El Paso, Coastal Turn in Record 1st Quarter Results
Both El Paso Energy and Coastal Corp. wracked up record
first-quarter earnings last week, but for completely different
El Paso's record quarterly per-share earnings - the ninth
straight since the company acquired Tenneco Energy in late 1996 -
were largely owing to strong results from its pipeline operations
and a partial offset of lower natural gas and gas liquids' prices
by its acquisition of interests in Leviathan Gas Pipeline Partners
In contrast, Coastal attributed its record first-quarter results
to its refining, marketing and chemical operations, as well as to
its power plant unit. These helped to offset the drastic hit that
its exploration and production (E&P) operations took due to
lower prices realized for natural gas and crude oil during the
El Paso posted 1999 first-quarter diluted earnings/share of 58
cents compared to 48 cents one year ago, excluding the cumulative
effect of an accounting change.
Its consolidated earnings before interest, expense and income
taxes (EBIT) for the first quarter were $190 million, up 17% from
$163 million a year ago, on revenues of $1.5 billion. Chairman
William A. Wise credited these "exceptional results" to Tennessee
Gas Pipeline and El Paso Natural Gas, "notwithstanding the
generally mild temperatures this past winter." Tennessee's
first-quarter EBIT results were $113 million compared to $98
million for the same period in 1998, while El Paso's earnings
inched upwards to $56 million from $52 million a year ago.
Due to depressed gas and liquids prices in the first quarter, El
Paso Field Services turned in the worst performance for the
company, with its EBIT falling to $16 million from $24 million in
the year-earlier period. But the drop would have been far more
significant if it hadn't have been partially offset by a 10%
increase in gathering and treating volumes and the contribution
from El Paso's interest in Leviathan Gas, El Paso said. PaineWebber
predicts that Leviathan's impact on Field Services will continue to
be favorable as it targets sizable new deep-water projects.
Another key contributor to the company's bottom line was El Paso
Energy Marketing, which posted an EBIT of $8 million in the first
quarter compared to $200,000 for the same period in 1998. Average
marketed gas volumes in the quarter were 4,443 BBtu/d, while power
marketed volumes were 13,213 thousand MW hours, according to El
Paso. PaineWebber sees the marketing unit being a bigger earnings'
contributor in the future due to El Paso's acquisition of a 50%
interest in CE Generation LLC from CalEnergy Co. El Paso's
international unit also reported a favorable EBIT of $3 million for
the quarter, up from $2 million in 1998.
El Paso officials said the company is ahead of schedule with
plans to merge with Sonat Inc. It noted it already has received
approval from the Securities Exchange Commission, is in discussions
with the Federal Trade Commission and is preparing to send FERC its
application to merge the two companies' power licenses. "Management
believes the deal could close by the end of 3Q99," according to a
PaineWebber Research Note.
Coastal posted record net earnings from continuing operations of
$134.5 million, or 62 cents per share, against $124.8 million, or
56 cents/share, in the same period in 1998. The first-quarter 1999
earnings were on operating revenues of $1.7 billion, down from
$1.96 billion a year ago.
The refining, marketing and chemicals unit alone accounted for
more than half of Coastal's first-quarter EBIT. The unit's
contribution was almost $70 million, up 46% over its 1998
first-quarter EBIT of $47.6 million. This was followed by Coastal's
power plant segment, whose EBIT rose 60% to $18.9 million from
$11.6 million during the first quarter of 1998.
The first-quarter 1999 EBIT of the company's natural gas
segment, which includes its pipeline operations and Engage Energy
(a marketing joint venture), dropped slightly to $187 million from
$194 million a year ago. The lower first-quarter earnings for this
unit are due to lower rates on ANR Pipeline and red ink at Engage
Energy, which totaled $1 million in the quarter compared to $4.4
million a year ago. PaineWebber believes that Coastal's
participation in growth projects, such as the proposed Alliance
Pipeline and the Florida-bound Gulfstream project, will put this
division back on its feet. "In short, this division will continue
to serve as the company's backbone for growth in other higher
return unregulated areas."
Due to depressed energy prices, the biggest hit in the first
quarter 1999 was taken by Coastal's E&P unit. Its EBIT fell
more than two-fold to $11.4 million from $25.5 million in the first
quarter of 1998. Despite this, Coastal said it increased
first-quarter gas production by 8% over its 1998 first-quarter
level of 490 MMcf/d.
But PaineWebber expects to see a turnaround in the E&P
division. "With expectations for incremental acquisitions [of gas
properties], a greater than 20% increase in production in 1999 and
the stage set for favorable gas market fundamentals over the
balance of the year and into 2000, Coastal's E&P division is
poised to generate significantly higher earnings in the quarters
and years ahead."