El Paso, Coastal Score Record Earnings; Williams 1Q Lower
Both El Paso Energy and Coastal Corp. wracked up record earnings
for the first quarter, while The Williams Cos. gave a lackluster
performance - with most of its major business groups posting lower
results compared to a year ago.
El Paso's record quarterly per-share earnings - the ninth
straight since the company acquired Tenneco Energy in late 1996 -
were largely owing to strong results from its pipeline operations
and a partial offset of lower natural gas and gas liquids' prices
by its acquisition of interests in Leviathan Gas Pipeline Partners
In contrast, Coastal attributed its record first-quarter results
to its refining, marketing and chemical operations, as well as to
its power plant and coal divisions. These helped to offset the
drastic hit that its exploration and production (E&P) operations
took due to lower prices realized for natural gas and crude oil
during the three-month period.
El Paso Energy had first-quarter diluted earnings of 58 cents
per share compared to 48 cents a share a year ago, excluding the
cumulative effect of an accounting change. Its consolidated
earnings before interest, expense and income taxes (EBIT) were $190
million, up 17% from $163 million a year ago, on revenues of $1.5
billion. Chairman William A. Wise credited the "exceptional
results" to Tennessee Gas Pipeline and El Paso Natural Gas,
"notwithstanding the generally mild temperatures this past winter."
Tennessee's first-quarter EBIT results were $113 million compared
to $98 million for the same period in 1998, while El Paso's
earnings inched upwards to $56 million from $52 million a year ago.
Due to low gas and liquids prices in the first quarter, El Paso
Field Services turned in the worst performance for the company,
with its EBIT falling to $16 million from $24 million in the
year-earlier period. But the drop would have been far more
significant if it hadn't have been partially offset by a 10%
increase in gathering and treating volumes and the contribution
from El Paso's interest in Leviathan Gas, El Paso said. PaineWebber
predicts that Leviathan's impact on Field Services will continue to
be favorable as it targets sizable new deep-water projects.
Another key contributor to the company's bottom line was El Paso
Energy Marketing, which posted an EBIT of $8 million in the first
quarter compared to $200,000 for the same period in 1998. Average
marketed gas volumes in the quarter were 4,443 BBtu/d, while power
marketed volumes were 13,213 thousand MW hours, according to El
Paso. PaineWebber sees the marketing unit being a bigger earnings'
contributor in the future due to El Paso's acquisition of a 50%
interest in CE Generation LLC from CalEnergy Co. El Paso's
international unit also reported a favorable EBIT of $3 million for
the quarter, up from $2 million in 1998.
El Paso officials said the company was moving forward with its
plans to merge with Sonat Inc. The company noted it already has
received approval from the Securities Exchange Commission, is in
discussions with the Federal Trade Commission and is preparing to
send FERC its application to merge the two companies' power
licenses. "Management believes the deal could close by the end of
3Q99," according to a PaineWebber Research Note.
Coastal Earnings Rise 8%
Coastal posted record earnings from continuing operations of
$134.5 million, or 62 cents per share, against $124.8 million, or
56 cents a share, in the same period in 1998. The first-quarter
1999 earnings were on operating revenues of $1.7 billion, down from
$1.96 billion a year ago.
The refining, marketing and chemicals unit recorded significant
year-to-year growth. The unit contributed a total of almost $70
million in the first quarter, up 46% over its EBIT of $47.6 million
in the year-earlier period. High growth also was seen in Coastal's
power plant unit, whose EBIT rose 60% to $18.9 million from $11.6
million during the first quarter of 1998. The EBIT for its coal
division almost doubled to $4.3 million in the most recent period.
The first-quarter 1999 EBIT of the company's natural gas
segment, which includes its pipeline operations and Engage Energy
(a marketing joint venture), dropped slightly to $187 million from
$194 million a year ago. The reduction in first-quarter earnings
for the unit were blamed on lower rates on ANR Pipeline and red ink
at Engage Energy, which totaled $1 million in the quarter compared
to $4.4 million a year ago. PaineWebber believes that Coastal's
participation in growth projects, such as the proposed Alliance
Pipeline and the Florida-bound Gulfstream project, will put the
division back on its feet. "In short, this division will continue
to serve as the company's backbone for growth in other higher
return unregulated areas."
Coastal's E&P unit turned in a miserable first-quarter
performance due to depressed energy prices. Its EBIT fell more than
two-fold to $11.4 million from $25.5 million in the first quarter
of 1998. Despite this, Coastal said it increased first-quarter gas
production by 8% over its 1998 first-quarter level of 490 MMcf/d.
But PaineWebber expects to see a turnaround in the E&P
division. "With expectations for incremental acquisitions [of gas
properties], a greater than 20% increase in production in 1999 and
the stage set for favorable gas market fundamentals over the
balance of the year and into 2000, Coastal's E&P division is
poised to generate significantly higher earnings in the quarters
and years ahead."
Williams' Net Income Drops 26%
For consolidated operations, Williams reported its first-quarter
net income fell 26% to $50.3 million, or 11 cents a share, against
$68.1 million, or 16 cents a share, for the same period a year ago.
"We entered 1999 facing severely depressed conditions in energy
markets - even worse than during the first quarter of 1998. Those
conditions and the costs associated with our continuing, planned
investments in communications combined to depress income below 1998
levels," said Williams Chairman Keith Bailey.
The only bright star in the first quarter was Energy Marketing
& Trade, which posted a segment profit of $40.7 million compared
to $15.5 million for the same period in 1998. In its energy
operations, Williams' E&P operations took the biggest hit as
profits plunged to $4.7 million in first-quarter 1999 from $12.3
million. Profits for its midstream and liquids' operations fell to
$46.6 million from $66.3 million in the year-earlier period, while
Williams' gas pipeline businesses saw earnings dip to $186.8
million from $195 million last year. Texas Gas Transmission was the
only Williams' pipeline that reported higher profits.
The company's communications businesses continued to be the
biggest drain on corporate profits, with total losses of $51.5
million. This was more than double the red ink posted by the
segment during the first quarter in 1998.
Despite these results, PaineWebber remains mostly optimistic
about Williams' operations. "...[W]e remain confident that Williams
Pipeline Group will continue to provide a growing stream of
earnings and cash flow to be redeployed in its unregulated
activities. In addition, we have become more comfortable that,
through a vast portfolio of growth initiatives and cost controls,
its Energy Services Group [which includes its midstream and liquids
operations, E&P, Energy Marketing & Trade and Petroleum
Services] should be able to generate improved earnings this year
and beyond, particularly after the recent improvement in commodity
prices." However, it said it remains "cautious" about the