Enron deliveries of energy commodities grew 47% from the secondquarter of last year, including a 10% increase in gas deliveriesand a more than 100% increase in power marketed. However, resultsof the gas pipeline group and exploration and production were offslightly, and the retail business, Enron Energy Services (EES),lost more money than it did a year ago.

Enron Corp. had 1998 second quarter earnings of $0.42 perdiluted share, compared to $0.38 (excluding the $1.66/share chargefor its J-block settlement) in the second quarter of 1997. Resultswere led by growth in the company’s largest business, WholesaleEnergy Operations and Services.

“These results confirm the operating strength of each Enronbusiness unit and our ability to produce consistent, predictableearnings in spite of rapidly changing, highly volatile energymarkets,” said Kenneth L. Lay, CEO. “In addition to the strength ofour traditional businesses, our newer activities are firmlyestablished, particularly the U. S. wholesale power marketingbusiness and Enron Energy Services. Combined with a verysubstantial backlog of projects and opportunities, our businessoutlook is the strongest in the company’s history.”

Enron’s results exceeded PaineWebber Natural Gas Group estimatesby two cents/share and Wall Street estimates by three cents/share.”As a result of the stronger than expected results and the outlookfor continued solid momentum in its Wholesale Energy group, we areraising our 1998 diluted earnings per share estimate on Enron to$2.05 from $1.95 and our 1999 diluted earnings per share estimateto $2.35 from $2.25,” PaineWebber said. adding its 12- to 18-monthstock price target is $62/share.

Edward Jones analyst Zach Wagner continues to rate Enron a”buy.” He said he wasn’t concerned by EES’ second quarter losses of$43 million. “As they bring in and sign on more and more newcontracts, you can expect expenses associated with that toincrease.” EES is ahead of schedule in signing up customers. So farthis year, EES has signed contracts worth about $1.5 billion, morethan half of its $2.4 billion target for 1998, Wagner said.

“The electricity trading continues to be a huge contributor interms of improvement quarter over quarter. It was profitable againthis quarter for the second consecutive quarter. I think we’rereally seeing Enron’s experience and market position come intoplay. Even though electricity trading is relatively new, Enron’sbeen trading natural gas for years and year, so that’s wherethey’re kind of getting all their experience.”

Wagner said transmission and distribution and exploration andproduction results weren’t troublesome given warm weather and thelow commodity price environment. In fact, considering thesefactors, the results are impressive, he said.

Enron’s core businesses, Wholesale Energy Operations andServices, Transportation and Distribution, and Exploration andProduction, realized earnings per diluted share of $0.50 for thesecond quarter of 1998 compared to $0.44 for the second quarter of1997.

Enron’s wholesale business includes development and constructionof energy infrastructure, commodity sales and services, riskmanagement products and financial services. The wholesale businessgenerated income before interest, minority interests and taxes(IBIT) of $241 million in the second quarter, an 85% increase overthe $130 million of IBIT reported in the second quarter of 1997.

In the second quarter, physical deliveries of all energycommodities increased 47% from a year ago to 24.2 trillion Btu/d.Compared to a year ago, these volumes included a 10% increase ingas deliveries and a more than doubling of electricity marketed toover 86 million MWh. Finance and Investing activities benefitedfrom the growing earnings and increased value of Enron’s energy andasset portfolio, which is made up of volumetric productionpayments, loans and equity in energy-intensive businesses andprojects. The Asset Development and Construction business alsogrew. Enron has nine international power plant and pipelineprojects financed and in construction, representing more than $6billion in capital costs. The projects are on schedule, includingEnron’s 826 MW power project in Dabhol, India, which is more than90% complete and expected to be operating in December.

Enron’s Transportation and Distribution group includes the GasPipeline Group and Portland General electric in Oregon. Despitewarmer weather in the upper Midwest service area, the Gas PipelineGroup generated $72 million of IBIT in the second quarter comparedwith $73 million in the second quarter of 1997. In the secondquarter, Portland General generated $62 million of IBIT. Becausethe merger with Enron was effective in July 1997, Portland Generalwas not included in Enron’s earnings during the second quarter of1997.

The Exploration and Production group includes operations ofEnron Oil &amp Gas (EOG) and related price risk hedging. In thesecond quarter, Exploration and Production generated $29 million ofIBIT compared with $30 million in the second quarter of 1997.According to PaineWebber, Enron said it will continue to hedgeEOG’s North American gas production at a price of about $2.30/MMBtufor the rest of the year. For next year, Enron has said it hedgedabout one-third of its production at a price near $2.40/MMBtu.

Enron Energy Services in the second quarter signed contractsworth about $650 million in future revenues from energy delivery.The contracts include energy services, such as in one case, a fulloutsourcing of a customer’s nationwide energy requirements. EESreported an operating loss before interest and taxes of $43 millionin the second quarter compared to a loss of $25 million in thesecond quarter of 1997, or $(0.08) and $(0.06) per diluted share,respectively. The losses reflect start-up costs, Enron said.

Joe Fisher, Houston

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