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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report: July 23, 1999
THE COASTAL CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 74-1734212
(State of incorporation (I.R.S. Employer
or organization) Identification No.)
Coastal Tower
Nine Greenway Plaza
Houston, Texas 77046-0995
(Address of principal executive offices) (Zip Code)
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Item 5. Other Events.
On July 22, 1999, the Company issued a press release regarding earnings for
the quarter ended June 30, 1999. See press release attached as Exhibit 99.1.
Item 7. Financial Statements and Exhibits.
(c) Exhibits. The following document is filed as an exhibit to this current
report.
99.1 Press release issued July 22, 1999, entitled "Coastal Reports Record
Second Quarter Earnings From Continuing Operations."
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
THE COASTAL CORPORATION
(Registrant)
Date: July 23, 1999 By: AUSTIN M. O'TOOLE
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Austin M. O'Toole
Senior Vice President and Secretary
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INDEX TO EXHIBITS
THE COASTAL CORPORATION
FORM 8-K
Exhibit
No. Description
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99.1 Press Release issued July 22, 1999.
Coastal Reports Record Second Quarter Earnings
From Continuing Operations
The Coastal Corporation today reported record second quarter earnings from
continuing operations of $93.3 million, or 43 cents per share (assuming
dilution), versus comparable earnings of $91.5 million, or 42 cents per share.
Commenting on the results, David A. Arledge, chairman and chief executive
officer, The Coastal Corporation, said: "Earnings for the quarter reflect the
strength of Coastal's diversity and integrated strategy. Our Natural Gas
business delivered a solid, consistent performance and our Power business
benefited from a 34 percent increase in its operating capacity. This resulted in
a substantial earnings increase from the combined operations, which included
offsetting one-time items in the 1998 quarter. Refining, Marketing and Chemicals
produced lower earnings for the quarter, but results were very respectable
considering that second quarter refining margins were the lowest in recent
history. Our long-standing objective of operating these businesses profitably in
periods of low refining margins was put to the test this quarter when margins
fell to 15-year lows. Our success in this environment is a direct result of
operating improvements implemented over the past few years."
Arledge continued: "Exploration and Production (E&P) earnings were down from
1998, reflecting lower natural gas prices together with lower crude oil
production. However, earlier price weakness in crude oil and natural gas has
resulted in valuable properties being made available at very attractive prices.
Coastal has taken advantage of this excellent market for acquisitions by
recently completing several transactions in our core areas of operation. In
recognition of price improvements which began earlier in the quarter, we
increased our annual E&P capital budget by $290 million, or 49 percent, to
accommodate further acquisitions and accelerate development drilling.
"We now are targeting a 30 percent increase in our natural gas production over
that of last year, up from our previous 20 percent goal, and expect to repeat
that 30 percent increase again in 2000. Our acquisition strategy is designed to
enable us to achieve these increases with nominal exploration risk.
"With recent improvements in energy prices and refining margins, we remain on
track to achieve our goal of double- digit earnings growth for the year,"
Arledge concluded.
Coastal's net earnings for the 1999 second quarter were $93.3 million, or 43
cents per share, versus $94.6 million, or 43 cents per share, for the second
quarter of 1998. Net earnings for the first half of 1999 were $227.8 million, or
$1.05 per share, versus $217.5 million, or 98 cents per share, in the 1998 first
half. The 1998 second quarter and first half included net earnings of $3.1
million and $1.2 million, respectively, relating to discontinued operations.
Coastal's overall earnings before interest and income taxes (EBIT) for the
second quarter of 1999 were $208.7 million compared with $204.0 million for the
same period in 1998. For the first half of 1999, EBIT increased to $477.7
million, compared with $467.3 million for the 1998 period.
Natural Gas
Second quarter 1999 EBIT for the Natural Gas segment was $115.5 million,
compared with $99.6 million for the same period in 1998. The 1998 second quarter
results reflect a one-time charge of $14.6 million related primarily to the
default on delivery obligations by a supplier of electricity to Engage Energy,
the Company's joint venture marketing subsidiary.
In June, Coastal announced that it had acquired the Bluebell and Altonah natural
gas gathering systems and processing plants in northeastern Utah. Also in June,
Coastal increased its interests in a natural gas processing plant, natural gas
pipeline and other assets located in the Mobile Bay area of Alabama.
During the quarter, construction continued on the 1,900-mile Alliance Pipeline,
which will deliver 1.3 billion cubic feet (Bcf) of natural gas per day from
Western Canada into the Chicago market hub. Coastal has a 14.4 percent interest
in Alliance, as well as the Aux Sable natural gas processing facility which will
process the gas transported through Alliance. Coastal also made progress in
developing its proposed Gulfstream Natural Gas System, a major 700-mile pipeline
project originating near Mobile, Alabama, and designed to serve growing Florida
energy markets.
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Six-month EBIT for the Natural Gas segment was $302.4 million compared with
$293.4 million for the same period in 1998. Year-to-date results in 1998
included a net benefit related to the final settlement of the rate case at
Coastal's ANR Pipeline Company.
Throughput for Coastal's regulated pipeline subsidiaries was 1,054.2 Bcf for the
first six months of 1999 compared with 1,119.6 Bcf for the 1998 period.
