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Aquila Pipeline Unit Taken Off Auction Block

Aquila Pipeline Unit Taken Off Auction Block

Because low gas liquids prices threatened the ability of UtiliCorp United's Aquila Energy to realize full value from a sale of Aquila Gas Pipeline (AQP), the company took the subsidiary off the market and said it would work to grow the asset itself.

"Consolidations within the pipeline industry in the past few years signaled that it may be in the best interest of our stockholders to consider selling the company," AQP CEO Joe Becraft said earlier . But, "since March we have gone through an exhaustive process and determined that more shareholder value can be achieved through continued growth." (See NGI March 16, 1998)

AQP owns and operates gas liquids processing plants and gas pipelines in Texas and Oklahoma and is a major independent producer of gas liquids. "AQP intends to continue expanding its business and may take advantage of depressed market conditions to make targeted acquisitions to enhance its asset base," Becraft said. "We are also going to explore opportunities to achieve operating efficiencies and drive more costs out of the business." The company is owned 82% by Aquila Energy, a UtiliCorp United subsidiary.

Separately, UtiliCorp reported a 15% second-quarter earnings rise despite weakened performance in its energy delivery segment, sharply diminished results from Aquila Gas Pipeline, and an electric rate cut in Missouri. Growth in wholesale energy marketing and international operations get the thanks for boosting second-quarter earnings to $23.4 million from $20.3 million a year earlier.

The company reported diluted earnings per average common share of $0.43 versus $0.38 in the 1997 quarter. Eliminating non-recurring items recorded in 1998, normalized diluted earnings per share were $0.41 in the 1998 quarter versus $0.38. Earnings before income taxes (EBIT) were $70.8 million, up 5% from $67.2 million a year earlier. Second-quarter sales in 1998 were $2.6 billion, up 65% from $1.6 billion in the year-earlier period.

"Our non-regulated business units Aquila Energy Marketing and International helped propel UtiliCorp's earnings 8% over the 1997 quarter and helped position the company to achieve its target of 8% earnings growth for the full year," said Richard C. Green Jr., CEO. "This result comes in spite of a very strong 1997 quarter and a 55% decline in EBIT from Aquila Gas Pipeline."

UtiliCorp's sales were up primarily due to rapid growth of the energy marketing and trading businesses operated by subsidiary Aquila Energy. The company's 12-month sales exceeded $10 billion for the first time, reaching $10.8 billion for the period ended June 30, up 77% from $6.1 billion a year earlier. Average diluted common shares outstanding for the quarter were 54.13 million, up slightly from 53.97 million in the 1997 period.

The Energy Delivery segment's EBIT was $21.7 million in the second quarter compared to $26.2 million a year ago. Unfavorable weather reduced EBIT by $2.4 million compared to a year earlier. Warmer-than-normal weather affecting gas sales was partially offset by favorable weather in the company's electric territories. Energy Delivery's EBIT decreased by $2 million due to a Missouri rate reduction.

The Aquila Energy subsidiary had second-quarter EBIT of $4.2 million compared to a loss before interest and taxes of $0.2 million a year earlier. The increase is primarily due to strong power marketing results, partially offset by weaker results from gas marketing. Total wholesale gas volumes marketed in the 1998 quarter were 8.7 Bcf/d, compared to 6.0 Bcf/d a year earlier. Aquila's power marketing volumes reached 24.8 gigawatt-hours (GWH), up 111% from 11.7 GWH in the 1997 quarter.

In the second quarter, Aquila Gas Pipeline contributed EBIT of $6.4 million, 55% less than a year earlier. The drop in earnings was primarily due to a 17% decline in gas liquids prices, a 34% decrease in NGL processing volumes and a 16% decrease in pipeline throughput, according to UtiliCorp. These trends were in response to to lower oil prices which adversely affected NGL prices and depressed drilling activity.

In June, UtiliCorp refined its retail strategy in response to slower than anticipated transition to a more competitive energy marketplace and to align its retail strategy within core business platforms - energy delivery networks and energy merchant businesses. In addition, UtiliCorp is considering various alternatives for its independent power plant assets that will better leverage the value of its investments. Through this strategic process, it became evident that the carrying value of certain assets exceeded future cash flows under the revised strategic plan. As a result, UtiliCorp wrote off $27.7 million against second-quarter earnings.

Joe Fisher, Houston

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