Mild weather, lower trading profits and ongoing operational problems at the new Magnolia gas storage project in Southern Louisiana led Entergy Corp. to predict lower than expected first quarter earnings on Monday.
The company said it expects to record quarterly earnings of at least $0.85, compared to Wall Street expectations of about 95 cents/share on average and the $1.12/share reported in the first quarter of 2003. The lower results stem primarily from lower earnings at the Entergy-Koch LP joint venture, the company said.
Entergy lost its disproportionate income sharing advantage at the partnership, which had allocated substantially all of the partnership’s profit to Entergy in 2003 based on the original agreement with Koch Industries. During the quarter the unit also delivered lower trading results, compared to the exceptionally strong first quarter 2003 earnings. Reduced market volatility and lower point of view trading profits led to the disappointing performance, the company said.
Entergy also said that there were higher expenses at Gulf South Pipeline associated with an operational incident that occurred in late 2003 at the Magnolia storage facility near Napoleonville, LA. The high-deliverability storage field went into service last October with 4.1 Bcf of working gas capacity, expansion capability to 6.5 Bcf, and a deliverability of 400,000 Dth/d into Gulf South.
In a Christmas Day informational posting on its electronic bulletin board, Gulf South said that it was experiencing operational issues at Magnolia that kept it from being able to physically inject gas until further notice. A gas leak was discovered just before Christmas in a wellhead casing at the facility and local officials in Belle Rose, LA, decided to evacuate 28 residents. The residents ended up having to remain away from their homes for 50 days for safety reasons while the stored gas that had leaked into the bayou sand was being vented by about 30 wells drilled by Boots & Coots International Well Control. Entergy-Koch estimates that at least 350 MMcf of gas escaped before the leak was sealed. The company paid the residents $250 per day while they were under evacuation orders.
Meanwhile, the Louisiana Department of Natural Resources directed the company to remove all of the gas from the cavern so that the storage facility could be inspected. An investigation will determine the root cause of the leak. The venting process also continues to this day.
Earlier this month, Gulf South said in a notice to shippers that it had made progress in addressing the issues associated with the leak. “Testing and analysis indicate that the surface area with gas underground continues to be reduced,” the pipeline said. “The process of transferring the remaining gas in the cavern into Gulf South’s pipeline system has also begun. At this time no decision has been made about the future use of the Magnolia Storage Facility that Gulf South leases from Dow.” An Entergy-Koch spokesman said the process of transferring the remaining gas from the storage field to the pipeline should take several months.
So far two class action lawsuits have been filed against Entergy-Koch, Dow and others mainly related to economic losses that may have occurred during the shutdown of Louisiana Interstate 70 as part of the gas leak evacuation.
Entergy said it believes the costs associated with the incident will be largely offset by recoveries provided pursuant to existing insurance policies in future quarters.
First quarter financial results at the Entergy utility company and the parent company also are expected to be slightly lower due to the impact of milder weather. Entergy Nuclear is expected to report a quarter-on-quarter improvement in earnings due primarily to increased revenues resulting from higher generation levels due to fewer unplanned outages and power uprates completed in 2003, the company said.
Despite the first quarter setback, Entergy still affirmed its earnings guidance for full year 2004 at $4.10 to $4.30 per share. In addition, it noted that previously disclosed 2005 earnings drivers as well as the company’s near-term 8-10% and long-term 5-6% average annual earnings growth aspirations remain unchanged.
Entergy owns and operates 30,000 of power generation, is the second-largest nuclear generator in the United States and delivers electricity to 2.6 million utility customers in Arkansas, Louisiana, Mississippi, and Texas. Entergy has annual revenues of over $9 billion and 14,000 employees.
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