Columbia Energy Group beat analysts expectations with a 15% jump($3.3 million or five cents per share) in net income during thesecond quarter to $26.1 million, or 32 cents per share. It alsoupped the ante yesterday in its effort to fend off NiSource’s $5.7billion hostile takeover offer by adding $400 million to its stockrepurchase program, which now totals $420 million.

“The board has taken this action because it believes Columbia’strue value is not fully reflected in its current stock price, whichwas impacted in 1999 by much warmer than usual weather and bysignificant investments and costs in the marketing segment, anddoes not reflect Columbia’s long-term business prospects,” said CEOOliver G. (Rick) Richard III. “This repurchase program, announcedon the same day as we reported our fourth consecutive quarter ofincreased net income, demonstrates our clear commitment to enhanceshareholder value in both the near and long term.”

Sanders Morris and Mundy energy analyst John Olson said heexpects the stock buy-back to “encourage some of the discontentedstockholders to cash in.” Olson said with its current price offerof $68/share, or only about $4.30/share more than Columbia’scurrent share price, NiSource faces an uphill battle. WithoutColumbia’s help, it will be extremely difficult for NiSource to winover shareholders and get a combination though the regulatoryprocess, given Columbia’s holding company status and some stickyissues involving the Public Utility Holding Company Act.

In the meantime, Columbia continues to show improvements. Thehighlights of the second quarter included a positive impact from alower property taxes on its distribution assets, an Appalachianreserve discovery and a large E&P property acquisition, threepropane purchases, strong performance in gas distribution and thestart of construction on a new fiber network for telecommunicationsbetween New York and Washington, D.C.

However, retail marketing operations continued to struggle, andColumbia had to dish out $4.1 million for its failed bid forConsolidated Natural Gas – which will cost the company anadditional $8 million in the third quarter. It also reported loweroperating income from its transmission and E&P segments and anoperating loss in its propane, power generation and LNG segment.

The distribution segment recorded a $3.2 million gain inoperating income to $16.6 million. But operating income fromtransmission and storage fell $2.9 million to $55.9 million. Andthe E&P segment showed a $1.6 million decrease in operatingincome to $6.9 because of lower gas prices and flat production.

Higher operating expenses led to an operating loss for thepropane, power generation and LNG segment of $500,000 versus anoperating loss of $200,000 last year.

Columbia’s marketing segment is inundated with additionalcustomer acquisition costs and higher expenses for increasedstaffing levels on the retail side. The wholesale marketingdivision posted a $1.2 million gain in operating income. But theentire marketing segment showed an operating loss of $10.5 million.That compared with an operating loss of $7.6 million in 2Q98.

Gas sales customers totaled over 320,000, compared to 53,300 in1998’s second quarter. Total gas sales were 391.4 Bcf for thesecond quarter, an increase of 44 Bcf over last year, and powersales more than tripled to 9,910 GWh.

Nevertheless, under new management, the marketing segment isexpected to undergo some changes in the quarters ahead. Columbiabrought in Brian Watt, an MIT graduate and industry consultant, tohelp turn things around at Columbia Energy Services. “Due to[Watt’s] early participation in this project, he has an excellentknowledge of these businesses and I am confident he will providethe necessary direction, immediately,” said Richard. “Althoughshowing improvement, we continue to be dissatisfied with ColumbiaEnergy Services’ operations and results.”

Columbia’s second quarter revenues totaled $1.7 billion, up$373.4 million over the 1998 period, while operating income was$64.3 million, a decrease of $6.6 million from last year’s secondquarter. However, Richard said he expects total operating incomefor the full year to be about $625 million, or 15% higher than1998, with much of the increase coming from our nonregulatedsegments. Columbia’s net income for the 1999 first half was $176.5million, or $2.13 per share, an increase of $6.2 million, or 9cents per share, over the 1998 first half.

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