Power Generation, Marketing Boost Dynegy Earnings
Dynegy had a whopper of a first quarter, posting a 66% increase
in operating income from wholesale gas and power marketing
operations and a 20% jump to $22.3 million in net income from all
operations, excluding special items.
Marketing brought in $82.7 million in operating income led by
300% growth in earnings from power marketing and generation, which
jumped to $46.2 million from $14.2 million in 1Q98 despite a drop
in wholesale power marketing volumes.
"Power generation is dramatically changing the make-up of
Dynegy's earnings," said CEO Chuck Watson. "Our power marketing and
generation businesses have been combined to maximize earnings
capabilities and capitalize on the synergies that exist between the
two-Dynegy's 'merchant leverage effect.'"
Power marketing volumes fell during the quarter to 13.1 million
MWh, compared to 25 MM MWh in 1Q98, because of unseasonably warm
weather and a lack of attractive trading opportunities, Dynegy
said. But since the first quarter 1998, the company has increased
its ownership in three power plants and increased owned gross
megawatts in operation by 54%.
"Our power generation franchise will be strengthened by the
addition of 1,468 MW in the second quarter with projects in
California and Illinois in operation for the peak summer season,"
said Watson. By the end of the second quarter, Dynegy will have
more than 6,800 MW owned, pending acquisition or under construction
at 31 facilities in 9 states.
Dynegy reported first quarter net income from all operations of
$28.1 million, or $0.17 per diluted share, including a one-time net
gain on an investment sale of $5.8 million, or $0.03 per diluted
share. This compares to first quarter 1998 reported net income of
$12.3 million, or $0.07 per diluted share, including a 1998
severance charge of $6.3 million, or $0.04 per diluted share.
"We are pleased with our first quarter results and anticipate
even stronger performance throughout the year as new power
generation assets are placed in service and the crude oil and
natural gas liquids pricing environment continues its recovery,"
Gas marketing contributed an operating margin of $32.7 million
for the quarter compared to $32.1 million in 1998. Global gas
marketing volumes increased 17% to 10.9 Bcf/d led primarily by U.K.
operations. The company sold 9.3 Bcf/d in North America compared
with 8.6 Bcf/d in 1Q98.
Liquids operations, however, continued to struggle. Operating
income from the division fell to $52.4 million from $62.9 million
in 1Q98, primarily because of a 20% decline in average gas liquids
prices. Processing volumes decreased to 117 thousand b/d from 128
Mb/d in the 1998 quarter.
During the second quarter, Nova Corp., formerly Nova Chemicals,
is expected to complete its previously announced sale of its 25%
stake in Dynegy. Watson said during a conference call the company
does not expect a change in strategy as a result of the sale.
"Dynegy will continue to execute its strategic plan indifferent to
its ownership, and any transaction would have to be consistent with
and enhance Dynegy's existing strategic plan. Secondly, any
transaction would have to add value to all of Dynegy's
shareholders. In any transaction, we will endeavor to increase the
liquidity in Dynegy's stock."
Several analysts have commented that they would prefer to see
more of Dynegy's stock in the public's hands, and Watson agreed
more "float" would be an improvement. Currently only 20% of
Dynegy's stock is owned by the public. "I would certainly like to
see that well into the 30s and 40s, and it wouldn't hurt my
feelings at all if it was greater than 50%. I think this company
needs to increase its float. It's something I've committed to do in
the last year and we hope to accomplish that in this [Nova]