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CenterPoint: Shale Production Overtaking Traditional Basins

Drilling and production in traditional basins is falling off, but the amount of gas coming out of wells in shale areas is more than making up the difference, according to CenterPoint Energy CEO David M. McClanahan.

"What we're seeing now in the more traditional basins is a reduction in drilling, but we're seeing very robust drilling in the shale areas, which is going to more than offset some of the declines we'll see in the more traditional basins," McClanahan said during a conference call with analysts on Wednesday. Almost all of CenterPoint's new growth capital will be dedicated to shale areas this year, he said.

"We're going to still see some wells drilled in these traditional basins, but just not at the pace that we've seen over the last four years. We've connected over 400 wells a year for at least four years and last year we connected 475 wells, and a lot of those were in those traditional basins. That's going to cut back -- we know that, we've seen it. What we're seeing, though, is we're having a pickup in the shale areas, and a well produces a lot more per well in these shale areas than in those old traditional basins."

The Houston-based power company reported net income of $87 million (25 cents/share) for 4Q2008, down 19.4% from the $108 million (32 cents/share) it reported in 4Q2007.

CenterPoint's natural gas distribution segment reported operating income of $96 million for 4Q2008, compared with $89 million for 4Q2007. The segment benefited from customer growth of nearly 25,000 since December 2007 and lower employee-related expenses. The interstate pipelines segment reported operating income of $66 million for 4Q2008, compared with $71 million for 4Q2007. Higher income from the Carthage to Perryville pipeline and increased transportation services were offset by reduced ancillary services and higher operation and maintenance expenses. The competitive natural gas sales and services segment reported operating income of $26 million, up from $19 million for the same period of 2007.

CenterPoint reported net income of $447 million ($1.30/share) for all of 2008, up 12% from $399 million ($1.17/share) in 2007. The company said it expects diluted earnings of $1.05-1.15/share for 2009. The guidance takes into consideration an estimated increase in noncash pension expense of 16 cents/share.

The electric transmission and distribution segment reported operating income of $88 million in 4Q2008, including $55 million from the regulated electric transmission and distribution utility operations, which saw customer growth of nearly 31,000 customers during 2008 and increased usage. The positive impacts were partially offset by higher transmission costs and other operating expenses, and the impacts from Hurricane Ike.

"The estimated loss of revenue was limited to $17 million, which was partially offset by $10 million in operations and maintenance costs that were postponed because of the storm," McClanahan said. "Today, we have incurred approximately $600 million in restoration costs and have only a few invoices still outstanding. As a result, we have lowered our estimate of the total storm restoration cost to $600-650 million." The costs are being deferred for future recovery and therefore do not affect earnings, he said.

CenterPoint, which saw power knocked out to 90% of its customers when Ike roared into the Gulf Coast region in September, previously estimated that the total cost for its storm restoration effort would be $650-750 million (see NGI, Nov. 10). CenterPoint continues to seek enabling legislation, similar to that which was passed in 2006 following Hurricane Rita, through the Texas legislature.

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