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Poor Results Distributed To LDCs, Too
Producers may be walking around barefoot and hungry after thefinancial struggle in 1998, but LDCs’ wallets are thin as well. Theexceptionally warm year cut gas distribution throughputsignificantly and several local distribution companies ended theyear in the red. Average net income declined 10% for 19 gas andcombination utilities that reported earnings last week or the weekprior.
“It’s dismal,” said Merrill Lynch LDC analyst Rebecca Followill.”The thing to keep in mind is it’s weather, and weather is ashort-term phenomenon,” she noted. “I think the whole view of theindustry right now is everything seems to be going in the wrongdirection.. People have pretty much just given up on weather forthe winter. Folks that we’re talking to are just sitting it outuntil winter’s over. I think people have given up on the stocksuntil the spring, which I don’t necessarily think is the rightthing to do.”
Some companies Followill watches had decent results. “Two of theLDCs that have reported have come in better than last year. CascadeNatural Gas, and New Jersey Resources.” For the year, New JerseyResources posted a total net income of $43 million, whichrepresents a $2 million increase over 1997 earnings. The majority,however, have little to crow about, except perhaps that a year fromnow their performance should look great compared with 1998. “Ithink, generally, most folks are coming in lower than expected,”Followill said.
She pointed to Bismarck, ND-based MDU Resources Group, parent ofMontana-Dakota Utilities and Williston Basin Interstate, as oneshining example. “They were one of the only two stocks in ouruniverse that outperformed the S&P 500 last year, and the otherwas Enron.” To its credit, Followill said, MDU over the last fewyears has diversified into construction materials. While thecompany has exploration and production operations, less than 10% ofits 1998 earnings were derived from E&P.
Phil Borish, senior financial advisor to the Gas Index Fund,concurred that 1998 was a bad year, but things could be looking up,he said. “[A]s soon as some of the other sectors lose their forwardmomentum we’re going to benefit. The gas fund is down this year.Energy is out of favor. But as soon as you have a hiccup, we’regoing to come back. I think it’s a buying opportunity.” Borishnoted that as companies become more diversified, it takes a morecareful examination to determine what earnings came from gas andwhat came from other businesses.
One prime example of this is MidAmerican Energy Holdings Co.,which posted 1998 earnings that almost matched 1997. For the year,the company posted a net income of $131 million versus $135 millionthe previous year. Yet while its electric sales increased 2.7% fromthe previous year to 16,088 MWh, its gas sales plummeted 12.6% to81,984 MMBtu.
Things should be looking up for MCN Energy Group also. Thecompany largely stanched the flow of red ink from its balance sheetwith plans to shed exploration and production operations. MinusE&P, MCN reported a net loss of $6.2 million, compared withearnings of $112.2 million in 1997. Including results from theE&P unit – discontinued in anticipation of sale – MCN reported anet loss for 1998 of $279 million, compared with earnings of $142.3million in 1997. All figures include special charges.
Including the company’s share of joint venture operations, gastransportation volumes were 175.5 Bcf in 1998, compared with 116.0Bcf in 1997. Gas processing volumes rose to 48.9 Bcf from 42.8 Bcfthe previous year. Electricity sales more than doubled to 3.8million MWh from 1.8 million MWh in 1997. Gas sales and exchangedeliveries rose 30% to 465.7 Bcf from 358.8 Bcf in 1997, withsignificant volume increases in each market region. However,increased volumes were offset by reduced margins and increased gasstorage costs.
Joe Fisher, Houston; John Norris
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