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

“Consolidations within the pipeline industry in the past fewyears signaled that it may be in the best interest of ourstockholders to consider selling the company,” AQP CEO Joe Becraftsaid earlier .But, “since March we have gone through anexhaustive process and determined that more shareholder value canbe achieved through continued growth.” (See NGI March 16, 1998)

AQP owns and operates gas liquids processing plants and gaspipelines in Texas and Oklahoma and is a major independent producerof gas liquids. “AQP intends to continue expanding its business andmay take advantage of depressed market conditions to make targetedacquisitions to enhance its asset base,” Becraft said. “We are alsogoing to explore opportunities to achieve operating efficienciesand 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 earningsrise despite weakened performance in its energy delivery segment,sharply diminished results from Aquila Gas Pipeline, and anelectric rate cut in Missouri. Growth in wholesale energy marketingand international operations get the thanks for boostingsecond-quarter earnings to $23.4 million from $20.3 million a yearearlier.

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

“Our non-regulated business units Aquila Energy Marketing andInternational helped propel UtiliCorp’s earnings 8% over the 1997quarter 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 theenergy marketing and trading businesses operated by subsidiaryAquila Energy. The company’s 12-month sales exceeded $10 billionfor the first time, reaching $10.8 billion for the period endedJune 30, up 77% from $6.1 billion a year earlier. Average dilutedcommon shares outstanding for the quarter were 54.13 million, upslightly from 53.97 million in the 1997 period.

The Energy Delivery segment’s EBIT was $21.7 million in thesecond quarter compared to $26.2 million a year ago. Unfavorableweather reduced EBIT by $2.4 million compared to a year earlier.Warmer-than-normal weather affecting gas sales was partially offsetby favorable weather in the company’s electric territories. EnergyDelivery’s EBIT decreased by $2 million due to a Missouri ratereduction.

The Aquila Energy subsidiary had second-quarter EBIT of $4.2million compared to a loss before interest and taxes of $0.2million a year earlier. The increase is primarily due to strongpower marketing results, partially offset by weaker results fromgas marketing. Total wholesale gas volumes marketed in the 1998quarter 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 earningswas primarily due to a 17% decline in gas liquids prices, a 34%decrease in NGL processing volumes and a 16% decrease in pipelinethroughput, according to UtiliCorp. These trends were in responseto to lower oil prices which adversely affected NGL prices anddepressed drilling activity.

In June, UtiliCorp refined its retail strategy in response toslower than anticipated transition to a more competitive energymarketplace and to align its retail strategy within core businessplatforms – energy delivery networks and energy merchantbusinesses. In addition, UtiliCorp is considering variousalternatives for its independent power plant assets that willbetter leverage the value of its investments. Through thisstrategic process, it became evident that the carrying value ofcertain assets exceeded future cash flows under the revisedstrategic plan. As a result, UtiliCorp wrote off $27.7 millionagainst second-quarter earnings.

Joe Fisher, Houston

©Copyright 1998 Intelligence Press, Inc. All rightsreserved. The preceding news report may not be republished orredistributed in whole or in part without prior written consent ofIntelligence Press, Inc.