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Sempra Buys CNG's Wholesale Gas Marketing Portfolio for $48M

Sempra Buys CNG's Wholesale Gas Marketing Portfolio for $48M

With an eye toward concentrating on retail marketing, E&ampP and distribution, Consolidated Natural Gas followed through last week on its plan to exit the wholesale energy marketing business because of its tight margins and dependency on larger scale operations. The company found a willing buyer in rapidly growing Sempra Energy, a large West Coast enterprise looking to broaden its marketing base and its geographic horizons. The San Diego-based utility holding company, formed by the merger of Pacific Enterprises and Enova, bought all of CNG's wholesale gas supply, sales, storage and transportation agreements for $48 million.

CNG announced plans to exit the wholesale business in April following a $17.2 million first-quarter loss. The Pittsburgh-based utility holding company took a first quarter $66 million pretax charge against earnings to cover discontinuing wholesale operations, including the layoff of 125 employees. Sempra said it intends to pick up only 10 CNG staffers in the acquisition.

CNG also is discontinuing its wholesale power marketing operations, which sold 7.5 million MWh in the first quarter, but a spokesman said a sale of its power contracts isn't likely. The power contracts are being phased out.

The company's gas operations will propel Sempra into the top-10 largest gas marketers by volume in North America, adding about 3.1 Bcf/d of commodity trading contracts with local distribution companies, municipalities and major industrial corporations to Sempra's 3.7 Bcf/d operation. CNG's concentration in the Northeast and Midwest and Sempra's already prominent position in those regions create an eastern market powerhouse matched by only the largest gas marketers. The deal includes a 10 Bcf chunk of working storage capacity on CNG Transmission, Transco, Tetco, East Ohio and TransCanada, and 600 MMcf/d of capacity on 10 eastern pipelines.

Sempra said the acquisition sharply increases its ability to move gas to virtually all local gas distribution companies throughout the eastern half of the country. "We see substantial benefits from this acquisition, including an expansion of our commodity trading activities with municipal and utility customers and the addition of long-term contractual relationships with a number of blue-chip industrial customers," said David Messer, president of Sempra Energy Trading. "This deal also allows us to build on our already strong market position in the Northeast and Midwest." It puts Sempra "firmly within the top-10 natural gas traders in the United States."

Messer said Sempra is "comfortable the purchasing price represents good value. I do not know why CNG was unable to make money in this business. As you know there are many energy marketing companies, ourselves among them, who are profitable in the energy trading business. This set of contracts will complement our operations very nicely." The deal is expected to be completed in August following regulatory approval. Rocco Canonica

Merger Charge Hinders Sempra Earnings

Second quarter results of newly formed Sempra Energy were affected by a $75 million after-tax charge, mainly stemming from the merger of Enova Corp. and Pacific Enterprises, which formed the new company. Enova and Pacific Enterprises, reported consolidated net income of $31 million, or 13 cents/share, for the second quarter of 1998. Excluding one-time costs, Sempra second-quarter earnings were $106 million, or 45 cents per diluted share. In the second quarter of 1997, consolidated net income was $112 million, or 47 cents a diluted share, including $8 million, or 3 cents a diluted share, of merger-related costs.

Revenues for Sempra Energy totaled $1.3 billion for the second quarter 1998, compared with $1.1 billion for the prior year's quarter. For the first six months of 1998, revenues totaled $2.7 billion, compared to $2.4 billion during the first six months of 1997.

During the second quarter, consolidated financial results for the two major utility subsidiaries, excluding merger-related costs, were $103 million, compared to $123 million for the same period of 1997. Southern California Gas results included net income of $51 million, compared with $70 million for the same period of 1997. The six-month earnings for 1998 were $97 million compared to $128 million recorded last year. Gas volumes delivered by SoCalGas for the quarter ended June 30, 1998, totaled 234 Bcf the same as last year. San Diego Gas &amp Electric net income was $52 million, versus $53 million for the same period last year. Six-month earnings were $104 million, compared to $97 million for the first half of 1997.

Joe Fisher, Houston

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