Columbia Results Improve, But Marketing Suffers
Columbia Energy Group barely overcame warmer than normal
temperatures, weak gas prices and higher marketing costs during the
first quarter to post a 2% increase in earnings. The company
reported first quarter 1999 earnings of $150.4 million, or $1.81
per share, up $2.9 million, or four cents per share, from $147.5
million or $1.77 per share in the 1998 first quarter. Strong
performances by its regulated transmission, storage and
distribution operations, as well as its propane, power generation
and LNG activities were offset by continued difficulties in
marketing and exploration and production.
The marketing segment reported an operating loss of $21.5
million, which was $16 million more than the loss in 1Q98. Higher
operating costs reflected increased investment in infrastructure
and retail customer acquisitions as well as additional staffing
levels, Columbia said. Total gross margins dropped $5.7 million due
primarily to the warm weather. While 1999's first quarter weather
was 20% colder than the record warmth of the 1998 quarter, it still
was 6% warmer than normal. However, Columbia's gas sales of 554 Bcf
(6.16 Bcf/d) were up 52% over last year and power trading was at
7.85 million MWh compared to 305 GWh in 1Q98. Columbia Energy
Services now provides energy service to nearly half a million
retail customers in 10 states, more than twice the level of retail
customers of a year ago.
"This dramatic growth has placed Columbia Energy Services among
the nation's leading marketing companies for retail energy
customers and for gas and power trading," said CEO Oliver G.
Richard III. "However, the growth has strained the company's
marketing infrastructure, highlighting areas that need improvement.
While continuing to work to improve its infrastructure, over the
near term, we are focusing the marketing segment's efforts where
Columbia has an established presence."
On the wholesale side, CFO Michael W. O'Donnell said the company
"significantly cut back on the amount of risk activity in the
company," since the trading snafus that contributed to a fourth
quarter loss of $39.4 million and a loss for the year of $59
million (see Daily GPI Feb. 12 issue). "We've moved the management
of the books, the marking of the prices in the books, from the
front office to the mid-office. We think that's a much better risk
management practice than we had before. In addition to that, we're
just doing a lower level of trading activity generally." Richard
said he expects the wholesale operations will make a profit this
year and retail marketing will break even. Columbia is actively
looking for a senior executive to manage its unregulated divisions,
Columbia's total revenues for the first quarter were up more
than $700 million from the same period last year. Operating income
of $272.6 million set a new record high for a quarter, an increase
of $18.4 million over 1998. Transmission and storage's operating
income was up $26.4 million due primarily to recording the
settlement of the last remaining producer issue stemming from
Columbia's bankruptcy proceedings that concluded in 1995. The
settlement resulted in a one-time improvement of $20.6 million.
Richard also noted Columbia Gas Transmission's market expansion
program is expected to be completed later this year.
Distribution operating income increased $10.1 million. Richard
said more than 1.6 million retail customers in Columbia's
distribution service areas can choose their natural gas supplier.
In Ohio, Columbia's choice program has resulted in nearly $30
million in customer savings since its inception.
Its propane, power generation and LNG's operating income
improved $1.6 million over 1Q98. Exploration and production's
operating income was $8.8 million lower, however due to sharply
lower prices that only partially offset a 7% increase in
production. Prices averaged $2.44/Mcf compared to $3.38/Mcf last
year, while 1999 production of 10.6 Bcf, was up almost 1 Bcf.
"Since the end of the quarter, we have announced definitive
agreements for three acquisitions on the nonregulated side-two in
propane and one in exploration and production," said Richard. "Once
completed, these transactions would broaden our geographic
footprint in propane, nearly triple the number of propane customers
served and expand Columbia Propane's market area from eight to 35
states, making it one of the largest propane companies in America.
Also, Columbia Energy Resources would be able to extend its
leadership position in the Appalachian Basin, with about 3 Bcf of
additional annual production and over 40 Bcf of proved reserves."