Aquila Pipeline Unit Taken Off Auction Block
Because low gas liquids prices threatened the ability of
UtiliCorp United's Aquila Energy to realize full value from a sale
of Aquila Gas Pipeline (AQP), the company took the subsidiary off
the market and said it would work to grow the asset itself.
"Consolidations within the pipeline industry in the past few
years signaled that it may be in the best interest of our
stockholders to consider selling the company," AQP CEO Joe Becraft
said earlier . But, "since March we have gone through an
exhaustive process and determined that more shareholder value can
be achieved through continued growth." (See NGI March 16, 1998)
AQP owns and operates gas liquids processing plants and gas
pipelines in Texas and Oklahoma and is a major independent producer
of gas liquids. "AQP intends to continue expanding its business and
may take advantage of depressed market conditions to make targeted
acquisitions to enhance its asset base," Becraft said. "We are also
going to explore opportunities to achieve operating efficiencies
and drive more costs out of the business." The company is owned 82%
by Aquila Energy, a UtiliCorp United subsidiary.
Separately, UtiliCorp reported a 15% second-quarter earnings
rise despite weakened performance in its energy delivery segment,
sharply diminished results from Aquila Gas Pipeline, and an
electric rate cut in Missouri. Growth in wholesale energy marketing
and international operations get the thanks for boosting
second-quarter earnings to $23.4 million from $20.3 million a year
The company reported diluted earnings per average common share
of $0.43 versus $0.38 in the 1997 quarter. Eliminating
non-recurring items recorded in 1998, normalized diluted earnings
per share were $0.41 in the 1998 quarter versus $0.38. Earnings
before income taxes (EBIT) were $70.8 million, up 5% from $67.2
million a year earlier. Second-quarter sales in 1998 were $2.6
billion, up 65% from $1.6 billion in the year-earlier period.
"Our non-regulated business units Aquila Energy Marketing and
International helped propel UtiliCorp's earnings 8% over the 1997
quarter and helped position the company to achieve its target of 8%
earnings growth for the full year," said Richard C. Green Jr., CEO.
"This result comes in spite of a very strong 1997 quarter and a 55%
decline in EBIT from Aquila Gas Pipeline."
UtiliCorp's sales were up primarily due to rapid growth of the
energy marketing and trading businesses operated by subsidiary
Aquila Energy. The company's 12-month sales exceeded $10 billion
for the first time, reaching $10.8 billion for the period ended
June 30, up 77% from $6.1 billion a year earlier. Average diluted
common shares outstanding for the quarter were 54.13 million, up
slightly from 53.97 million in the 1997 period.
The Energy Delivery segment's EBIT was $21.7 million in the
second quarter compared to $26.2 million a year ago. Unfavorable
weather reduced EBIT by $2.4 million compared to a year earlier.
Warmer-than-normal weather affecting gas sales was partially offset
by favorable weather in the company's electric territories. Energy
Delivery's EBIT decreased by $2 million due to a Missouri rate
The Aquila Energy subsidiary had second-quarter EBIT of $4.2
million compared to a loss before interest and taxes of $0.2
million a year earlier. The increase is primarily due to strong
power marketing results, partially offset by weaker results from
gas marketing. Total wholesale gas volumes marketed in the 1998
quarter were 8.7 Bcf/d, compared to 6.0 Bcf/d a year earlier.
Aquila's power marketing volumes reached 24.8 gigawatt-hours (GWH),
up 111% from 11.7 GWH in the 1997 quarter.
In the second quarter, Aquila Gas Pipeline contributed EBIT of
$6.4 million, 55% less than a year earlier. The drop in earnings
was primarily due to a 17% decline in gas liquids prices, a 34%
decrease in NGL processing volumes and a 16% decrease in pipeline
throughput, according to UtiliCorp. These trends were in response
to to lower oil prices which adversely affected NGL prices and
depressed drilling activity.
In June, UtiliCorp refined its retail strategy in response to
slower than anticipated transition to a more competitive energy
marketplace and to align its retail strategy within core business
platforms - energy delivery networks and energy merchant
businesses. In addition, UtiliCorp is considering various
alternatives for its independent power plant assets that will
better leverage the value of its investments. Through this
strategic process, it became evident that the carrying value of
certain assets exceeded future cash flows under the revised
strategic plan. As a result, UtiliCorp wrote off $27.7 million
against second-quarter earnings.
Joe Fisher, Houston