Both El Paso Energy and Coastal Corp. wracked up record earningsfor the first quarter, while The Williams Cos. gave a lacklusterperformance – with most of its major business groups posting lowerresults compared to a year ago.

El Paso’s record quarterly per-share earnings – the ninthstraight since the company acquired Tenneco Energy in late 1996 -were largely owing to strong results from its pipeline operationsand a partial offset of lower natural gas and gas liquids’ pricesby its acquisition of interests in Leviathan Gas Pipeline Partnerslast year.

In contrast, Coastal attributed its record first-quarter resultsto its refining, marketing and chemical operations, as well as toits power plant and coal divisions. These helped to offset thedrastic hit that its exploration and production (E&ampP) operationstook due to lower prices realized for natural gas and crude oilduring the three-month period.

El Paso Energy had first-quarter diluted earnings of 58 centsper share compared to 48 cents a share a year ago, excluding thecumulative effect of an accounting change. Its consolidatedearnings before interest, expense and income taxes (EBIT) were $190million, up 17% from $163 million a year ago, on revenues of $1.5billion. Chairman William A. Wise credited the “exceptionalresults” 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 comparedto $98 million for the same period in 1998, while El Paso’searnings inched upwards to $56 million from $52 million a year ago.

Due to low gas and liquids prices in the first quarter, El PasoField Services turned in the worst performance for the company,with its EBIT falling to $16 million from $24 million in theyear-earlier period. But the drop would have been far moresignificant if it hadn’t have been partially offset by a 10%increase in gathering and treating volumes and the contributionfrom El Paso’s interest in Leviathan Gas, El Paso said. PaineWebberpredicts that Leviathan’s impact on Field Services will continue tobe favorable as it targets sizable new deep-water projects.

Another key contributor to the company’s bottom line was El PasoEnergy Marketing, which posted an EBIT of $8 million in the firstquarter compared to $200,000 for the same period in 1998. Averagemarketed gas volumes in the quarter were 4,443 BBtu/d, while powermarketed volumes were 13,213 thousand MW hours, according to ElPaso. 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’sinternational unit also reported a favorable EBIT of $3 million forthe quarter, up from $2 million in 1998.

El Paso officials said the company was moving forward with itsplans to merge with Sonat Inc. The company noted it already hasreceived approval from the Securities Exchange Commission, is indiscussions with the Federal Trade Commission and is preparing tosend FERC its application to merge the two companies’ powerlicenses. “Management believes the deal could close by the end of3Q99,” 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, or56 cents a share, in the same period in 1998. The first-quarter1999 earnings were on operating revenues of $1.7 billion, down from$1.96 billion a year ago.

The refining, marketing and chemicals unit recorded significantyear-to-year growth. The unit contributed a total of almost $70million in the first quarter, up 46% over its EBIT of $47.6 millionin the year-earlier period. High growth also was seen in Coastal’spower plant unit, whose EBIT rose 60% to $18.9 million from $11.6million during the first quarter of 1998. The EBIT for its coaldivision almost doubled to $4.3 million in the most recent period.

The first-quarter 1999 EBIT of the company’s natural gassegment, 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 earningsfor the unit were blamed on lower rates on ANR Pipeline and red inkat Engage Energy, which totaled $1 million in the quarter comparedto $4.4 million a year ago. PaineWebber believes that Coastal’sparticipation in growth projects, such as the proposed AlliancePipeline and the Florida-bound Gulfstream project, will put thedivision back on its feet. “In short, this division will continueto serve as the company’s backbone for growth in other higherreturn unregulated areas.”

Coastal’s E&ampP unit turned in a miserable first-quarterperformance due to depressed energy prices. Its EBIT fell more thantwo-fold to $11.4 million from $25.5 million in the first quarterof 1998. Despite this, Coastal said it increased first-quarter gasproduction by 8% over its 1998 first-quarter level of 490 MMcf/d.

But PaineWebber expects to see a turnaround in the E&ampPdivision. “With expectations for incremental acquisitions [of gasproperties], a greater than 20% increase in production in 1999 andthe stage set for favorable gas market fundamentals over thebalance of the year and into 2000, Coastal’s E&ampP division ispoised to generate significantly higher earnings in the quartersand years ahead.”

Williams’ Net Income Drops 26%

For consolidated operations, Williams reported its first-quarternet 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 energymarkets – even worse than during the first quarter of 1998. Thoseconditions and the costs associated with our continuing, plannedinvestments in communications combined to depress income below 1998levels,” said Williams Chairman Keith Bailey.

The only bright star in the first quarter was Energy Marketing&amp Trade, which posted a segment profit of $40.7 million comparedto $15.5 million for the same period in 1998. In its energyoperations, Williams’ E&ampP operations took the biggest hit asprofits plunged to $4.7 million in first-quarter 1999 from $12.3million. Profits for its midstream and liquids’ operations fell to$46.6 million from $66.3 million in the year-earlier period, whileWilliams’ gas pipeline businesses saw earnings dip to $186.8million from $195 million last year. Texas Gas Transmission was theonly Williams’ pipeline that reported higher profits.

The company’s communications businesses continued to be thebiggest drain on corporate profits, with total losses of $51.5million. This was more than double the red ink posted by thesegment during the first quarter in 1998.

Despite these results, PaineWebber remains mostly optimisticabout Williams’ operations. “…[W]e remain confident that WilliamsPipeline Group will continue to provide a growing stream ofearnings and cash flow to be redeployed in its unregulatedactivities. 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 liquidsoperations, E&ampP, Energy Marketing &amp Trade and PetroleumServices] should be able to generate improved earnings this yearand beyond, particularly after the recent improvement in commodityprices.” However, it said it remains “cautious” about thecommunications side.

Susan Parker

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