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Atmos Looks to Sell Fort Necessity Storage Project

Dallas-based Atmos Energy Corp. said Wednesday it is in negotiations with a potential buyer for its 25 Bcf Fort Necessity Storage Project in Louisiana -- though "market conditions are not favorable" -- and the company intends to sharpen its focus on its pipeline business.

"With all the other capital requirements we have on our system, [we felt] that it would probably be better for somebody else to develop that storage," CEO Bob Best said during a conference call with analysts. "We're not in the storage development business, so we thought it would be better for us to not go forward with the expenditures that we would have to make to develop the storage. We're continuing to negotiate [and] we remain hopeful that we'll be able to reach agreement and sell the Fort Necessity property...our focus is going to be mainly on our pipeline."

In September Atmos Pipeline and Storage LLC said it was seeking FERC approval of an arrangement that would allow for the transfer of ownership of the Fort Necessity project to a new subsidiary (see NGI, Oct. 5). The subsidiary, Fort Necessity Natural Gas Storage LLC, is owned by Atmos Pipeline, a subsidiary of Atmos Energy Holdings Inc. Atmos Energy Holdings, in turn, is wholly owned by Atmos Energy Corp.

The Fort Necessity project calls for the construction of three underground salt dome caverns in the Fort Necessity salt dome formation, approximately 12 miles south-southwest of Winnsboro, LA. The three caverns would have a combined total capacity of nearly 24.75 Bcf, of which 15 Bcf would be working capacity. The proposed facility would have an average injection rate of 375 MMcf/d and a maximum injection rate of approximately 500 MMcf/d, while the average withdrawal rate would be 750 MMcf/d and maximum withdrawal rate would be approximately 1.5 Bcf/d, according to Atmos Pipeline.

Atmos, whose fiscal year (FY) and fourth quarter ended Sept. 30, reported Tuesday a loss of $16 million (minus 17 cents/share) for 4Q2009, compared with net income of $1.6 million (2 cents/share) for 4Q2008. The company's regulated operations experienced a net loss of $19 million (minus 21 cents/share) while nonregulated operations contributed $3 million (4 cents/share) of net income.

Atmos said it expects earnings of $2.15-2.25/share in FY2010.

Natural gas distribution gross profit for 4Q2009 was $167.5 million, compared with $175.4 million in 4Q2008. The decrease was driven by an $8.7 million net reduction in margins in the Mid-Tex Division primarily from rate design changes implemented earlier in the fiscal year, partially offset by a $2 million increase in rates in the Louisiana, Georgia and Tennessee service areas. Natural gas marketing gross profit decreased to $16 million compared with $33.4 million in the same period last year, due primarily to a $29.5 million decrease in unrealized margins due to the impact of widening spreads between current cash prices and forward natural gas prices experienced on Atmos Energy Marketing's (AEM) net physical position during 4Q2009, coupled with a 5.8 Bcf increase in AEM's net physical position.

Regulated transmission and storage gross profit decreased to $46.4 million for 4Q2009, compared with $53.1 million for the same period last year. The decrease was due primarily to a 23% decrease in consolidated throughput, due principally to a decline in Barnett Shale activity, industrial demand and electric generation demand.

For all of FY2009, net income reached $191 million ($2.08/share), compared with $180.3 million ($2/share) in FY2008, Atmos said.

Natural gas distribution gross profit increased to $1.02 billion for FY2009, compared with $1.01 billion in the prior year. The FY2009 profit included a net $29.6 million increase in rates, primarily in the company's Mid-Tex, Louisiana and West Texas service areas. Regulated transmission and storage gross profit increased to $209.7 million in FY2009 compared with $195.9 million for FY2008, while natural gas marketing gross profit decreased $8.4 million to $84.6 million for the fiscal year. Pipeline, storage and other gross profit was $29.5 million for FY2009 compared with $28.3 million for FY2008.

Capital expenditures in FY2009 increased to $509.5 million compared with $472.3 million in FY2008. The increase reflected spending for the construction of a pipeline extension in the company's regulated operations. Atmos expects $520-535 million in capital expenditures in FY2010.

Atmos ranked 14th on Boston-based Capacity Center's most recent ranking of pipeline companies (see NGI, Oct. 12) and, in NGI's 2Q2009 Top North American Gas Marketers Ranking, was one of only six marketers reporting increases in 2Q2009 (see NGI, Sept. 14).

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