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Strong Gas Distribution Earnings Boost KeySpan's 2003

Strong Gas Distribution Earnings Boost KeySpan's 2003

KeySpan on Thursday posted lower quarterly results but higher net income for all of 2003 mainly because of cold weather and strong gas distribution results. Its 4Q2003 net income of $136.8 million, or $0.85/diluted share, was down from the $148.6 million, or $1.03, that the company posted in 4Q2002. On the year, the company posted net income of $386.7 million, or $2.40/diluted share, compared to $377.7 million, or $2.61/share in 2002.

KeySpan announced 2003 consolidated earnings from continuing operations, less preferred stock dividends, of $417.3 million as compared to $391.6 million for the same period last year, an increase of 7%. This resulted in earnings per share of $2.64 in 2003 as compared to $2.77 in 2002. The company noted that these year-end results exceeded the upper end of the company's 2003 earnings guidance of $2.45 to $2.60 per share, with earnings of $2.16 per share coming from core operations and $0.48 per share from exploration and production operations.

For 4Q2003, consolidated earnings from continuing operations, less preferred stock dividends, increased approximately 7% to $156.9 million, as compared to $147.1 million for the same period in 2002. This resulted in earnings per share of $0.98 per share as compared to $1.03 per share during 4Q2002.

The company attributed its results in both periods to the continued solid performance of the gas distribution segment as well as the contribution from exploration and production operations. KeySpan noted that the colder weather experienced during the first quarter heating season, as well as the higher gas prices for the E&P business, were key factors in an 11% increase in operating income for the year.

"Our gas distribution system performed extremely well during one of the coldest winters in history," said CEO Robert B. Catell. "In addition, we once again achieved high levels of reliability and availability in our electric operations.

"In 2004, our marketing campaign should add approximately $55 million in new gross profit margin to our gas business and provide a platform for another year of excellent growth for KeySpan overall," he said. "On the electric side, our new Ravenswood generating facility expansion will provide needed capacity to the New York City load pocket and contribute to 2004 earnings."

KeySpan's gas distribution segment, which serves New York City, Long Island and New England, contributed operating income of $574 million in 2003, exceeding 2002 results by $43 million or 8%. The company noted that the segment benefited from winter weather, which was approximately 15% colder than last year. The segment also hooked up 57,000 new customer gas installations, adding approximately $55 million in new gross profit margin.

The electric services segment, which owns and operates generation in the New York City and Long Island load pockets and manages the Long Island Power Authority's transmission and distribution system under long-term contracts, posted operating income of $269 million for the year, 7% lower than last year, due to the cooler summer weather experienced at the Ravenswood generating facility which resulted in lower energy revenues, as well as higher operating costs.

KeySpan's energy investments segment, which includes the company's gas exploration and production operations -- primarily its 55% ownership of The Houston Exploration Co. -- as well as pipeline and other investments, realized operating income of $239 million for the year as compared to $143 million in 2002. The company attributed the jump to the increase in gas commodity prices realized in the company's gas exploration and production operations.

As for the fate of company's remaining interest in the Houston Exploration Co., a KeySpan spokeswoman said, "We are still looking to sell down that asset, but it has to be the right timing, the right price and in a tax efficient manner." In September, KeySpan said it was focusing on its regulated activities in the East and looking to divest its remaining interest in Houston Exploration Co., an independent E&P company operating in the U.S. with 94% of its reserves in natural gas (see Daily GPI, Sept. 19, 2003).

Looking ahead, KeySpan's 2004 earnings guidance remains at $2.55 to $2.75 per share. The breakdown includes earnings from continuing core operations of approximately $2.20 to $2.30 per share, and from exploration and production operations of approximately $0.35 to $0.45 per share.

"We had a strong finish to 2003, and we are off to a robust start in 2004 as we remain committed to our strategy of growing our core gas and electric businesses by 5% to 6% annually," said Catell. "In 2003 we executed on our strategy while improving our balance sheet and strengthening our credit position. With the forecasted growth in our core businesses, reduced costs through improved efficiency in our operations, and our enhanced financial position, we expect 2004 to be yet another year of significant growth in shareholder value."

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