1Q99 Marketing Results Show Increased Volumes
The demonstrative trend among the top energy marketers appears
to be that the big movers continue getting much bigger while the
smaller marketers are struggling to maintain previous sales volumes
and profitability, according to NGI's marketing survey. The survey
also indicates volume growth has very little correlation with
Only five of the top-20 gas marketers saw their sales volumes
decline from the first quarter of 1998 to 1Q99: Engage, El Paso,
Williams, Texaco and Sonat. And six of the top-20 power marketers
reported lower volumes compared to the same quarter in 1998: Duke,
Entergy, Dynegy, Reliant, Statoil and PacifiCorp. But a significant
number reported declines in profitability.
On average the gas group grew volumes by 1.2 Bcf/d, while the
top-20 power marketers added 4.6 million MWh to their sales. The
gas group sold a total of 133 Bcf/d of gas and the power group sold
409 million MWh.
Enron once again topped both lists with 85 million MWh of power
sales and 12.5 Bcf/d of gas sales. And the company reported a
strong 28.5% growth in operating income from its wholesale
marketing and services operations, posting $320 million in the
first quarter compared with $249 million in 1Q98.
But the contrast between volume growth, or decline, and
financial performance showed up significantly in Dynegy's results.
Operating margin from Dynegy's power marketing and generation
jumped to $37.4 million in 1Q99 from only $7.1 million in 1Q98
despite a near 50% drop in power marketing volumes to 13.1 million
MWh from 25 million MWh. The company fell to No. 12 in the power
ranking from No. 7
Based on pure volume performance, PG&E Energy Trading
appears to be improving substantially but the full story won't be
told until the company releases its earnings later this month.
PG&E Energy Trading has moved right up on Enron's heels in gas
marketing, jumping to No. 2 in the first quarter from No. 4 in last
year's fourth quarter, riding a 4.37 Bcf/d increase in volumes.
Although Aquila Energy saw an almost 2 Bcf/d rise (21%) in gas
sales, it fell to fourth place. Power marketing volumes soared 86%
to 44 million MWh pushing Aquila up a notch in the rankings to
second. But Aquila's first quarter earnings before interest and
taxes suffered considerably, dropping 61% to $8.5 million from 1998
first quarter EBIT of $21.7 million.
Aquila said earnings from its wholesale power unit improved
dramatically from the prior year with good performance in both term
origination and trade operations. But in gas, a warmer-than-normal
winter slowed origination opportunities and reduced margins in
Engage Energy continued to report dwindling volume results
during the first quarter but the company reported a slight
improvement in its financial performance. Engage parent Westcoast
Energy reported that marketing operations incurred a net loss
applicable to common shares of $3 million for the first quarter of
1999 compared with a net loss of $7 million in 1998. Westcoast said
the reduction in the net loss was a result of "focusing on
higher-value services. Engage Energy's Canadian operations and
individually structured natural gas and electricity trading
arrangements for customers in the United States have been
successful and continue to grow."
After posting a 7% gain in gas volumes from July to September of
1998, Engage posted decreased volumes in both the fourth quarter of
1998 and first quarter of 1999. With the latest drop of more than
12% to 6.38 Bcf/d, Engage fell to ninth place. With power volumes
plummeting 65% on the power side to only 1.9 million MWh, Engage
has some significant ground to make up to reach the top-20.
The company biting at Engage's heels on the gas side, Columbia
Energy, has been rising by leaps and bounds since 3Q98. The first
quarter 1999 marked the second straight 50% rise in gas sales
volumes for the Virginia-based integrated pipeline company.
But Columbia's marketing division reported an operating loss of
$21.5 million for the quarter, which was $16 million more than the
$5.5 million loss in 1Q98. Columbia attributed the loss to
increased retail customer acquisition costs, infrastructure
investments and additional staffing, as well as an effort to
temporarily scale down wholesale marketing operations until a
restructuring of the division is complete and a new senior officer
is found. Total gross marketing margins dropped $5.7 million.
Columbia CFO Michael W. O'Donnell said despite the volume growth
Columbia "significantly cut back on the amount of risk activity in
the company," since trading snafus contributed to a fourth quarter
loss of $39.4 million and a loss for the year of $59 million.
"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
Another company achieving a 50% increase in gas marketing volume
was Sempra Energy, which added CNG's energy marketing portfolio
late last year. The rise placed the San Diego-based marketer in
12th place, up two spots from its 4Q98 ranking. This is the third
straight quarter Sempra has posted a volume increase of 50%.
