Wholesale Marketing Gains Lead Enron's Earnings Higher
Enron Corp.'s wholesale marketing division led the company with
a 60% earnings increase at the same time its infant retail
operations continued to show a loss.
Income from the wholesale marketing business before interest and
taxes (IBIT) went to $277 million in the third quarter, compared to
$173 million in the third quarter of 1997. In the third quarter of
1998, marketed volumes of all energy commodities increased 68% from
a year ago to more than 34 trillion Btu/d. These volumes included a
22% increase in marketed gas volumes to 13.2 trillion Btu/d, from
10.9 trillion Btu/d (86% North American) and a 125% increase in
electricity marketed to about 163 million MWh from 72 million MWh
(nearly all North American).
"Enron has proven its ability to effectively manage and hedge
this $1 billion-plus business during both the significant
volatility in the third quarter financial markets and significant
volatility in the second quarter commodity markets," PaineWebber
said. "We reiterate our belief that this innovative portfolio of
businesses is in a class by itself."
As for the retail side, Enron Energy Services (EES) reported a
loss before interest and taxes of $23 million in the third quarter
of 1998 compared to a loss of $25 million in the third quarter of
1997, or $0.05 per diluted share in each quarter. The losses were
attributed to start-up activities, and Enron CEO Kenneth L. Lay
said the $850 million in contracts signed during the quarter is
"70% over our plan."
Commenting on Enron, Edward Jones analyst Zach Wagner said
that's to be expected. He is, in fact, encouraged by how the
company has built up its retail business. "The important thing is
the value of the contracts that they've signed and the type of
revenue, the type of cash flow that they're generating."
PaineWebber noted Enron is "well on its way to surpass" EES
contracting goals. "In short, given the huge backlog of pending
contracts and management body language, we expect that, both from a
quantitative and qualitative perspective, there will be a lot more
coming out of EES over the next three to six months, not to mention
beyond. Moreover, with the backlog of projects and increasing
revenue streams from contract performance, we continue to expect
that this division's losses will decline and that it could break
even by the third quarter of 1999 and begin to contribute
significant earnings in 2000 and beyond."
Overall, Enron third quarter earnings of $0.47 per diluted share
were up compared to $0.46 (before non-recurring charges) in the
third quarter of 1997. The company had net after tax income of $168
million compared to $134 million a year ago. Enron's core
businesses, including Wholesale Energy Operations and Services,
Transportation and Distribution, and Exploration and Production,
realized earnings per diluted share of $0.52 for the third quarter
of 1998 compared to $0.51 for the third quarter of 1997.
Transportation and Distribution generated $130 million of IBIT
in the third quarter of 1998 compared with $122 million in the
third quarter of 1997. Exploration and Production generated $25
million of IBIT down from $49 million in the third quarter of 1997.
These results reflect a 15% growth in worldwide oil and gas
production offset by increased exploration costs and lower oil
Enron also increased its annual dividend by $0.05 per share to
$1.00 per share. The increase will be effective with the fourth
quarter dividend of $0.25 per share payable Dec. 21.
Despite record production Enron Oil & Gas (EOG) reported
third quarter net income of $5.9 million, down from $31.2 million
in the third quarter of 1997.
"For the first time in our history, EOG produced over 1 billion
cubic feet per day in average wellhead natural gas production,"
said Mark G. Papa, EOG president. Adding in oil and gas liquids,
boosted total equivalent volumes to more than 1.2 Bcf/d. The totals
were an increase over the 897 MMcf/d of natural gas and 25 MBD of
crude, condensate and liquids in the third quarter of 1997.
The additional volumes, however, were not enough to make up for
the lower commodity prices. In North America where the largest
amount of Enron's production is located, wellhead prices averaged
$1.75 in 3Q 1998 compared to $1.91/Mcf in 3Q 1997, while crude and
condensate price realizations were $12.39 per barrel compared to
$18.88 a year ago. Including production in India and Trinidad, EOG
collected an average of $1.67/Mcf in 3Q 1998, compared to $1.84/Mcf
for the same period last year. Net revenues for EOG also were
impacted by higher operating costs. Net operating revenue for the
quarter was $191.3 this year compared to $193.1 in 3Q 1997, while
operating expenses went from $144.4 in 1997 to $172.1 in the
quarter just past.
Total North American production averaged 798 MMcf/d for the
quarter this year compared to 748 MMcf/d a year ago.
Joe Fisher, Houston