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Coastal Avoids Slump, Posts 11% Earnings Growth

Coastal Avoids Slump, Posts 11% Earnings Growth

During the first quarter, Coastal Corp. continued to avoid the market slump that has plagued the producing community, posting an 11% increase in earnings to $134.5 million, or 62 cents per share, which was slightly better than the 60 cents/share that Wall Street expected. In 1Q98, the company earned $122.9 million, or 55 cents per share, but booked a $1.9 million loss related to an asset sale.

"Achieving this earnings growth during the first quarter of 1999 underscores the importance of positioning and managing our operations to profit even in a difficult industry environment," said CEO David A. Arledge. "During the quarter, the industry experienced the lowest natural gas prices since 1995 and the lowest refining margins in more than 10 years, due primarily to three consecutive warm winters."

But while many other oil companies have posted sharply lower earnings because of low oil prices, poor refining margins and soft gas prices, Coastal bucked the trend by relying almost entirely on gas production and boosting the performance of its merchant refining operations and aggressive risk management program.

Refining, marketing, and chemicals earnings soared 46% for the quarter. "Our risk management activities allowed us to achieve higher margins and the reengineering of our refineries has permanently reduced our costs," said Arledge. "In addition, we continue to benefit from earlier changes to expand our most profitable marketing operations and eliminate marginal activities.

Arledge said gas production was up 8% for the quarter to 529 MMcf/d and is expected to increase 20% by the end of the year from the 509 MMcf/d posted in 1998, which was an increase of 17% from the prior year. However, higher gas production wasn't enough to offset the drop in prices.

Prices realized for gas were $1.59/Mcf versus $2.01/Mcf in 1Q98. Crude oil and condensate prices were $10.38/bbl versus $13.54. Earnings before debt interest and taxes for the E&P division were $11.4 million compared to $25.5 million for the 1998 quarter.

PaineWebber energy analyst Ronald Barone said in a report on Coastal that the company is shopping for E&P properties in the offshore Gulf and South/Central Gulf and is expected to make an announcement shortly. It isn't, however, in the market to buy an entire company, Barone said.

Coastal's power and coal segments also showed improved results during the quarter. The power division reported earnings of $18.9 million compared to $11.6 million in 1Q98, and the coal segment reported $4.3 million compared to $2.8 million. The gas segment, which includes ANR Pipeline, reported a 4% drop in earnings to $187 million. Throughput for Coastal's regulated pipeline subsidiaries was 549 Bcf compared with 566 Bcf in 1Q98.

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