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MCN Exits Exploration, Takes $225 Million 2Q Charge

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&ampP companies such as ours are being hit particularly hard because the Securities &amp 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&ampP 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 profile."

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&ampP 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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