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MCN Posts More Losses; Changes Strategy

MCN Posts More Losses; Changes Strategy

Without one-time charges, MCN Energy lost plenty in the third quarter, and a huge hit of $2.14/share in nonrecurring charges didn't help at all.

Along with earnings, MCN -- which, could be selling its E&ampP assets as early as within the next six months - announced last week a new direction for its previously released strategic plan. "Now, we are launching a refocused strategic direction that emphasizes steady growth through projects that offer more predictable, long-term earnings streams in areas that we know well," said CEO Alfred R. Glancy III. "This plan entails more modest - but still substantial - capital investment levels of approximately $600 million to $700 million annually, compared with previous plans exceeding $1 billion a year.

The company posted a third quarter net loss, excluding unusual items, of $8 million, or $0.10 per diluted share, compared with earnings of $1.2 million, or $0.02 per share, in the 1997 third quarter. Including special items the net loss totaled $177.2 million, or $2.24 per diluted share. MCN said lower results mainly reflect continued weak energy prices in the Diversified Energy segment, partially offset by reduced seasonal losses from lower operating costs in the Gas Distribution segment. The Diversified Energy group recorded a break-even 1998 third-quarter, excluding unusual charges, compared with $17.8 million, or $0.23 per diluted share, earned a year earlier.

"Looking ahead, without (all or most of) its exploration and production division, MCN's Diversified Energy Group of companies should realize the benefits from increased asset capacity utilization, additional projects coming on-line, as well as from incremental growth from future investments," wrote PaineWebber's research department

Excluding a ceiling test write-down, Exploration and Production operating and joint venture income was $6.5 million, compared with $16.0 million for the 1997 third quarter. Gas and oil production was 24.3 Bcfe, down from 25.6 Bcfe in the third quarter of 1997, primarily due to the sale of producing oil properties since late 1997.

Pipelines &amp Processing operating and joint venture income, excluding a charge for the company's coal fines project and write-down of a Midwest pipeline investment, was $3.5 million in the 1998 third quarter, compared with $7.8 million in the corresponding period last year. And Energy Marketing, Gas Storage &amp Electric Power - excluding a $2.5 million restructuring charge - had operating and joint venture income of $8.3 million compared with $8.1 million in the 1997 third quarter. Gas sales and exchange deliveries rose 42% to 114.5 Bcf mainly due to increased volumes marketed in the Midcontinent/Gulf Coast supply area and in the midwestern United States.

The Gas Distribution group typically records losses from seasonally lower demand in the third quarter. Excluding unusual charges, the unit's 1998 third-quarter loss was $7.8 million, or $0.10 per diluted share, compared with a net loss of $16.6 million, or $0.21 per share, in the same period a year before. Total gas sales and transportation volumes in the 1998 third quarter fell to 175.3 Bcf from 207.6 Bcf a year earlier.

"We believe the Gas Distribution segment will continue to provide MCN with a solid and growing level of earnings and cash flow to be used to fund its growth initiatives as well as the dividend payment," PaineWebber said.

PaineWebber highlighted one-time charges plaguing the company in the third quarter. All after-tax, they include $54.6 million for the ceiling test write-downs, $86.9 million for the write off of the Pipelines and Processing division's coal fines venture, $2.5 million for write-down of pipeline assets, $1.6 million for restructuring related to international power projects, $6.8 million for corporate reorganization, $11.2 million for write-down of gas gathering pipelines, and $5.5 million for impairment of an investment in a Missouri gas distribution company that failed to sign up customers as quickly as expected.

Last Month, MCN said it would take a year-end, one-time charge of $10 million for the first phase of its corporate realignment which was prompted by a second quarter net loss of $210.1 million, or $2.67 per share, related to low oil and gas prices and poor performance of certain Midcontinent and Gulf of Mexico producing properties. MCN Energy Group warned investors in September that it's not likely to meet analysts' 1998 and 1999 earnings expectations of $1.64/share and $2.02/share.

Joe Fisher, Houston

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