Wednesday reported third quarter earnings rose 42% to 78¢/share on net income of $405 million reflecting strong demand in its energy merchant group.
CEO Bill Wise said Oct. 4 he expected earnings to meet or exceed the analysts’ average estimate of 74¢. Wall Street forecasted an earnings range between 70¢ and 80¢/share, according to Thomson Financial/First Call.
Noting a “lot of questions” have been raised about accounting issues recently, Wise emphasized during a Wednesday conference call with Wall Street analysts the company doesn’t “trade with any private partnerships.” News that Enron Corp. was forced to write down the value of shareholder equity by $1.2 billion, resulting from financing arrangements with one of its off balance sheet partnerships, has the industry on edge.
Despite the “hub bub” surrounding Enron, the industry’s biggest market maker in gas and power, Ralph Eads, president, El Paso Energy Group, said, “We have seen no evidence of any problems on the liquidity front.” He said liquidity in both the gas and power markets continues to be “excellent.”
Wise said he expected El Paso to deliver 20% earnings growth despite a difficult economic and regulatory environment this year and projected double digit “high quality” earnings growth in 2002. Company officials said 80% of 2002 earnings have already been identified.
He said El Paso remains comfortable with an earnings per share targets of $3.30 in 2001 and $3.60-$3.70 in 2002, based on an annual average Henry Hub natural gas price of $3/Mcf.
The adjusted results for the 2001 third quarter exclude net after-tax merger-related costs and other non-recurring charges of $203 million, including an estimated $100-million after-tax ceiling test charge on Canadian oil and gas assets
Raise market share
Eads said the company expected to increase market share in petroleum, gas, and power in the future as it capitalizes on dislocations in the market. “We are structured to prosper in this kind of environment,” Eads said.
El Paso’s large asset base puts the company in a strong position to supply strong demand for fuel management services, especially the fast cycling needs of the electric power industry, he added. The Merchant Energy Group reported adjusted earnings before interest and taxes (EBIT) of $316 million, up 26% from $251 million in the third quarter of 2000.
The increase reflected greater customer origination activity, increased income from international operations, and strong fee income from Project Electron and financial services, El Paso said. Physical natural gas and power volumes rose 4% and 48% respectively, while financial volumes increased 61% from 2000 levels.
Strong production growth and the benefit of El Paso’s hedging program caused El Paso Production Co.’s adjusted EBIT to more than double to $307 million from $149 million in the third quarter of 2000. In recent weeks, El Paso said it added additional hedges for its natural gas production.
For the months of October through December 2001, about 85% of projected natural gas production is hedged at a New York Mercantile Exchange price of $3.79/Mcf. For 2002, 70% of natural gas production is hedged at a NYMEX price of $4.07/Mcf, and for 2003 44% is hedged at a NYMEX price of $3.99/Mcf.