Sonat Marketing appears to be headed in the opposite direction
of Sempra. It posted a decrease in volumes marketed for the third
straight quarter. The 1Q99 drop was the most significant, however,
as the volumes fell 20% from 1Q98 levels.
One result of the poor performance was Atlanta Gas Light's (AGL)
announced its intention to sell its 35% interest in Sonat
Marketing. Due to disappointing results from the venture, including
a $3.5 million non-recurring accounting charge last quarter, AGL
exercised its option to sell its interest back to Sonat for no less
than the original investment plus interest. The AGL announcement,
however, also allowed Sonat to buy back from AGL a 35% share in
Sonat Power Marketing last Friday.
Duke's Gas Sales Jump, Power Falls
Despite a 9% decline in power volumes to 21.8 million MWh, Duke
Energy's trading and marketing operation, reported EBIT of $33
million versus $13 million for the same quarter last year. A 39%
increase in the amount of natural gas marketed helped boost
margins. Duke sold 11.4 Bcf/d of gas during 1Q99.
Brad Karp, president of the North Carolina-based company's
marketing and trading division said all signs are pointing to
prolonged positive results.
"We are very encouraged by the power division's performance. We
aren't a volume-based company, so the decline isn't very worrisome.
What impresses us is the quality of the sales improved. We bought
more power directly from generators and sold more power to end
users and to distribution companies. Less of our volumes were
included in the daisy chains that are so common in the power market
One company losing major ground in the power ranking was
Pacificorp. After knocking on the door of the top-10 in 4Q98 with
an 11th place finish, the Oregon-based company plummeted to 17th
place in 1999's first quarter. Power volumes were down 62% from
1Q98 finishing at 7.59 MMWh.
"Our volumes were down as a result of our new focus," said David
Kvamme, a Pacificorp spokesman. "Last year at this time, we had a
major power marketing office in Ohio, a trading floor in Houston
and an unregulated trading office here in Oregon. Now, the Ohio
office and the Houston trading floor have been sold, and the Oregon
office is pursuing other options. We are more focused on our
electric operations in our core area, as well as Australia."
Reliant's posted a 32% increase in gas volumes but power volumes
declined 27%. The company's wholesale energy segment reported an
increase in operating income to $1.2 million for the first quarter
of 1999 compared to $0.5 million for the same period of 1998. The
company said it showed improved operating results from trading and
marketing activities, but those were offset by operating expenses
related to investments in non-regulated generating assets whose
earnings are seasonal. Reliant acquired 3,776 MW of non-regulated
generating capacity in the second quarter of 1998.
Avista Corp.'s national energy trading and marketing business
unit, which showed 148% growth in power volumes and 191% growth in
gas volumes to 2.4 Bcf/d, suffered a loss of $0.14 per diluted
share in the first quarter. This compares with $0.03 per diluted
share positive earnings from national energy trading and marketing
in the first quarter of 1998. Prior to this year's first quarter,
Avista Energy had been profitable in every quarter since it began
operating as a separate entity in July of 1997, said CEO T.M.
Matthews, who expressed confidence in Avista ability to compete and
succeed in the national energy marketplace.
"The national commercial energy business will be dominated by
companies like ours that understand markets, have strong
fundamentals, and are able to cost-effectively move energy and
related services to customers across the country," Matthews stated.
But the contrast between volume growth and financial struggle
during the first quarter at least reveals that the future is far
from certain for the wholesale marketing community and significant
consolidation lies ahead.
Enron Withdraws EOG Proposal
Enron announced it has notified the independent committee of the
board of directors of Enron Oil & Gas Company that the Enron
Corp. has withdrawn the previously announced proposal made by a
third party relating to the sale of Enron's 53.5% interest in EOG.
In light of the withdrawal, Enron has filed an amendment to its
Schedule 13D with the Securities and Exchange Commission.
"Our principal motivation in evaluating offers for our interest
in EOG has always been, and will continue to be, maximizing the
value of that investment to Enron's shareholders," said Kenneth L.
Lay, Enron chairman and CEO. "We will continue to explore
opportunities to maximize the value of our investment in EOG."
Enron notified the SEC last December the third party would
acquire Enron's shares in EOG and make an offer for all the
outstanding shares. At the time EOG's stock price had sunk to
around $13 a share. It has moved up since then and closed Friday
above $18 a share.