Coastal Bucks Trend Again with Higher Earnings
The Coastal Corp benefited from its mix of producer and pipeline
operations, announcing a 17% jump from 3Q 1997 on a per-share
basis. Coastal earned $89.5 million, or 41 cents/share, compared to
$80.4 million, or 35 cents/share in 3Q 1997. Along with earnings,
the company reiterated its commitment to the North American gas
sector, calling it the best energy investment opportunity anywhere.
"Coastal's natural gas production for the third quarter was up
20% over last year's quarter, despite turbulent weather which
severely restricted production and drilling operations in the Gulf
of Mexico," said David A. Arledge, CEO. "Contrary to recent
industry trends influenced primarily by depressed oil prices,
Coastal announced a $100 million increase in its exploration and
production budget for 1998. We intend to capitalize on decreased
costs of services and equipment to further boost our natural gas
production, as we believe the North American natural gas sector
offers the best investment opportunity of any energy market in the
A Coastal spokeswoman said the company can now hire rigs and
equipment for $20,000 per day that would have cost $75,000 per day
in the first quarter. "We're seeing somewhat of a recovery in
prices although we anticipate oil prices won't rise that much.
Natural gas prices probably will," said spokeswoman Vicki
"Coastal is structured financially to benefit from the very
environment -- a worldwide economic slowdown with reduced energy
demand -- that causes lower energy prices," Arledge said. "Lower
oil prices, for example, require less borrowing for working
capital, while lower interest rates further reduce financing costs.
In addition, sharply constrained industry spending in a low-price
environment creates tremendous investment opportunities for
companies with financial flexibility."
However, Coastal's exploration and production segment earned
before interest and taxes $15.9 million in the third quarter, less
than half the $33.1 million EBIT in 3Q 1997. Despite increased gas
production, significantly lower gas and oil prices hit the company
hard. Realized prices for gas in the third quarter were $1.85/Mcf,
compared to $2.09/Mcf in 3Q 1997. Third quarter gas production was
504.2 MMcf/d, up from 421.3 MMcf/d despite storms and hurricanes in
the Gulf of Mexico.
Coastal's 3Q EBIT for the natural gas segment was nearly flat at
$109.1 million, compared to $110.8 million in 3Q 1997. Marketing
earnings declined due to a slight loss in Engage Energy -
Coastal's marketing joint venture with Westcoast Energy, which is
currently being restructured - and ongoing weakness in liquids
prices, according to analysis by PaineWebber's natural gas group.
In reporting a Q3 net loss of $6 million, or 6 cents/share,
compared with a gain of $17 million, or 17 cents/share in Q3 1997,
Westcoast noted "operating results continue to be negatively
affected by losses from the company's 50% interest in Engage
Energy. The decrease reflects a loss incurred by Engage Energy
relating to the default of two customers in conjunction with
electricity trading transactions in the second quarter of 1998,
amounting to approximately $14 million, combined with operating
losses incurred in the energy marketing business."