Dynegy Doubles Gas, Power Marketing Earnings
Record earnings from wholesale power marketing and generation
and a 19% increase in operating margin from gas marketing
highlighted Dynegy Inc.'s sterling third quarter results.
Continuing difficulties in the company's liquids division and
uncertainty over Nova Corp.'s plan to divest its 26% share in the
company were more than counterbalanced by a three-fold increase in
operating margin from power marketing and trading.
The company reported third quarter 1998 earnings per share of
$0.27, including a non-recurring gain of $0.11 per share on the
previously announced sale of Ozark Gas Transmission, which compares
to $0.15 per share for the prior year quarter. Net income for the
period was $43.6 million, including the gain, compared to $25.0
million for the third quarter of 1997.
"I'm actually very pleased at the execution capability of this
Dynegy team. It's finally showed its way down to the bottom line,"
Dynegy CEO Chuck Watson said during a conference call. During the
third quarter, Dynegy "realized the financial benefits resulting
from aggressive pursuit of our energy convergence strategies," he
"Although energy convergence is still in its infancy, you have
seen the industry experience some growing pains, but at the end of
the day we believe this convergence is inevitable and are confident
that the execution that we displayed in the second and third
quarter puts us at the leading edge of this convergence that is
Earnings from Dynegy's wholesale gas and power marketing
operations doubled to $95.1 million, from $45.9 million in 3Q97.
The gas marketing unit reported operating margin of $25.7 million,
compared with $21.6 million in 3Q97. Dynegy's Steve Bergstrom said
$7.6 million of operating margin came directly from the company's
$70 million, two-year gas transportation agreement with El Paso
Natural Gas, which gave Dynegy rights to 1.3 Bcf/d of
transportation capacity to the California border starting in
January. Dynegy's gas volumes sold during the quarter rose more
than 1 Bcf/d to 8.9 Bcf/d from 3Q97.
On the power marketing side, operating margin rose to $17.1
million, compared to $4 million in the 1997 quarter, and marketed
power volumes jumped to 51.4 million MWh, compared to 39.3 million
MWh in 3Q97. The power generation business also made a strong
contribution with operating and equity earnings of $48.6 million
compared to $16.4 million in 3Q97. The division's 2.6 million MWh
net to its interests during the third quarter, compared with 2.2 MM
MWh net in 3Q97.
Watson said over the next three years the company plans to
invest $1.8 billion in "strategically placed" generation assets to
complement its existing power production assets and marketing
capability. He emphasized the need to build or acquire a
geographically diverse power generation asset base. "[W]e're
looking at greenfield projects as well as participating in some of
the auctions and acquisitions of [existing] power projects."
Regarding Nova Corp.'s (now Nova Chemicals) plan to divest its
26% interest (38.8 million shares) in Dynegy, Watson noted the
other owners, Britain's BG plc and Chevron Corp., have a right to
match any offer made for the shares or negotiate their own
acquisition. "Chevron has consistently indicated an interest in
increasing its holdings in Dynegy and maintaining a long-term
position in the company," Watson said.
Dynegy's liquids business unit continued to suffer from low
crude and liquids prices, but the company started a reorganization
and rationalization of mid- and back-office operations during the
second quarter that is expected to lead to $50 million in annual
operating cost savings by the end of next year. "We are committed
to the [liquids business] long-term," said Watson. "It is a
cyclical business. About every four to six years, the liquids
business goes through a year or 18-month or two-year trough and in
that six years has a very strong year or two. We expect these sorts