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Atmos Sees Quarterly Increase on TXU Acquisition

Atmos Energy Corp. reported net income of $88.5 million, or $1.11 per diluted share, for its second quarter ending March 31, compared with $58.3 million, or $1.12 per diluted share, in the prior year quarter. Earnings in fiscal 2005 include the results of operations of TXU Gas Co., the natural gas utility distribution and pipeline operations of TXU Energy, acquired on Oct. 1, 2004.

Earnings in the second quarter last year included a $2.9 million after-tax gain, or $0.05 per diluted share, on the sale of the company's indirect interest in Heritage Propane Partners L.P.

Weather that was 10% warmer than normal knocked a potential $11.8 million, or $0.15 cents/share, off of 2Q net income for the Dallas-based company. For the company's first half the weather effect was calculated at a minus $17.1 million or $0.22 cents/share.

For the six months ended March 31, 2005, net income was $148.1 million, or $1.90 per diluted share, compared with net income of $87.8 million, or $1.69 per diluted share, for the six months ended March 31, 2004. Atmos Energy nevertheless is maintaining its fiscal 2005 earnings guidance at the lower end of the previously announced range of $1.65 to $1.75 per diluted share, calculating a 24/cent per share loss based on the typical pattern of gas distributors for low sales during the summer and fall months, plus the effect of share dilution.

Incorporating its TXU acquisition, Atmos Energy formed its Mid-Tex Division to operate the utility distribution operations and its Atmos Pipeline-Texas Division to operate the gas pipeline and storage operations. Together, the new divisions contributed $29.3 million in net income for the three months ended March 31, 2005, and $53.7 million in net income for the six months.

On the pipeline front, Atmos Energy is close to a definitive agreement with Energy Transfer Partners LP on a joint venture to construct and operate the so-called North Side Loop, north of Dallas-Fort Worth, Robert W. Best, Atmos CEO, told an earnings conference call. The 45-mile, 30-inch diameter pipeline should be operational in fiscal 2006 (see Daily GPI, Jan. 13). Best said the company is in the process of acquiring rights of way, has ordered pipe and is negotiating with shippers. The venture is continuing to see robust demand for system capacity in the Barnett Shale area based on rapidly expanding production.

Best said there is a cap on the company's investment in the pipeline of $42.5 million. Further, the company is aggressively working on bring its debt to capital ratio down from the recent 58.1% to its traditional 50-55% range.

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