Dynegy to Expand Global Energy Delivery Network Through UK Natural Gas Storage Acquisition

Business Wire, July 16, 2001

Business/Energy Editors

HOUSTON--(BUSINESS WIRE)--July 16, 2001

Dynegy Inc. (NYSE:DYN)

-- Establishes Cornerstone of Physical Energy Convergence Presence in Europe

-- Advances Marketing, Trading, Risk Management and Logistics Optimization
Opportunities

-- Accretive to 2002 Earnings and Beyond

Dynegy Inc. today announced a major expansion of its energy convergence business through the purchase of natural gas storage facilities and related assets in the United Kingdom. Dynegy has agreed to acquire BG Storage Limited (BGSL), a wholly owned subsidiary of BG Group plc (NYSE:BRG.N). BGSL's UK assets consist of 30 wells with five offshore platforms, nine salt caverns, approximately 19 miles (32 kilometers) of pipelines and an onshore natural gas processing terminal.

Under the terms of the purchase agreement, Dynegy will pay approximately $590 million (421 million pounds) for BGSL and its existing assets. The transaction is subject to approvals from The Gas and Electricity Markets Authority and The Department of Trade and Industry and clearance from the Office of Fair Trading in the UK. It is expected to close during the third quarter of 2001. Following the transaction, BGSL and its 260 employees will become part of Dynegy Europe Limited.

"This acquisition represents a significant expansion of our global presence and advances our long-term strategic plan to replicate our U.S. energy delivery network in Europe," said Chuck Watson, chairman and chief executive officer of Dynegy Inc. "This purchase also aligns with and advances our energy convergence strategy to expand our portfolio through the acquisition of safe, reliable and affordable assets that enable us to meet the rapidly growing demands of the wholesale energy market in the U.S. and Europe."

Two of the facilities included in the transaction, Rough and Hornsea, are key providers of physical storage space in the UK natural gas market and are used by approximately half of the UK's natural gas shippers. Rough, an offshore depleted natural gas field, has a deliverability rate of 1.5 billion cubic feet (Bcf) per day (455 gigawatt hours per day). The deliverability rate of Hornsea, an onshore salt cavity installation, is 620 million cubic feet (MMcf) per day (195 GWh/day). The two facilities are capable of storing 111 Bcf of natural gas.

As part of the purchase agreement, Dynegy will also acquire the Easington natural gas processing terminal. This facility processes Rough and third-party natural gas streams and delivers into the UK natural gas transportation network. BGSL previously announced plans to develop the Aldbrough storage facility, a salt cavern with an expected storage capability of 6 Bcf and deliverability rate of 600 MMcf/day (185 GWh/day). Dynegy Europe will examine the feasibility of Aldbrough's development plans in the future.

"The acquisition is the cornerstone of Dynegy's European energy delivery network, which will enable us to capture incremental value in the newly liberalised EU energy markets," said Gary Cardone, president of Dynegy Europe Limited. "We are committed to maintaining the high level of service and safe facility operation that characterized BGSL's ownership of these assets.

"This acquisition is a part of Dynegy's broader business strategy to replicate across Europe our successful North American energy convergence strategy, based on competitive deregulated energy markets," Cardone added. "Dynegy intends to create more flexible and innovative products to meet the special requirements of its customers across the energy value chain. It is our expectation that Dynegy's innovative approach to meeting customers' needs, as already demonstrated in other energy markets, will substantially increase the number of parties using these storage facilities within a year."

Dynegy will pay for BGSL largely with cash on hand, as part of the company's existing capital expenditures plan. The ownership of BGSL is expected to be accretive to earnings in 2002 and beyond and will contribute to Dynegy's previously announced growth rate of 20 to 25 percent per year. With this announcement, the company establishes its 2002 guidance of $2.50 to $2.60 diluted earnings per share.

Conference Call Simulcast

Dynegy will simulcast an acquisition conference call live via the Internet today, July 16, 2001, at 10:00 a.m. CT, 11:00 a.m. ET. The web cast can be accessed via www.dynegy.com (click on "Investor Relations").

About Dynegy Inc.

Dynegy Inc. is a leading energy merchant and power generator in North America, the United Kingdom and Continental Europe. A Fortune 100 company, in 2000 Dynegy established its communications business, Dynegy Global Communications, which is engaged in providing network solutions and connectivity to wholesale customers worldwide.

Through Dynegy Europe, Dynegy has been an active participant in UK energy markets since 1994 when it became a leading player in the development of a liberalised natural gas market. In 1999, Dynegy Europe entered the UK and Nord Pool electricity markets. With offices in Austria, Switzerland, Holland, Italy and Spain, Dynegy Europe is one of Europe's largest energy marketers and traders and is a significant participant in the communications marketplace.