Enron Corp. reported a 16% increase in 1998 earnings per dilutedshare, led by wholesale energy marketing operations. Earnings roseto $2.01/share from $1.74 in 1997. Corresponding net incomeincreased 36% to $698 million from $515 million during the year.The comparisons are before non-recurring items and last year’s gainof $61 million, related to the sale of a 7% interest in EnronEnergy Services.
“Across Enron, 1998 was an excellent year,” said Kenneth L. Lay,CEO. “Our Wholesale Energy Operations and Services business led thecompany’s growth during the year, achieving record levels both involumes of energy marketed and in earnings. In addition to positivedevelopments in our established businesses, Enron Energy Serviceshas advanced to a fully developed business with broad newcapabilities to provide energy outsourcing products to businesscustomers across the nation,.”
Enron achieved an almost 40% shareholder return during the year,significantly above the very strong returns of the broader U.S.equity market, Lay said.
In 1998, Enron Energy Services (EES) incurred a loss beforeinterest and taxes of $119 million in 1998 compared to a loss of$107 million in 1997, or $(0.24) per diluted share in each year.The losses stem from ongoing efforts to build the business. Duringthe year, EES exceeded its contracting objectives and signedcontracts representing $3.8 billion of customers’ future energyexpenditures. Based on both the current backlog of contracts andcontracting activity, EES expects to double the level of newcontracts to be added in 1999. In addition, earnings are expectedto be positive in the fourth quarter of 1999.
“Worth addressing,” wrote PaineWebber’s Ronald Barone, “is thatthe Street often forgets to associate any value creation with theongoing losses at EES (losses which decrease Enron’s earnings,’artificially’ increasing its P/E). In short, this business couldevolve into a key growth driver by the turn of the century andshould be given value today, despite lingering losses.”
Enron’s core businesses, Wholesale Energy Operations andServices, Transportation and Distribution, and Exploration andProduction, realized a 14% increase in earnings per diluted shareto $2.25 in 1998 versus $1.98 in 1997.
The wholesale business increased income before interest,minority interests and taxes (IBIT) 48% in 1998 to $968 millionfrom $654 million in 1997, including unallocated expenses. Strongearnings in Commodity Sales and Services were reflected in a 65%increase in IBIT to $411 million for 1998, as the company continuedto expand worldwide in gas and electricity. During 1998, totaldeliveries of energy commodities increased by more than 50% to morethan 27 trillion Btu/d. The strong volume growth was led by theU.S. wholesale power marketing and European natural gas businesses.The volumes marketed included a more than doubling of power volumesto more than 400 million MWh and a 15% increase in gas volumes.Also during the year, the business experienced significant successin its longer term gas and power contracting activities.
Energy Assets and Investments reported increased IBIT to $709million. Enron is advancing new, large energy projects into latestages of development and construction, including more than 3,500MW of power projects and 1,180 miles of gas pipelines.
Transportation and Distribution includes the Gas Pipeline Group,which owns and operates Enron’s North American interstate gaspipelines, and Portland General Electric, Enron’s electric utilityin Oregon. In 1998, these businesses generated $637 million of IBITcompared with $478 million in 1997, during which Portland Generalresults were included only after the merger with Enron on July 1,1997.
The Gas Pipeline Group completed the large 700 MMcf/d expansionof Northern Border Pipeline to import Canadian gas supplies intothe Chicago market area. Florida Gas Transmission also filed toconstruct a $237 million, 270 MMcf/d pipeline expansion intosouthern Florida.
Exploration and Production includes the operations of Enron Oil& Gas Co. and Enron’s hedging of its exposure to commodityprices related to its majority ownership of EOG. The Explorationand Production segment generated $128 million of IBIT compared with$183 million in 1997 (see related story). These results reflectearnings associated with an 11% growth in worldwide oil and gasproduction, offset by increased costs and lower crude oil prices.For its share of EOG’s production in 1999, Enron has fully lockedin North America gas prices at more than $2.30/Mcfe (NYMEX) andhas more than 80% of all crude production hedged at more than$15.50/barrel (NYMEX).
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