Pipeline Earnings in the Plus Column
Major pipeline-only companies for the most part turned in
"better-than-expected" performances during the first quarter of the
year, while integrated pipelines took some big hits - particularly
in the oilpatch, gas analysts said. Fortunately for some
integrateds, the bigger profits from their unregulated activities
helped to offset the losses.
Pipeline-only companies "showed good earnings," said Ron Baron,
managing director of natural gas research for PaineWebber. But
integrateds with gas distribution operations "were adversely
affected by weather," and those with exploration and production
operations felt the pain of low oil and gas prices during the first
quarter, he noted.
There were some positive influences, analysts said, on the
first-quarter earnings of both integrateds and pipeline-only
companies: although the weather was unseasonably warm during the
first three months, it was colder than last year; unregulated
subsidiaries were major contributors to earnings; and gas
consumption by electric generators continued to steadily rise.
Overall, the top eight integrated and pipeline-only companies
posted first-quarter net income of $1.4 billion, up 36% from $1
billion in the year-earlier period, on revenues of $19 billion (see
chart). But from an operating standpoint, income for the pipeline
group was down 12% in the quarter largely due to the major red ink
($306 million) reported by Sonat Inc. If Sonat's first-quarter
losses were excluded, operating earnings for the group would be up
almost 2% compared to the year-earlier period.
On an operating basis, some of the notable standouts during the
quarter were Coastal Corp., El Paso Energy and Equitable Resources,
according to Donato Eassey, first vice president of Merrill Lynch
in Houston. "They [Equitable] were really a shining star. They beat
our [per/share operating earnings'] estimate by six cents." Coastal
also was "clearly in that mode." It exceeded Merrill Lynch's
earnings' projection by two cents per share, while El Paso
outperformed it by three cents per share. Coastal also "beat our
expectations by a couple of cents a share. As a result, we raised
our earnings estimate," PaineWebber's Barone said.
Enron Corp. actually had a good quarter also, Eassey said, even
though its income - on a net basis - was down by 43% due to a
one-time accounting charge of $133 million. When viewed from an
operating perspective, which he believes is a more accurate
barometer of financial health, Enron beat out earnings' projections
by three cents a share. Barone singled out MCN Energy for its
strong performance in the first quarter. It finished ahead of
PaineWebber's expectations because of "stronger-than-anticipated"
results from its gas distribution arm.
The first-quarter operating results of Columbia Energy and
Williams Cos., when compared to what Merrill Lynch had anticipated
for them, were seen as the big disappointments, according to
Eassey. Columbia "missed the whole boat," coming in more than 20
cents a share below what was expected in the first quarter. It had
a "couple of problems on the marketing side. And then they brought
in some gains, some reversals of some charges and stuff, which may
have hit the numbers, but that's not operating."
Williams fell shy of per-share projections by six cents for the
first three months, he noted. The company reported a 26% drop in
first-quarter net income primarily due to nearly $52 million in red
ink on its communications side, specifically its Solutions
operation "which is still trying to get its house in order." But
earnings for Williams' gas pipeline operations, which dipped
slightly to $187 million for the first quarter, were "where we were
Looking to the second quarter, Eassey predicts pipeline
operating earnings will be up "across the board" due to a
colder-than-normal April, firmer gas prices and the increasing
bottom-line contributions of unregulated subsidiaries. Barone
anticipates that a "dramatic improvement in cash prices in the
second quarter" will favorably impact earnings. "We're looking at
cash prices now that are very close to where they were last year."
Eassey sees pipeline-only companies and major integrated
pipelines exceeding their 1998 second-quarter earnings/share by a
wide margin. Based on conservative estimates, he said he's looking
for Coastal to be up 7 cents per share in the next quarter; El Paso
up 6 cents; Enron up 13 cents; Williams up 6 cents; Equitable up 6
cents; National Fuel Gas Supply up 15 cents and Questar Pipeline up