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El Paso, Coastal Score Record Earnings; Williams 1Q Lower

El Paso, Coastal Score Record Earnings; Williams 1Q Lower

Both El Paso Energy and Coastal Corp. wracked up record earnings for the first quarter, while The Williams Cos. gave a lackluster performance - with most of its major business groups posting lower results compared to a year ago.

El Paso's record quarterly per-share earnings - the ninth straight since the company acquired Tenneco Energy in late 1996 - were largely owing to strong results from its pipeline operations and a partial offset of lower natural gas and gas liquids' prices by its acquisition of interests in Leviathan Gas Pipeline Partners last year.

In contrast, Coastal attributed its record first-quarter results to its refining, marketing and chemical operations, as well as to its power plant and coal divisions. These helped to offset the drastic hit that its exploration and production (E&ampP) operations took due to lower prices realized for natural gas and crude oil during the three-month period.

El Paso Energy had first-quarter diluted earnings of 58 cents per share compared to 48 cents a share a year ago, excluding the cumulative effect of an accounting change. Its consolidated earnings before interest, expense and income taxes (EBIT) were $190 million, up 17% from $163 million a year ago, on revenues of $1.5 billion. Chairman William A. Wise credited the "exceptional results" to Tennessee Gas Pipeline and El Paso Natural Gas, "notwithstanding the generally mild temperatures this past winter." Tennessee's first-quarter EBIT results were $113 million compared to $98 million for the same period in 1998, while El Paso's earnings inched upwards to $56 million from $52 million a year ago.

Due to low gas and liquids prices in the first quarter, El Paso Field Services turned in the worst performance for the company, with its EBIT falling to $16 million from $24 million in the year-earlier period. But the drop would have been far more significant if it hadn't have been partially offset by a 10% increase in gathering and treating volumes and the contribution from El Paso's interest in Leviathan Gas, El Paso said. PaineWebber predicts that Leviathan's impact on Field Services will continue to be favorable as it targets sizable new deep-water projects.

Another key contributor to the company's bottom line was El Paso Energy Marketing, which posted an EBIT of $8 million in the first quarter compared to $200,000 for the same period in 1998. Average marketed gas volumes in the quarter were 4,443 BBtu/d, while power marketed volumes were 13,213 thousand MW hours, according to El Paso. PaineWebber sees the marketing unit being a bigger earnings' contributor in the future due to El Paso's acquisition of a 50% interest in CE Generation LLC from CalEnergy Co. El Paso's international unit also reported a favorable EBIT of $3 million for the quarter, up from $2 million in 1998.

El Paso officials said the company was moving forward with its plans to merge with Sonat Inc. The company noted it already has received approval from the Securities Exchange Commission, is in discussions with the Federal Trade Commission and is preparing to send FERC its application to merge the two companies' power licenses. "Management believes the deal could close by the end of 3Q99," according to a PaineWebber Research Note.

Coastal Earnings Rise 8%

Coastal posted record earnings from continuing operations of $134.5 million, or 62 cents per share, against $124.8 million, or 56 cents a share, in the same period in 1998. The first-quarter 1999 earnings were on operating revenues of $1.7 billion, down from $1.96 billion a year ago.

The refining, marketing and chemicals unit recorded significant year-to-year growth. The unit contributed a total of almost $70 million in the first quarter, up 46% over its EBIT of $47.6 million in the year-earlier period. High growth also was seen in Coastal's power plant unit, whose EBIT rose 60% to $18.9 million from $11.6 million during the first quarter of 1998. The EBIT for its coal division almost doubled to $4.3 million in the most recent period.

The first-quarter 1999 EBIT of the company's natural gas segment, which includes its pipeline operations and Engage Energy (a marketing joint venture), dropped slightly to $187 million from $194 million a year ago. The reduction in first-quarter earnings for the unit were blamed on lower rates on ANR Pipeline and red ink at Engage Energy, which totaled $1 million in the quarter compared to $4.4 million a year ago. PaineWebber believes that Coastal's participation in growth projects, such as the proposed Alliance Pipeline and the Florida-bound Gulfstream project, will put the division back on its feet. "In short, this division will continue to serve as the company's backbone for growth in other higher return unregulated areas."

Coastal's E&ampP unit turned in a miserable first-quarter performance due to depressed energy prices. Its EBIT fell more than two-fold to $11.4 million from $25.5 million in the first quarter of 1998. Despite this, Coastal said it increased first-quarter gas production by 8% over its 1998 first-quarter level of 490 MMcf/d.

But PaineWebber expects to see a turnaround in the E&ampP division. "With expectations for incremental acquisitions [of gas properties], a greater than 20% increase in production in 1999 and the stage set for favorable gas market fundamentals over the balance of the year and into 2000, Coastal's E&ampP division is poised to generate significantly higher earnings in the quarters and years ahead."

Williams' Net Income Drops 26%

For consolidated operations, Williams reported its first-quarter net income fell 26% to $50.3 million, or 11 cents a share, against $68.1 million, or 16 cents a share, for the same period a year ago. "We entered 1999 facing severely depressed conditions in energy markets - even worse than during the first quarter of 1998. Those conditions and the costs associated with our continuing, planned investments in communications combined to depress income below 1998 levels," said Williams Chairman Keith Bailey.

The only bright star in the first quarter was Energy Marketing &amp Trade, which posted a segment profit of $40.7 million compared to $15.5 million for the same period in 1998. In its energy operations, Williams' E&ampP operations took the biggest hit as profits plunged to $4.7 million in first-quarter 1999 from $12.3 million. Profits for its midstream and liquids' operations fell to $46.6 million from $66.3 million in the year-earlier period, while Williams' gas pipeline businesses saw earnings dip to $186.8 million from $195 million last year. Texas Gas Transmission was the only Williams' pipeline that reported higher profits.

The company's communications businesses continued to be the biggest drain on corporate profits, with total losses of $51.5 million. This was more than double the red ink posted by the segment during the first quarter in 1998.

Despite these results, PaineWebber remains mostly optimistic about Williams' operations. "...[W]e remain confident that Williams Pipeline Group will continue to provide a growing stream of earnings and cash flow to be redeployed in its unregulated activities. In addition, we have become more comfortable that, through a vast portfolio of growth initiatives and cost controls, its Energy Services Group [which includes its midstream and liquids operations, E&ampP, Energy Marketing &amp Trade and Petroleum Services] should be able to generate improved earnings this year and beyond, particularly after the recent improvement in commodity prices." However, it said it remains "cautious" about the communications side.

Susan Parker

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