El Paso Energy Corp. saw its fourth quarter profit lifted 55%last week, driven by strong growth in unregulated businesses, whilemerger partner Coastal also outperformed expectations, with fourthquarter earnings up 21%.
Another complicating factor for El Paso — at the moment anyway— is the $50 million debt owed to it by its two Californiacustomers, Southern California Edison and Pacific Gas &Electric. However, during an analysts’ conference call last week,El Paso executives said they actually had “no significant exposure”to the California crisis, supplying only about 400 MW ofelectricity generation capacity, which is a smaller amount thanmany of the other companies operating in the state.
What El Paso wanted to focus on were its strong earnings growth,both for the fourth quarter and the entire 2000. El Paso reportedthat adjusted fourth quarter operating earnings were $456 million,or 73 cents a share, up from $295 million, or 48 cents a share forthe same period of 1999. First Call/Thomson Financial had expectedEl Paso to earn an average of 67 cents a share in the fourthquarter.
Most impressive was the trading activity in the El Paso MerchantEnergy division, which posted income of $211 million, up from $45million a year ago. The increase was attributed to the highertrading margins, volume increases for physical gas and powerdeliveries of 41% and 47%, and a rise of more than 86% in financialsettlements.
Hedges on El Paso’s natural gas production kept the company fromprofiting in the natural gas market, and earnings before interestand taxes fell 20% to $37 million. However, earnings in theregulated pipeline group, which delivers to California and theNortheast, also saw its profit rise 9%, to $201 million, up from$184 million.
Overall, 2000 earnings for El Paso made it a “break-out year,”said CEO William A. Wise. El Paso reported that diluted earningsper share rose 49% for the year to a record $2.69, up from $1.80 in1999. Wise said each of the business segments had record earnings”reflecting our strong competitive position in all of ourbusinesses.”
Justin D.P. Craib-Cox of Morningstar said that the growth in ElPaso’s unregulated businesses “was stronger than expected, which wethink lends credence to the company’s goal of a 15% long-termgrowth rate.” He said the “main drivers” for future growth are newoperations in energy trading and natural gas exploration andproduction,” because its pipelines are a “slow-growing, albeitprofitable, business.”
Coastal had its 23rd consecutive record quarter for operatingearnings, beating analysts’ expectations, posting $208.3 million,or 93 cents a share, on revenue of $6.1 billion in the fourthquarter. That compares with $169 million or 78 cents a share onrevenue of $3.2 billion for the fourth quarter of 1999. First Callhad predicted earnings of 91 cents a share.
For the year, the company recorded annual net earnings of $654.4million, or $2.96 per share for 2000, up 29% from 1999 earnings of$498.9 million, or $2.30 per share.
“All segments involved in Coastal’s integrated natural gasstrategy generated higher earnings before one-time items for theyear and fourth quarter of 2000,” said CEO David A. Arledge.
Of note for 2000 were Coastal’s exploration and productionearnings, up 129% and 11% in the fourth quarter. Natural gasproduction increased by 42% for the year and 16% for the quarter.Natural gas segment earnings increased 12% for the year and 32% forthe quarter, with a “growing contribution from non-regulatedoperations.” Coastal’s power earnings also jumped, increasing 42%in 2000 and 74% in the fourth quarter.
Carolyn Davis, Houston
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