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Wholesale Marketing Gains Lead Enron's Earnings Higher

October 19, 1998
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Wholesale Marketing Gains Lead Enron's Earnings Higher

Enron Corp.'s wholesale marketing division led the company with a 60% earnings increase at the same time its infant retail operations continued to show a loss.

Income from the wholesale marketing business before interest and taxes (IBIT) went to $277 million in the third quarter, compared to $173 million in the third quarter of 1997. In the third quarter of 1998, marketed volumes of all energy commodities increased 68% from a year ago to more than 34 trillion Btu/d. These volumes included a 22% increase in marketed gas volumes to 13.2 trillion Btu/d, from 10.9 trillion Btu/d (86% North American) and a 125% increase in electricity marketed to about 163 million MWh from 72 million MWh (nearly all North American).

"Enron has proven its ability to effectively manage and hedge this $1 billion-plus business during both the significant volatility in the third quarter financial markets and significant volatility in the second quarter commodity markets," PaineWebber said. "We reiterate our belief that this innovative portfolio of businesses is in a class by itself."

As for the retail side, Enron Energy Services (EES) reported a loss before interest and taxes of $23 million in the third quarter of 1998 compared to a loss of $25 million in the third quarter of 1997, or $0.05 per diluted share in each quarter. The losses were attributed to start-up activities, and Enron CEO Kenneth L. Lay said the $850 million in contracts signed during the quarter is "70% over our plan."

Commenting on Enron, Edward Jones analyst Zach Wagner said that's to be expected. He is, in fact, encouraged by how the company has built up its retail business. "The important thing is the value of the contracts that they've signed and the type of revenue, the type of cash flow that they're generating."

PaineWebber noted Enron is "well on its way to surpass" EES contracting goals. "In short, given the huge backlog of pending contracts and management body language, we expect that, both from a quantitative and qualitative perspective, there will be a lot more coming out of EES over the next three to six months, not to mention beyond. Moreover, with the backlog of projects and increasing revenue streams from contract performance, we continue to expect that this division's losses will decline and that it could break even by the third quarter of 1999 and begin to contribute significant earnings in 2000 and beyond."

Overall, Enron third quarter earnings of $0.47 per diluted share were up compared to $0.46 (before non-recurring charges) in the third quarter of 1997. The company had net after tax income of $168 million compared to $134 million a year ago. Enron's core businesses, including Wholesale Energy Operations and Services, Transportation and Distribution, and Exploration and Production, realized earnings per diluted share of $0.52 for the third quarter of 1998 compared to $0.51 for the third quarter of 1997.

Transportation and Distribution generated $130 million of IBIT in the third quarter of 1998 compared with $122 million in the third quarter of 1997. Exploration and Production generated $25 million of IBIT down from $49 million in the third quarter of 1997. These results reflect a 15% growth in worldwide oil and gas production offset by increased exploration costs and lower oil prices.

Enron also increased its annual dividend by $0.05 per share to $1.00 per share. The increase will be effective with the fourth quarter dividend of $0.25 per share payable Dec. 21.

Despite record production Enron Oil &amp Gas (EOG) reported third quarter net income of $5.9 million, down from $31.2 million in the third quarter of 1997.

"For the first time in our history, EOG produced over 1 billion cubic feet per day in average wellhead natural gas production," said Mark G. Papa, EOG president. Adding in oil and gas liquids, boosted total equivalent volumes to more than 1.2 Bcf/d. The totals were an increase over the 897 MMcf/d of natural gas and 25 MBD of crude, condensate and liquids in the third quarter of 1997.

The additional volumes, however, were not enough to make up for the lower commodity prices. In North America where the largest amount of Enron's production is located, wellhead prices averaged $1.75 in 3Q 1998 compared to $1.91/Mcf in 3Q 1997, while crude and condensate price realizations were $12.39 per barrel compared to $18.88 a year ago. Including production in India and Trinidad, EOG collected an average of $1.67/Mcf in 3Q 1998, compared to $1.84/Mcf for the same period last year. Net revenues for EOG also were impacted by higher operating costs. Net operating revenue for the quarter was $191.3 this year compared to $193.1 in 3Q 1997, while operating expenses went from $144.4 in 1997 to $172.1 in the quarter just past.

Total North American production averaged 798 MMcf/d for the quarter this year compared to 748 MMcf/d a year ago.

Joe Fisher, Houston

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