Daily GPI / NGI All News Access

El Paso, Coastal Turn in Record 1st Quarter Results

El Paso, Coastal Turn in Record 1st Quarter Results

Both El Paso Energy and Coastal Corp. wracked up record first-quarter earnings last week, but for completely different reasons.

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 unit. These helped to offset the drastic hit that its exploration and production (E&P) operations took due to lower prices realized for natural gas and crude oil during the three-month period.

El Paso posted 1999 first-quarter diluted earnings/share of 58 cents compared to 48 cents one year ago, excluding the cumulative effect of an accounting change.

Its consolidated earnings before interest, expense and income taxes (EBIT) for the first quarter were $190 million, up 17% from $163 million a year ago, on revenues of $1.5 billion. Chairman William A. Wise credited these "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 depressed 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 is ahead of schedule with plans to merge with Sonat Inc. It 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 posted record net earnings from continuing operations of $134.5 million, or 62 cents per share, against $124.8 million, or 56 cents/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 alone accounted for more than half of Coastal's first-quarter EBIT. The unit's contribution was almost $70 million, up 46% over its 1998 first-quarter EBIT of $47.6 million. This was followed by Coastal's power plant segment, whose EBIT rose 60% to $18.9 million from $11.6 million during the first quarter of 1998.

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 lower first-quarter earnings for this unit are due to 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 this 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."

Due to depressed energy prices, the biggest hit in the first quarter 1999 was taken by Coastal's E&P unit. 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&P 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&P division is poised to generate significantly higher earnings in the quarters and years ahead."

©Copyright 1999 Intelligence Press Inc. All rights reserved. The preceding news report may not be republished or redistributed, in whole or in part, in any form, without prior written consent of Intelligence Press, Inc.

ISSN © 2577-9877 | ISSN © 1532-1231
Comments powered by Disqus