Third quarter earnings of both Enron Corp. and Columbia EnergyGroup continued to show the costs of building up a retail marketingpresence. Both companies reported losses in their retail businessesin earnings reports.
Commenting on Enron, Edward Jones analyst Zach Wagner saidthat’s to be expected. He is, in fact, encouraged by how thecompany has built up its retail business. “The important thing isthe value of the contracts that they’ve signed and the type ofrevenue, the type of cash flow that they’re generating.”
In the third quarter of 1998, Enron Energy Services signedcontracts representing $850 million of customers’ total energyexpenditures for gas and electricity. Enron Energy Servicesreported a loss before interest and taxes of $23 million in thethird quarter of 1998 compared to a loss of $25 million in thethird quarter of 1997, or $(0.05) per diluted share in eachquarter. The losses reflect start-up activities, Enron said.
Columbia’s marketing segment represents sales and trading of gasand power. The segment had an operating loss of $6.5 million forthe third quarter due to increased investment in infrastructure,and higher expenses associated with staff additions andparticipation in customer choice programs. In the same period lastyear, the segment lost $1.3 million. Gas marketing revenue of$751.4 million increased $70.4 million over the third quarter oflast year reflecting an 11% increase in sales volumes to 359 Bcf.
For Enron, the big news in third quarter earnings is resultsfrom the company’s wholesale business, Wagner noted.
“Enron has demonstrated its ability to consistently generatesolid and predictable earnings, as evidenced by the 60% increase inearnings in our Wholesale business,” said Kenneth L. Lay, CEO. “Inaddition to the momentum in Enron’s core businesses, prospects forfuture earnings growth continue to strengthen with the excellentprogress of our new retail energy business,” Lay said. “Thisquarter, Enron Energy Services signed contracts representing over$850 million of value, 70% over our plan.”
Overall, Enron third quarter earnings of $0.47 per diluted sharewere up compared to $0.46 (before non-recurring charges) in thethird quarter of 1997. The results were led by continued growth inWholesale Energy Operations and Services. The company had netincome of $168 million compared to $134 million a year ago.
Enron’s core businesses include Wholesale Energy Operations andServices, Transportation and Distribution, and Exploration andProduction. The core businesses realized earnings per diluted shareof $0.52 for the third quarter of 1998 compared to $0.51 for thethird quarter of 1997.
In the third quarter of 1998, physical deliveries of all energycommodities increased 68% from a year ago to more than 34 trillionBritish thermal units per day. Compared to a year ago, thesevolumes included a 22% increase in gas deliveries and a 125%increase in electricity marketed to about 163 million megawatthours. Transportation and Distribution generated $130 million ofIBIT in the third quarter of 1998 compared with $122 million in thethird quarter of 1997. Exploration and Production generated $25million of IBIT compared with $49 million in the third quarter of1997. These results reflect a 15% growth in worldwide oil and gasproduction offset by increased exploration costs and lower oilprices.
Enron also increased its annual dividend by $0.05 per share to$1.00 per share. The increase will be effective with the fourthquarter dividend of $0.25 per share payable Dec. 21.
Enron Oil & Gas Co. reported third quarter 1998 net incomeof $5.9 million, or $.04 per share, compared to net income of $31.2million, or $.20 per share, for the comparable period a year ago.The decrease in earnings is primarily attributable to lower pricesfor both gas and oil. EOG also announced record production levelsfor both. “For the first time in our history, EOG produced over 1Bcf/d in average wellhead natural gas production, and totalequivalent volumes exceeded 1.2 Bcf/d,” said Mark G. Papa, CEO.
Gas production increased 14% to 1.019 Bcf/d compared to thirdquarter 1997 deliveries of 897 MMcf/d. North America gas productionaveraged 798 MMcf/d in the third quarter of 1998 compared to 748MMcf/d a year ago. “EOG grew its third quarter North America 1998natural gas production and crude oil and condensate volumes overthird quarter 1997 volumes by 7% and 31%, respectively,” Papa said.”As anticipated and as evidenced by our third quarter productionlevels, EOG is on track for North America volumes in the secondhalf of 1998 to well exceed the volumes reported in the firsthalf.”
Third quarter 1998 North America wellhead gas prices averaged$1.75/Mcf, down 8% versus an average of $1.91/Mcf in the thirdquarter of 1997. North America crude oil and condensate pricerealizations were $12.39 per barrel for the third quarter of 1998,down 34% compared to $18.88 per barrel a year ago.
Columbia Energy Group reported third-quarter net income of $11.2million, or 13 cents per share, compared to $100,000 in the sameperiod last year. The third quarter’s increase was due largely toincreased revenue from the distribution segment’s gas managementactivities and the transmission segment’s transportation servicestogether with the effect of unusual items that were recorded inlast year’s third quarter. These unusual items included forinterstate pipeline Columbia Gas Transmission a $6.6 millionafter-tax reserve for the sale of certain pipeline facilities and a$6.1 million after-tax reserve for restructuring and relocationactivities.
Wagner, who mainly follows the midstream gas business, said at atime when companies are suffering under low commodity prices andthe weak stock market, it’s nice to see Enron reporting such strongresults. “I’ve been a big fan of Enron for a while now, and I thinkthere’s still more growth ahead of them.”
Other companies Wagner is bullish on are ONEOK, which heconsiders a nice buy in the midstream; Atmos Energy, NorthwestNatural Gas, and Colonial Gas. “I think there’s a lot of value inthe natural gas area.”
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