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SEMCO ENERGY Acquires Alaskan Gas Company and Pipeline

PORT HURON, Mich., July 15 /PRNewswire/ -- SEMCO ENERGY, Inc. (Nasdaq: SMGS) today announced that it has signed a definitive agreement to acquire ENSTAR Natural Gas Company and the Alaska Pipeline Company (together known as "ENSTAR"). The Anchorage, Alaska-based natural gas distribution system and transmission company are currently owned by Ocean Energy, Inc.

SEMCO ENERGY has agreed to buy ENSTAR for approximately $290 million in cash, which includes the purchase of approximately $60 million of ENSTAR debt held by Ocean Energy. At the completion of the transaction SEMCO ENERGY will be reorganized so that ENSTAR and SEMCO ENERGY GAS COMPANY will be divisions of SEMCO ENERGY. The combination will be accounted for using the purchase method of accounting.

The acquisition is consistent with SEMCO ENERGY's strategic plan, which includes expanding the company's gas distribution business. It is expected to be accretive to both earnings and cash flow per share beginning in the first full year following the completion of this transaction.

ENSTAR Natural Gas Company currently serves more than 100,000 residential, commercial and industrial customers in the Anchorage area. The company has experienced annual customer growth of nearly 3 percent in the last few years, which is significantly above the natural gas industry average growth rate. Alaska Pipeline Company delivers natural gas from several producing fields in south central Alaska to ENSTAR Natural Gas Company's distribution system.

The combination of ENSTAR and SEMCO ENERGY creates a gas distribution company with more than 350,000 gas customers and assets of nearly $700 million.

William L. Johnson, Chairman, President and Chief Executive Officer of SEMCO ENERGY, Inc. stated, "I am delighted that we were successful in reaching this agreement with ENSTAR. It is an excellent, well-run company with a long record of profitability in a growing gas market area and access to an ample natural gas supply. This acquisition will accelerate our bottom line growth."

He added, "The addition of ENSTAR also will increase the scale and scope of SEMCO ENERGY operations, which ultimately will provide opportunities for operational synergies, revenue growth and an increased presence in the public financial markets." Johnson also noted that, "SEMCO ENERGY management has developed an excellent record among its industry peers of being skilled at managing utility properties in non-contiguous service areas in a very efficient manner. ENSTAR fits well with our expertise."

The transaction is subject to regulatory approval by the Regulatory Commission of Alaska and review under the Hart-Scott-Rodino Act. Final approval is expected within six months.

Banc of America Securities LLC advised SEMCO ENERGY in this transaction and financing is being provided through an interim bridge loan facility arranged through the Bank of America. Permanent financing, which will likely include a combination of equity and debt securities, is anticipated to be completed within one year of closing.

SEMCO ENERGY is a diversified energy services and infrastructure company currently organized into two major segments: natural gas distribution and unregulated diversified businesses. The Company's natural gas distribution group is operated under SEMCO ENERGY GAS COMPANY and currently serves over 250,000 customers in Michigan's Upper and Lower Peninsulas.

The diversified businesses are operated under SEMCO ENERGY VENTURES and consist of energy engineering and quality assurance services, underground construction services, propane operations and intrastate pipeline businesses in Iowa, Kansas, Louisiana, Michigan, Missouri, New Jersey, Tennessee, Texas and Wisconsin.

This news release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that are based on current expectations, estimates and projections. Statements that are not historical facts, including statements about the Company's beliefs and expectations are forward-looking statements. These statements are subject to potential risks and uncertainties and, therefore, actual results may differ materially.

                                                Business Description

                         Profile ENSTAR      Profile SEMCO        Combined
    Operating
    Statistics
      Business:         Gas Distribution    Gas Distribution  Gas Distribution
                          & Intrastate                          & Intrastate
                           Transmission                         Transmission
      Service Area:     Anchorage, Alaska     Michigan        Anchorage Region
                         and Surrounding                         and Michigan
                           communities
      Transmission
      Capacity:            410 MMcf/d                              410 MMcf/d
      Avg. Throughput:     120 MMcf/d                              120 MMcf/d
      Customers:            100,000            250,000               350,000
      Gas Sales:           23.0 Bcf            41.0 Bcf*             64.0 Bcf
      Gas Transportation:  20.8 Bcf            23.8 Bcf              44.6 Bcf
      Total Gas
      Deliveries:          43.8 Bcf            64.8 Bcf*            108.6 Bcf
      Heating Degree Days    10,026             5,566                 7,439

    Financial Data($ in Millions)
      Revenues                $93.5             $286.7*               $380.2
      Net Income              $11.3              $17.2*                  --
      ROE                      15.7%              15.3%*                 --
      Assets                 $199.0             $489.7                   --
      Cash Flow               $21.5              $30.0*                  --
      Capital Expenditures     $9.4              $25.2                   --

* Reflects normal weather and excludes Gas Marketing business which was sold in 1999
SOURCE SEMCO ENERGY, Inc.
CONTACT: Media: Barrett Hatches, 810-987-2200, ext. 4108, fax, 810-989-4098, or Analysts: Edric R. Mason, Jr., 810-989-4104, or fax, 810-989-4098, both of SEMCO ENERGY

"Safe Harbor" Statement under the Private Securities Litigation Reform Act of 1995: Statements in this press release regarding SEMCO Energy's business which are not historical facts are "forward-looking statements" that involve risks and uncertainties. For a discussion of such risks and uncertainties, which could cause actual results to differ from those contained in the forward-looking statements, see "Risk Factors" in the Company's Annual Report or Form 10-K for the most recently ended fiscal year.

 
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