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Columbia Plans Share Repurchase; Earnings Rise

Columbia Plans Share Repurchase; Earnings Rise

Columbia Energy Group beat analysts expectations with a 15% jump ($3.3 million or five cents per share) in net income during the second quarter to $26.1 million, or 32 cents per share. It also upped the ante yesterday in its effort to fend off NiSource's $5.7 billion hostile takeover offer by adding $400 million to its stock repurchase program, which now totals $420 million.

"The board has taken this action because it believes Columbia's true value is not fully reflected in its current stock price, which was impacted in 1999 by much warmer than usual weather and by significant investments and costs in the marketing segment, and does not reflect Columbia's long-term business prospects," said CEO Oliver G. (Rick) Richard III. "This repurchase program, announced on the same day as we reported our fourth consecutive quarter of increased net income, demonstrates our clear commitment to enhance shareholder value in both the near and long term."

Sanders Morris and Mundy energy analyst John Olson said he expects the stock buy-back to "encourage some of the discontented stockholders to cash in." Olson said with its current price offer of $68/share, or only about $4.30/share more than Columbia's current share price, NiSource faces an uphill battle. Without Columbia's help, it will be extremely difficult for NiSource to win over shareholders and get a combination though the regulatory process, given Columbia's holding company status and some sticky issues involving the Public Utility Holding Company Act.

In the meantime, Columbia continues to show improvements. The highlights of the second quarter included a positive impact from a lower property taxes on its distribution assets, an Appalachian reserve discovery and a large E&P property acquisition, three propane purchases, strong performance in gas distribution and the start of construction on a new fiber network for telecommunications between New York and Washington, D.C.

However, retail marketing operations continued to struggle, and Columbia had to dish out $4.1 million for its failed bid for Consolidated Natural Gas - which will cost the company an additional $8 million in the third quarter. It also reported lower operating income from its transmission and E&P segments and an operating loss in its propane, power generation and LNG segment.

The distribution segment recorded a $3.2 million gain in operating income to $16.6 million. But operating income from transmission and storage fell $2.9 million to $55.9 million. And the E&P segment showed a $1.6 million decrease in operating income to $6.9 because of lower gas prices and flat production.

Higher operating expenses led to an operating loss for the propane, power generation and LNG segment of $500,000 versus an operating loss of $200,000 last year.

Columbia's marketing segment is inundated with additional customer acquisition costs and higher expenses for increased staffing levels on the retail side. The wholesale marketing division posted a $1.2 million gain in operating income. But the entire marketing segment showed an operating loss of $10.5 million. That compared with an operating loss of $7.6 million in 2Q98.

Gas sales customers totaled over 320,000, compared to 53,300 in 1998's second quarter. Total gas sales were 391.4 Bcf for the second quarter, an increase of 44 Bcf over last year, and power sales more than tripled to 9,910 GWh.

Nevertheless, under new management, the marketing segment is expected to undergo some changes in the quarters ahead. Columbia brought in Brian Watt, an MIT graduate and industry consultant, to help turn things around at Columbia Energy Services. "Due to [Watt's] early participation in this project, he has an excellent knowledge of these businesses and I am confident he will provide the necessary direction, immediately," said Richard. "Although showing improvement, we continue to be dissatisfied with Columbia Energy Services' operations and results."

Columbia's second quarter revenues totaled $1.7 billion, up $373.4 million over the 1998 period, while operating income was $64.3 million, a decrease of $6.6 million from last year's second quarter. However, Richard said he expects total operating income for the full year to be about $625 million, or 15% higher than 1998, with much of the increase coming from our nonregulated segments. Columbia's net income for the 1999 first half was $176.5 million, or $2.13 per share, an increase of $6.2 million, or 9 cents per share, over the 1998 first half.

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