KN Energy cleaned house last week, starting with a corporate yard sale with tags on everything but the kitchen sink. It also continued the shake-up among top management that began with the sudden departure of former CEO Larry Hall last month when KN’s merger with Kinder Morgan was first announced (see NGI July 12).

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

CFO Clyde McKenzie, KN Services and en*able President Mort Aaronson, and KN Gas Gathering Executive Vice President John DiNardo all left the company last week. Meanwhile a long list of properties and assets from many divisions of KN’s operations were put on the auction block.

The list includes the Midcon Texas Pipeline system, a large Texas Gulf Coast intrastate that transported 611 trillion Btu of gas last year; the Wattenberg Gathering and Processing operations in Colorado; KN’s retail energy and services operations under en*able and Orcom, which together hold about 10 agreements with utilities representing about three million potential customers; KN Field Services and Compressor Pump & Engine; all of KN’s operations in Mexico, including the Monterrey Pipeline, the distribution system in Hermosillo and the Igasmex marketing partnership interest; and certain West Texas transmission assets.

KN’s second quarter financial results illustrate the need for the partial gutting of the company. KN reported a $2.4 million net loss ($0.04/share) compared to $16.7 million in net income ($0.24/share) in 2Q98. It reported a $0.22 operating loss per diluted common share from ongoing operations. The loss was partially offset by the recent sale of interests in the HIOS and UTOS offshore pipeline systems and the reimbursement of costs related to the terminated merger with Sempra Energy, which contributed earnings per diluted common share of $0.15 and $0.03, respectively.

Upstream gathering and processing showed a return to positive operating income for the first time since the fourth quarter of 1997. But most other operations suffered significant set backs. Operating income from midstream transportation and storage operations was down $26 million from 2Q98 to $65.6 million. Downstream retail and marketing took a major hit with an operating loss of $16.7 million compared to operating income of $5.6 million for the same period in 1998. The loss resulted primarily from reduced margins on capacity held by KN’s commodity marketing group on the Pony Express Pipeline, the company said. Additionally, en*able’s loss during the quarter was $2.5 million greater than its loss in 1998.

On the positive side, KN noted several projects could help pull the company out of its current ditch. Included among them are the Thunder Creek Gas Services joint venture with Devon Energy in Wyoming’s Powder River Basin, the proposed Horizon Pipeline from Chicago to southern Wisconsin, recent marketing deals with power plants in Illinois and new power projects in Colorado.

Rocco Canonica

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