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NiSource, Restructuring Spoil Columbia's Results

NiSource, Restructuring Spoil Columbia's Results

Columbia Energy Group revealed last week that its defense against a hostile takeover by NiSource has become quite costly, reaching $9 million in pre-tax expenses during the third quarter. The company also took a $4 million pre-tax charge during the third quarter for restructuring its retail marketing operation. The two setbacks combined led to a net loss of $9.7 million (12 cents per share) during the quarter compared to net income of $11.2 million (13 cents per share) during the same period last year. The company reported income from continuing operations of $800,000, or 1 cent per share, compared to $12.2 million, or 14 cents/share in 3Q98.

Despite the poor performance and the continuing battle against NiSource, however, CEO Oliver G. (Rick) Richard predicted the company would end the year on a high note. "We continue to expect Columbia's consolidated operating income from continuing operations for the full year to exceed the 1998 level by about 15%."

Late last week, Columbia's board still had not met to discuss NiSource's increased offer of $74/share ($6.1 billion up from $5.7 billion), and canceled its regular earnings teleconference as part of the quiet period leading up to its decision (see related story).

Richard stressed the positive improvements being made in Columbia Energy Services. "We are making solid progress in our drive to make Columbia Energy Services (CES) a more efficient and productive operation," he said. "A comprehensive evaluation of Columbia Energy Services' various businesses begun in February 1999 resulted in two major moves during the quarter. Under the leadership of its new president and CEO, Brian Watt, CES restructured its retail operations and decided to sell its wholesale and trading business. The retail operations were streamlined and consolidated, resulting in the decision to close CES' Pennsylvania office."

"A decision was made to sell CES' wholesale and trading business after it was determined that we would do better to concentrate on becoming a significant player in the retail end of the business, where Columbia's existing geographic footprint gives us an advantage," Richard said in a separate statement yesterday.

Wholesale and trading operations were recorded as discontinued but posted a third quarter net loss of $10.5 million or 13 cents per share compared with a net loss of $1 million or 1 cent per share in 3Q98. The division sold 27.7 Bcf of gas during the quarter, which was down from 34 Bcf in 3Q98. There were no announcements regarding the upcoming sale of the division, although a spokesman said the company has received "strong interest" from potential buyers. The entire energy marketing segment, which now includes propane, petroleum, and the retail marketing business, reported an operating loss of $26.7 million this quarter versus a loss of $10.6 million in the same period last year.

Exploration and production operations posted 55% increase in gas production to about 147 MMcf/d and a $6.1 million increase in operating income to $11.6 million. Realized gas prices for the company averaged $2.39/Mcf, about 44 cents/Mcf less than during the same period last year.

Operating results from transmission/storage and distribution essentially were unchanged from last year at $55.4 million and $1.3 million, respectively. Pipeline throughput rose slightly to 215.5 Bcf. Distribution throughput declined 5.2 Bcf to 78.6 Bcf.

The results from the company's customer choice programs in Virginia, Ohio, Pennsylvania and Maryland improved significantly from the same time last year. Columbia distribution companies have enrolled 520,000 residential gas customers in their choice programs, a 500% increase from 3Q98, Richard said. Rocco Canonica

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