Energen CEO Mike Warren promised $1 billion in exploration and production (E&P) asset purchases over the next four years after high commodity prices helped the Alabama utility company cash in during the quarter ended March 31 on its recent E&P growth.
The natural gas producer and distributor reported a 10% rise in quarterly profit. While mild temperatures during the quarter kept most eastern local distribution company (LDC) results flat, parent company earnings were generally higher on profits from non-utility operations, such as E&P.
“These are very exciting times for Energen Resources and for Energen,” Warren said, adding that the earnings potential from high oil and gas prices is significant because of the company’s $1.3 billion in E&P investments over the last eight years.
“I think it’s important to understand that Energen isn’t merely settling for riding with commodity prices to their new and higher levels,” Warren told shareholders. “We are committed to the continued implementation of our acquire-and-exploit strategy. To that end, we are prepared to invest some $1 billion in property acquisitions between now and the end of 2008.
“Can we buy properties in this era of high prices? Yes, I firmly believe we can,” he said. “Will we buy properties of the magnitude and timing suggested by our financial models? We are not limiting Energen Resources to an arbitrary $200 million a year investment in acquisitions to occur on an arbitrary timetable.” Warren said the company would continue to evaluate potential acquisition opportunities, both large and small, to determine if they fit Energen’s investment criteria.
The Birmingham-based company reported first quarter net income of $60.2 million, or $1.65 a share, up from $54.6 million, or $1.56 a share. Quarterly revenue rose 13% to $351.4 million.
Energen narrowed its previous 2004 earnings per share forecast to a range of $3.20 to $3.30. But the company said its earnings for the year could come in at $3.40 per share or better if natural gas and oil prices stay high.
For 2005, Energen reaffirmed its earnings forecast of $3.50 to $3.70 per share, including about 35 cents per share for unidentified acquisitions this year and next year. The forecast assumes prices for unhedged volumes at $5.25/Mcf for gas and $28.00 per barrel for oil. The company added that, if oil and gas prices are higher, 2005 earnings could range from $3.85 to $4.05 per share with acquisitions and $3.50 to $3.70 per share with no acquisitions.
Energen Resources’ production from continuing operations in the first quarter of 2004 totaled 21.2 Bcfe, reflecting a 3% increase. Natural gas production increased 4% to 13.7 Bcf; oil production increased 3% to 874,000 bbl; and NGL production decreased 3% to 364,000 bbl.
Subsidiary Alagasco’s natural gas distribution operations earned net income in the first quarter of 2004 of $36.3 million as compared with $33.4 million in the same period last year.
Other Eastern Gas Utilities Also Show Improvements
Wall, NJ-based New Jersey Resources (NJR) reported fiscal second-quarter diluted earnings per share increased to $1.82, compared with $1.50 last year and a Wall Street consensus estimate of $1.50/share. The increase was attributed to higher margins at NJR Energy Services, NJR’s unregulated wholesale energy services subsidiary, and continued customer growth at utility New Jersey Natural Gas (NJNG). Based on the year-to-date results, and assuming normal weather, the impact of seasonal factors and the timing of certain expenses, the company estimates that it will achieve basic earnings per share for fiscal 2004 in the range of $2.55 to $2.65.
“Based on our earnings guidance, we are expecting to achieve our 13th consecutive year of earnings growth this year — a streak that we believe is the longest in the industry,” said CEO Laurence M. Downes.
Weather for the second quarter was 8% colder than normal and 4% warmer than last year, but the impact of the weather was significantly offset by NJNG’s weather-normalization clause, which is designed to smooth out year-to-year fluctuations in weather on both NJNG’s gross margin and customers’ bills. NJNG deferred $2.4 million of gross margin for the six months ended March 31 through its WNC for future credits to customers due to colder-than-normal weather.
Atlanta-based AGL Resources reported a 27% increase in first quarter 2004 net income to $65.7 million, or $1.02 per basic share. The company’s results reflect improved earnings in its utility distribution operations and energy investments segments, which offset lower earnings in the wholesale services segment and increased corporate expenses for the quarter.
The distribution operations segment contributed EBIT of $82.1 million, compared with $81 million in first quarter 2003. The energy investments segment contributed EBIT of $32.2 million compared with $16 million in the first quarter 2003, primarily due to strong results from SouthStar Energy Services, including higher operating margins, lower hedging costs, and substantially lower bad debt expense, as well as AGL Resources’ expanded ownership in the joint venture. The wholesale services segment contributed $12.3 million in EBIT, down from $20.7 million for the same period last year, due to lower sales from storage and a higher inventory cost in 2004. Sequent Energy Management’s sales volumes for the quarter were 2.1 Bcf/day, up 8% over the same period last year.
Southern Union Co. reported a 63% increase in net earnings from continuing operations to $75.4 million and an 18% increase in net earnings to $75.4 million for the three months ended March 31. The company also narrowed its fiscal 2004 earnings guidance to $1.35 to $1.40 per share.
“These results were due, in large part, to the continued success of our pipeline and LNG operations, as well as to a strong heating season within most of our utility operations,” said President Thomas F. Karam. “Our performance to date has benefited from the successful integration of our Panhandle acquisition, which is now nearly complete. We look forward to the next several years with confidence, as we await the outcome of our Missouri Gas Energy rate case and the completion of our Trunkline LNG expansion projects.”
For the quarter, Southern Union’s utility operations experienced weather comparable with the same period in 2003, with the exception of Missouri Gas Energy — which experienced weather that was warmer than normal. Wilkes-Barre, PA-based Southern Union owns Panhandle Eastern, Trunkline Gas, Trunkline LNG and Southwest Gas Storage. Its local distribution companies include Missouri Gas Energy, PG Energy and New England Gas.
Williamsville, NY-based National Fuel Gas reported a 4% drop in earnings for the quarter ended March 31 to $77.1 million or $0.93 per share on lower margins and higher operating costs in the utility segment, lower throughput in the energy marketing segment, and lower harvesting activity in the timber segment. Higher efficiency gas revenues in the pipeline and storage segment and lower interest expense in the international segment were among the positive factors.
The utility segment’s earnings were down $4.4 million to $35.3 million. Excluding non-recurring items, earnings in the exploration and production segment were up slightly as higher commodity prices and lower operating expenses offset a decline in production. Production subsidiary Seneca Resources earnings were up $0.7 million to $14.9 million but its production fell 3.7 Bcfe to 15.8 Bcfe. Production is expected to be 14-16 Bcfe in the fiscal third quarter and 57-62 Bcfe for the year.
The company expects earnings for its fiscal third quarter to be 20-30 cents per share. Because of higher commodity prices realized in the exploration and production segment, the company is increasing its fiscal 2004 earnings per share guidance to $1.75-1.85 per share (from $1.65-1.75 per share), excluding non-recurring items.
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