“Although we have some exposure to commodity prices, we believe we have the opportunity to achieve the upper end of the range by continuing our track record of growth and cost containment, while also prudently managing our risk,” said CEO Robert Catell.

KeySpan’s gas distribution business benefited from a record number of conversions from oil to gas in New York, Long Island and New England. It expects to complete more than 40,000 gas installations in 2001, resulting in new gross profit margin of a record $60 million. For 2002, the company expects an additional $65 million in new gross profit margin as a result of marketing initiatives put in place.

To partially offset expected declines in electric margins, KeySpan is moving forward on a number of new electric generation projects. The company plans to install four peaking units on Long Island in 2002, which will provide 158 MW of needed power, as well as two 250 MW plants in New York and Long Island in 2003 and 2004, respectively.

As a result of the lower gas prices, KeySpan is expecting significantly lower earnings from its exploration and production business, Houston Exploration, in 2002. To mitigate this decline, the exploration and production business has hedged 72% to 77% of its estimated 2002 production levels at an average effective floor price of $3.40/MMBtu and an average effective ceiling of $4.66/MMBtu. KeySpan said it is continuing to evaluate alternatives with its investment in the exploration and production business in order to maximize value for its shareholders. It also is planning to divest or monetize other non-core assets in 2002, including its Midland in-land barge business, Canadian gas processing plants and international gas-distribution and pipeline investment.

Houston Exploration, which is 68% owned by KeySpan, said 2002 earnings may not meet Wall Street’s consensus estimates. It expects profits in a range of $2.20 to $2.40 per share compared to Wall Street estimates of $2.02 to $3.58 per share, according to Thomson Financial/First Call, which put the consensus at $2.51. Earnings last year were $4.13/share.

Houston Exploration based its 2002 forecast on an average gas futures price of $2.90/MMBtu and a production increase of 14% to 280-290 MMcfe/d. It said hedged volumes represent 72-77% of 2002 estimated production volumes, but 19% of the total hedged volumes are hedged with Enron Corp. The company has estimated its 2002 capital program to total $270 million, which includes planned drilling and development of a new South Texas property acquisition, all of which will be financed through internally generated funds.

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