Magma Will Buy Geothermal Plants Held by Unocal
In a bid to position itself for an increase in demand for renewable energy later this decade, Magma Power of San Diego will buy Unocal’s geothermal energy facilities and ground leases in Imperial Valley, the Mammoth area and Nevada for $225 million, the two companies announced Wednesday.
Magma Power is acquiring Unocal’s three plants, totaling 80 megawatts of generation capacity, in the Niland area near the Salton Sea. Magma Power already owns four plants that generate 160 megawatts in Niland. One megawatt of power is enough to light 1,000 households. The Imperial Valley facilities are all within a mile or two of each other.
The acquisition also gives Magma Power rights to develop 100,000 acres of geothermal leaseholds that Unocal has in California and Nevada. Those will bring the San Diego company’s total geothermal resources to 220,000 acres.
Investors reacted favorably as Magma Power shares gained $3 to close at $27.50 in over-the-counter trading. Magma Power will pay Unocal with cash on hand and bank loans. The sale is effective Dec. 31.
Magma Power General Counsel Jon Peel said the deal gives Magma Power control of about 90% of the undeveloped geothermal resource in the Salton Sea area. He said Magma Power’s conservative appraisal is that the area has the potential for another 1,000 megawatts of power generation.
The deal puts Magma Power in stronger position to respond to a request for geothermal energy proposals that San Diego Gas & Electric is expected to issue in early 1993. The state Public Utilities Commission this year ordered SDG&E; and other utilities to increase their “renewable” energy generation, meaning geothermal, solar and wind sources.
“This is a very strategic acquisition for Magma,” said Wallace C. Dieckmann, Magma’s vice president and treasurer. “There are a lot of reasons for us to do this. It consolidates the ownership of the (Salton Sea geothermal) resource under one owner. It will optimize our use of existing plants and optimize the development of the underground reservoir in going forward.”
For fiscal 1991, Magma Power reported a $34-million profit on $95 million revenue, all of which came from sales of power to Southern California Edison.
Unocal received annual revenue of about $70 million from its Imperial Valley sites. Geothermal energy represented about 2% of Unocal’s overall revenue for 1991.
In addition to the $225 million, Unocal will receive $100,000 for each megawatt of power that Magma develops in the Salton Sea area, plus a 1% royalty on revenues. The Imperial Valley generating plants use the Earth’s underground currents of geothermal brine, more than 500 degrees Fahrenheit, to produce steam.
With the sale, the Los Angeles oil company is about midway through its program to sell assets as part of a restructuring announced last April.
Unocal plans to plow some of the money from the sale into overseas projects, including a more promising geothermal development in Indonesia.
Unocal, the world’s largest geothermal producer, will still retain 1,700 megawatts of geothermal production capacity--at The Geysers site, in Northern California, as well as in the Philippines.
“Geothermal energy remains a core business for Unocal,” said John F. Imle, president of Unocal’s Energy Resources Division, “despite our decision to sell certain domestic geothermal properties.”
The Unocal restructuring plan was begun in large part to reduce debt incurred fighting the takeover advances of Texas financier T. Boone Pickens during the 1980s. The company hopes to sell $700 million in assets in 1992 and 1993, and to increase its after-tax cash flow by $200 million a year. So far this year, Unocal has sold $123 million worth of small oil- and gas-producing properties.