Refining, Marketing and Chemicals
Second quarter 1999 EBIT for the Refining, Marketing and Chemicals segment was
$63.7 million compared to $70.0 million in the 1998 quarter. A $33.9 million
improvement in marketing and trading operations offset much of the adverse
impact of weak refining margins. Chemical margins continued at depressed levels,
as Asian economies remained in poor condition despite some early signs of
recovery.
Year-to-date 1999 segment EBIT was $133.3 million, versus $117.6 million for the
1998 period. Crude throughput at Coastal's refineries averaged 460,100 barrels
per day (bpd) for the first half of 1999 versus 419,600 bpd in the 1998 period.
Increased throughput is the result of earlier successful turnarounds and
operational enhancements at the Company's refineries. Work is currently underway
to add a second coker to the Aruba facility. When completed in 2000, the
refinery capacity will be 280,000 bpd, an increase of 55,000 bpd. Sales of
refined products during the first half of 1999, including products purchased
from others, averaged 846,000 bpd, compared with 835,000 bpd for the same period
in 1998.
Exploration and Production
Exploration and Production EBIT in the second quarter of 1999 was $24.1 million
compared to $30.3 million for the 1998 quarter. Increased natural gas production
and higher prices for crude oil and condensate were more than offset by
decreased natural gas prices and reduced crude oil and condensate production.
The decline in crude oil and condensate production reflects the Company's strong
emphasis on natural gas production.
Prices realized for natural gas in the second quarter of 1999 were $2.01 per
thousand cubic feet (Mcf) versus $2.04 per Mcf in last year's second quarter.
Crude oil and condensate prices in the second quarter of 1999 were $14.80 per
barrel compared with $11.46 per barrel in the second quarter of 1998. Including
hedging activities, 1999 second quarter prices were $1.87 per Mcf for natural
gas and $13.04 per barrel for crude oil and condensate.
Natural gas production averaged 558.3 million cubic feet per day (MMcf/d) for
the second quarter of 1999, and had reached 650 MMcf/d by mid-July 1999 due to
acquisitions and increased drilling activity. Comparable second quarter 1998
production was 525.7 MMcf/d. Second quarter net production of crude oil and
condensate in 1999 was 10,475 bpd compared with 18,063 bpd produced during the
second quarter of last year.
In May, Coastal announced completion of two sizable natural gas property
acquisitions in the Gulf of Mexico and South Texas. Together, these acquisitions
added approximately 37 MMcf/d of gas production. Both acquisitions have
significant development potential. In July, the Company announced the
acquisition of 24,000 net developed and undeveloped acres plus gathering and
processing assets as part of its integrated natural gas strategy in the Rockies.
Coastal is continuing to pursue acquisitions in South Texas, the Rockies and the
Gulf of Mexico.
Exploration and Production EBIT for the first half of 1999 was $35.5 million
compared to $55.8 million for the 1998 period. Benefits from increased natural
gas production were more than offset by lower crude oil and condensate
production and lower realized prices.
The year-to-date price for natural gas in 1999 was $1.80 per Mcf ($1.74 per Mcf
after hedging) versus $2.03 per Mcf for the first six months of 1998. The crude
oil and condensate price for the first half of 1999 was $12.55 per barrel
($11.69 per barrel after hedging) versus $12.40 per barrel for the first six
months of 1998.
Natural gas production for the first half of 1999 was 543.9 MMcf/d versus 507.8
MMcf/d during the first half of 1998. Net crude oil and condensate production
for the first half of 1999 was 10,749 bpd versus 16,670 bpd for the first half
of 1998. Coastal participated in drilling 92.6 net wells during the first half
of 1999 compared with 115.5 during the 1998 period. The decrease in 1999
first-half drilling activity resulted from a reduction in the Company's initial
1999 drilling budget due to earlier low natural gas and crude oil prices.
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Power
Second quarter 1999 EBIT for Coastal's Power segment was $24.8 million compared
with $25.8 million for the same period last year. The 1998 period included a
$13.6 million benefit related to the restructuring of power purchase agreements
for the Company's Fulton, New York, plant. Second quarter 1999 earnings reflect
profits from four newly acquired or constructed plants since the 1998 period and
improved operations at existing facilities.
During the quarter, Coastal announced that it will build a 265-megawatt power
plant in Colorado. The Company will own and operate the plant and has entered
into a power purchase agreement with Public Service Company of Colorado. The
Company also announced that, with a partner, it had been awarded the winning bid
to acquire an interest in Itabo Generation Company in the Dominican Republic.
Closing of the Itabo acquisition is expected to occur within the next thirty
days.
For the first six months of 1999, EBIT for the Power segment was $43.7 million
compared with $37.4 million for the 1998 period. Coastal's net generating
capacity in operation on June 30, 1999 was 1,007.9 megawatts, up 34 percent from
751.2 megawatts on June 30, 1998.
Coastal continues to pursue growth in the power industry with particular
emphasis on the domestic market, where there are numerous opportunities to
expand along its extensive natural gas systems, strengthening the Company's
overall operations. The Company is also actively pursuing specific international
projects with a focus on geographic areas where there are opportunities for
integration with Coastal's fuel supply and logistics capabilities.
Coal
Second quarter 1999 EBIT for the Company's Coal segment was $2.6 million
compared with $4.5 million for the 1998 period. Year-to-date 1999 EBIT was $6.9
million compared with $7.3 million for the first six months of 1998.
Coal sales from subsidiary-owned mines were 4.4 million tons for the first six
months of 1999 compared with 3.9 million tons for the 1998 period.
