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Columbia Results Improve, But Marketing Suffers

Columbia Results Improve, But Marketing Suffers

Columbia Energy Group barely overcame warmer than normal temperatures, weak gas prices and higher marketing costs during the first quarter to post a 2% increase in earnings. The company reported first quarter 1999 earnings of $150.4 million, or $1.81 per share, up $2.9 million, or four cents per share, from $147.5 million or $1.77 per share in the 1998 first quarter. Strong performances by its regulated transmission, storage and distribution operations, as well as its propane, power generation and LNG activities were offset by continued difficulties in marketing and exploration and production.

The marketing segment reported an operating loss of $21.5 million, which was $16 million more than the loss in 1Q98. Higher operating costs reflected increased investment in infrastructure and retail customer acquisitions as well as additional staffing levels, Columbia said. Total gross margins dropped $5.7 million due primarily to the warm weather. While 1999's first quarter weather was 20% colder than the record warmth of the 1998 quarter, it still was 6% warmer than normal. However, Columbia's gas sales of 554 Bcf (6.16 Bcf/d) were up 52% over last year and power trading was at 7.85 million MWh compared to 305 GWh in 1Q98. Columbia Energy Services now provides energy service to nearly half a million retail customers in 10 states, more than twice the level of retail customers of a year ago.

"This dramatic growth has placed Columbia Energy Services among the nation's leading marketing companies for retail energy customers and for gas and power trading," said CEO Oliver G. Richard III. "However, the growth has strained the company's marketing infrastructure, highlighting areas that need improvement. While continuing to work to improve its infrastructure, over the near term, we are focusing the marketing segment's efforts where Columbia has an established presence."

On the wholesale side, CFO Michael W. O'Donnell said the company "significantly cut back on the amount of risk activity in the company," since the trading snafus that contributed to a fourth quarter loss of $39.4 million and a loss for the year of $59 million (see Daily GPI Feb. 12 issue). "We've moved the management of the books, the marking of the prices in the books, from the front office to the mid-office. We think that's a much better risk management practice than we had before. In addition to that, we're just doing a lower level of trading activity generally." Richard said he expects the wholesale operations will make a profit this year and retail marketing will break even. Columbia is actively looking for a senior executive to manage its unregulated divisions, he added.

Columbia's total revenues for the first quarter were up more than $700 million from the same period last year. Operating income of $272.6 million set a new record high for a quarter, an increase of $18.4 million over 1998. Transmission and storage's operating income was up $26.4 million due primarily to recording the settlement of the last remaining producer issue stemming from Columbia's bankruptcy proceedings that concluded in 1995. The settlement resulted in a one-time improvement of $20.6 million. Richard also noted Columbia Gas Transmission's market expansion program is expected to be completed later this year.

Distribution operating income increased $10.1 million. Richard said more than 1.6 million retail customers in Columbia's distribution service areas can choose their natural gas supplier. In Ohio, Columbia's choice program has resulted in nearly $30 million in customer savings since its inception.

Its propane, power generation and LNG's operating income improved $1.6 million over 1Q98. Exploration and production's operating income was $8.8 million lower, however due to sharply lower prices that only partially offset a 7% increase in production. Prices averaged $2.44/Mcf compared to $3.38/Mcf last year, while 1999 production of 10.6 Bcf, was up almost 1 Bcf.

"Since the end of the quarter, we have announced definitive agreements for three acquisitions on the nonregulated side-two in propane and one in exploration and production," said Richard. "Once completed, these transactions would broaden our geographic footprint in propane, nearly triple the number of propane customers served and expand Columbia Propane's market area from eight to 35 states, making it one of the largest propane companies in America. Also, Columbia Energy Resources would be able to extend its leadership position in the Appalachian Basin, with about 3 Bcf of additional annual production and over 40 Bcf of proved reserves."

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