KN Energy has been cleaning house and started a corporate yardsale yesterday with tags on everything but the kitchen sink.Although it wouldn’t estimate the total value of the assets beingsold, the list is long and encompasses properties and assets innearly every division of KN’s operations.

It includes the Midcon Texas Pipeline system, which is a largeTexas Gulf Coast intrastate that transported 611 trillion Btu ofgas last year; the Wattenberg Gathering and Processing operationsin Colorado; its retail energy and services operations underen*able and Orcom, which together hold about 10 agreements withutilities representing about three million potential customers; KNField Services and Compressor Pump & Engine; all of KN’soperations in Mexico, including the Monterrey Pipeline, thedistribution system in Hermosillo and the Igasmex marketingpartnership interest; and certain West Texas transmission assets.

The partial gutting of the company represents an attempt by theboard to partially recover financially before its merger withKinder Morgan is completed later this year. KN’s second quarterfinancial results illustrate the need. The company reported a $2.4million net loss ($0.04/share) compared to $16.7 million in netincome ($0.24/share) in 2Q98. It reported a $0.22 operating lossper diluted common share from ongoing operations. The loss waspartially offset by the sale of interests in the HIOS and UTOSoffshore pipeline systems and the reimbursement of costs related tothe terminated merger with Sempra Energy, which contributedearnings per diluted common share of $0.15 and $0.03, respectively.

Upstream gathering and processing showed a return to positiveoperating income for the first time since the fourth quarter of1997. But operating income from midstream transportation andstorage operations was down $26 million from 2Q98 to $65.6 million.And downstream retail and marketing took a major hit with anoperating loss of $16.7 million compared to operating income of$5.6 million for the same period in 1998. The loss resultedprimarily from reduced margins on capacity held by KN’s commoditymarketing group on the Pony Express Pipeline, the company said.Additionally, en*able’s loss during the quarter was $2.5 milliongreater than its loss in 1998.

In addition to the asset sales, KN announced continued changesin top management positions. Along with former CEO Larry Hall, wholeft suddenly when the $830 million Kinder Morgan merger wasannounced last month, the following executives have left thecompany: CFO Clyde McKenzie; Mort Aaronson, chief marketing officerand president and COO of KN Services and en*able; and John DiNardo,executive vice president of KN Gas Gathering.

“We have started to execute our previously stated strategy toreturn to profitability, reduce our debt load and strengthen ourmanagement team,” said interim Chairman and CEO Stewart Bliss.”These actions include identification of non-strategic assets fordivestiture, corporate reorganization and cost reductions. Movingforward, we will remain focused on customers, shareholder value andbuilding a dynamic management team.”

On the positive side, KN noted several projects that could helppull the company out of its current ditch, including the ThunderCreek Gas Services joint venture with Devon Energy in Wyoming’sPowder River Basin, the proposed Horizon Pipeline from Chicago tosouthern Wisconsin, recent marketing deals with power plants inIllinois and new power projects in Colorado.

KN’s stock price gained ground slightly following theannouncements to end the day up 2.83% at $20.44/share. Thatcompares to a 52-week low in June of nearly $12/share.

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