Enron’s 1997 year-end earnings took a huge hit from a one-time after-tax charge of $537 million related to the company’s settlement of a contract for J-Block gas in the U.K. North Sea and depressed MTBE margins. For the year Enron net income was $105 million, compared to $584 million in 1996. “Our 1997 results reflected extremely strong operating performance in virtually all of our business units, offset to a significant degree by a number of non-recurring charges,” CEO Kenneth L. Lay said. “These charges allow us to clear the decks for future growth.”

In the second quarter of 1997, Enron took an after-tax charge of $450 million to settle what it perceived as costly take-or-pay contracts with North Sea gas producers. During the second quarter, Enron also took a $74 million after-tax charge in its MTBE business to reflect depressed MTBE margins.

The highlight of Enron’s year was the sale of 7% of Enron Energy Services, at least according to Edward Jones analyst Zach Wagner, who follows the company. “I think the fundamental factor for 1997 was they were able to place a value on their Enron Energy Services, which is their retail segment, by selling 7%. So really overnight they created a benchmark of about $1.9 billion as being the market value of that enterprise. I thought that was significant in that they have been able to create value in what they’ve been spending money on, which is reassuring.”

Enron Energy Services (EES) generated an after-tax loss of $9 million for 1997 and after-tax earnings of $33 million for Q4 1997. Results reflect costs of building the new business offset by a $61 million non-taxable gain on the fourth quarter sale of 7% of EES. “We have made significant progress in building this business, and the losses we have incurred are fully a result of building the infrastructure and not related to serving current customers,” Lay said.

Enron’s core businesses generated recurring after-tax earnings of $585 million last year, compared to $493 million in 1996. The core businesses are exploration and production (Enron Oil &Gas), transportation and distribution (the Gas Pipeline Group and Portland General Electric), and wholesale energy operations and services (Enron Capital &Trade Resources and Enron International).

For the fourth quarter, Enron reported net income of $169 million, compared to $131 million in Q4 1996. After-tax earnings of core businesses in the fourth quarter were $136 million, compared to $112 million in 1996.

Exploration and production includes Enron Oil &Gas (EOG) and corporate hedging of EOG’s exposure to commodity prices. For the year, exploration and production generated earnings before interest, minority interest and taxes of $183 million, compared to $200 million in 1996. Results reflect EOG losses early in the year associated with gas price hedging at the separate company level. For 1998, Enron has hedged at the corporate level all gas price exposure associated with its investment at EOG at levels significantly above current prices, the company said.

Exploration and production had domestic wellhead volumes of 657 MMcf/d for 1997, compared to 608 MMcf/d in 1996. Canadian volumes were 101 MMcf/d, up from 98 MMcf/d in 1996. The average price for domestic production was $2.32/Mcf in 1997, up from $2.04 in 1996. Canadian production garnered $1.43/Mcf, up from $1.15/Mcf in 1996. North American composite prices were $2.20/Mcf in 1997 and $1.92/Mcf in 1996.

Earnings before interest and taxes were down in Enron’s Gas Pipeline Group to $402 million from $462 million for 1996. Fourth quarter figures were $96 million Q4 1997 and $120 million Q4 1996. The decrease for both periods came largely from lower results from Transwestern Pipeline and gas liquids assets that contributed earnings during 1996 but were sold in the first quarter of 1997, the company said.

Portland General Electric generated earnings before interest and taxes of $114 million for 1997 and $63 million in Q4 1997. The merger of the companies was not completed until July 1997.

Enron Capital &Trade Resources (ECT) had earnings before interest and taxes of $400 million last year compared with $280 million in 1996. Q4 figures were $120 million for 1997 and $56 million for 1996. Physical gas volumes increased 19% to 11 trillion BTUe/d, and power marketing volumes for 1997 increased more than three-fold to 192 million MWh.

Joe Fisher, Houston

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