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High Gas Volumes, Prices Push Coastal Earnings Up 40%

High Gas Volumes, Prices Push Coastal Earnings Up 40%

Higher gas production volumes and higher commodity prices in the oil refining and marketing businesses boosted Coastal's earnings for the third quarter 40% over the same period in 1999.

Earnings for the quarter were $144.8 million, or 65 cents per share, compared with $102.1 million, or 47 cents a share a year ago. Excluding merger related items, earnings for the Houston-based company were $146.9 million, or 66 cents per share. First Call/Thomson Financial had predicted 60 cents/share.

"Our ongoing strategies for growth and profitability continue to produce excellent results," CEO David A. Arledge said, noting that the company had "more than doubled" its earnings from refining, marketing and chemicals." Coastal and El Paso announced a $16 billion merger deal in January (see NGI, Jan. 24).

Coastal's exploration and production unit earnings were up 84%, with increased natural gas production up 33% and crude oil and condensate production increasing 41%. Natural gas production averaged 876.8 MMcf/d for the third quarter, up from 658.8 MMcf/d for the third quarter of 1999.

Arledge said that Coastal had long predicted there would be a strong demand for natural gas, and "that is now a reality." The company's natural gas strategy was centered on the market demand, he said, and because of those expectations, Coastal had completed "several low-cost acquisitions of producing properties with high development potential."

Stirling Pack, vice president of investor relations, said that the natural gas division had become a "large predictable cash flow generator" for Coastal, with increased earnings from gathering, processing and marketing offsetting lower earnings from its regulated pipeline operations. Those earnings were down, said Pack, because of lower rates in re-negotiated contracts and transportation costs.

"Our natural gas segment again delivered sizable earnings with a growing contribution from non-regulated operations," said Arledge. "We have more than quadrupled our natural gas processing capacities since the 1999 third quarter."

The company also increased its power earnings by 54%, and increased its net generating capacity by 58%, mostly related to several new projects, said Pack. Earnings before interest and taxes was $100.8 million, compared with $65 million for the 1999 third quarter. Coastal had set a target of $100 million for the entire year, said Pack, and the third quarter allowed the company to "surpass an important target." Net generating capacity for the third quarter was 2049 MW, up 58% from 1,295 MW for the same period last year.

"Since the third quarter of last year, we have begun operations at two new facilities, including a 265 MW facility in Colorado, and increased ownership in the Midland Cogeneration Venture Ltd. Partnership (MCV) in Michigan," Arledge said.

Pack said that the quarterly results reflected the high commodity prices in the market, but added that the company's overall earnings "reflect what we have anticipated for a long period of time." He said he "envisions the high growth going forward."

Developing the company's future prospects and other properties now in its inventory in North America and elsewhere "should provide double digit production increases for the next two years," said Arledge. Growth is expected to be concentrated in the domestic market, where there are "numerous opportunities to expand along its extensive natural gas systems, strengthening the company's overall operations."

Carolyn Davis, Houston

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