed by more than 50% in the immediate aftermath of Enron's admission, and are now worth just $1.55.

Its new unpopularity has led to a credit crunch, and thus to the sale of the pipeline.

"When you're in a liquidity trap, you take what you can get," said John Olson, analyst with Houston-based investment bank Sanders Morris Harris.

Fallout

And the effects are spilling over into the wider energy industry.

Oil giant ChevronTexaco has a 26.5% stake in Dynegy, a stake now worth just 10% - $130m - of what it paid in 1996.

It provided the original bankroll for the purchase of the 10,000-mile NNG pipeline from Enron.

And there is speculation that it was ChevronTexaco which forced Dynegy to sell the pipeline.

Mirant earnings warning

Also on Tuesday, the energy producer and trader Mirant issued an earnings warnings, and said that a review had uncovered several errors in its 2001 financial statements.

Mirant reported a net loss of $151m for the second quarter, or 38 cents a share, and said that full-year earnings could miss its target range of $1.60-$1.70 a share.

It also said an accounting review of last year's figures had found that it may have overstated assets and liabilities by as much as $253m.

"Our internal review has tentatively concluded that any mistakes were made honestly," said president and chief executive Marce Fuller.


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