MCN Exits Exploration, Takes $225 Million 2Q Charge
MCN Energy Group announced last week it plans to exit the
exploration business and expects to take a second quarter charge on
earnings of $225 million because of low oil and gas prices and the
under-performance of certain exploration properties in the Mid
Continent and Gulf Coast regions.
"The energy price issue is an industry-wide phenomenon," noted
MCN Chairman Alfred R. Glancy III. "Full-cost-accounting E&P
companies such as ours are being hit particularly hard because the
Securities & Exchange Commission requires oil and gas reserves
to be valued at current or contract prices at the end of each
quarter. This 'ceiling test' sets a low value on the reserves based
on a temporary plunge in energy prices, rather than reflecting the
actual anticipated long-term value of those reserves."
Glancy said the write-down will allow MCN to finish 1998 "in
position to resume a steady pace of earnings growth." But because
of the reorganization and write-down, the company is lowering 1998
earnings expectations to 10-15% below last year's $1.91 per share.
"We expect earnings to recover to a range of at least $2 to $2.10
per share for 1999, assuming a return to normal weather and
contributions from coal fines tax credits," said Glancy.
The company recently completed a comprehensive review of its
E&P operations and concluded it should "return to our original,
lower-risk strategy," Glancy said. "We have an attractive inventory
of exploration properties that will require some additional
investment as we carefully move out of this higher-risk area. We
will be divesting these properties because they don't fit our risk
He said the company will continue to focus on production from
the Antrim shale, coalbed methane holdings and conventional
development drilling. "These plays provide both quick and
consistent cashflows and earnings."
Capital investments in the E&P business for 1998 and 1999,
however, will be about half of the previous year's level of $375
million," he said.
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