Coastal Reports Record Second Quarter Earnings
HOUSTON, July 26, 2000 -- The Coastal Corporation today reported record
second quarter earnings of $127.7 million, or 58 cents per share (assuming
dilution), compared to second quarter 1999 earnings of $93.3 million, or 43
cents per share. Excluding merger-related charges, earnings were $129.9 million,
or 59 cents per share (assuming dilution), up 37 percent from the comparable
1999 quarter.
Commenting on the results, David A. Arledge, chairman and chief executive
officer, The Coastal Corporation, said: "The successful execution of Coastal's
integrated natural gas strategy continues to deliver record results. We have now
achieved 21 consecutive quarters of record operating earnings. We increased
natural gas production by 70 percent and production of crude oil and condensate
by 45 percent over the 1999 quarter. Exploration and Production earnings
increased nearly four-fold. Natural Gas earnings are up 12 percent, reflecting
the growth of our midstream operations, higher earnings from marketing
activities and the strong, reliable earnings from our pipeline and storage
operations. The recent Federal Energy Regulatory Commission (FERC) approvals of
two significant pipeline projects pave the way for Coastal to further strengthen
our position in the rapidly growing North American natural gas market. Coastal
Power delivered higher earnings with a 75 percent increase in operating capacity
over that of a year ago. Our new 265- megawatt Colorado facility began operating
in July and additional power projects are in various stages of development.
Arledge continued, "Refining, Marketing and Chemicals operations were
affected by an equipment outage at the Eagle Point refinery and temporary delays
in the start-up of a major expansion at our Aruba refinery. The Aruba expansion
increases refining capacity by 55,000 barrels of oil per day and enhances our
heavy and sour crude oil processing capabilities. The outlook for the industry
is generally positive in light of lower refined product inventory levels and an
expected near-term increase in worldwide crude oil production. Higher production
will improve demand for refining capacity, particularly for those refineries
with heavy and sour crude processing capabilities. About 75 percent of Coastal's
refining capacity is equipped to process heavy and sour crude oils, and these
crude types will account for the majority of future production increases.
"We continue to make excellent progress toward completing the merger of
Coastal and El Paso Energy Corporation. In May, shareholders of both companies
voted overwhelmingly in favor of the combination. We remain on schedule to
complete the transaction during the fourth quarter of this year, creating the
only top tier energy company in every segment of the domestic natural gas value
chain," Arledge concluded.
Coastal's earnings before interest and income taxes (EBIT) for the second
quarter of 2000 were $284.9 million compared with $208.7 million for the same
period in 1999. EBIT for the 2000 quarter includes $3.4 million in merger-
related expenses reflected in Corporate and Other. For the first half of 2000,
EBIT increased to $623.5 million, compared with $477.7 million for the 1999
period. EBIT for the first half of 2000 includes certain one-time items,
including a $16.5 million gain from the disposition of Coastal's interest in a
Guatemala power facility, a $6 million charge for a legal settlement recorded by
Refining, Marketing and Chemicals and $7 million in merger-related charges
reflected in Corporate and Other.
Exploration and Production
Exploration and Production EBIT in the second quarter of 2000 was $119.0
million, nearly five times the $24.1 million generated in the 1999 period.
Earnings increased due to significantly higher production volumes and sales
prices for both natural gas and crude oil and condensate.
Natural gas production averaged 947.7 million cubic feet per day (MMcf/d)
for the 2000 quarter, up 70 percent from 558.3 MMcf/d in the 1999 period. Crude
oil and condensate production averaged 15,163 barrels per day (bpd) in the 2000
second quarter, up 45 percent from 10,475 bpd in the 1999 period.
Prices realized for natural gas in the second quarter of 2000 were $3.44
per thousand cubic feet (Mcf) ($2.69 after hedging) versus $2.01 per Mcf ($1.87
after hedging) in the 1999 second quarter. Crude oil and condensate prices in
the second quarter of 2000 were $26.48 per barrel ($23.21 after hedging)
compared with $14.80 per barrel ($13.04 after hedging) in the second quarter of
1999.
Exploration and Production EBIT for the first half of 2000 was $220.1
million compared to $35.5 million for the 1999 period.
<PAGE>
Natural gas production for the first half of 2000 was 909.2 MMcf/d versus
543.9 MMcf/d during the first half of 1999. Net crude oil and condensate
production for the first half of 2000 was 14,525 bpd versus 10,749 bpd for the
first half of 1999.
The year-to-date price for natural gas in 2000 was $2.97 per Mcf ($2.61 per
Mcf after hedging) versus $1.80 per Mcf ($1.74 per Mcf after hedging) in 1999.
The crude oil and condensate price for the first half of 2000 was $26.74 per
barrel ($23.30 per barrel after hedging) versus $12.55 per barrel ($11.69 per
barrel after hedging) for the first six months of 1999.
Coastal completed 147.8 net wells during the first half of 2000 compared to
61.1 during the 1999 period.
Natural Gas
Second quarter 2000 EBIT for the Natural Gas segment was $129.3 million, up
12 percent from $115.5 million in the 1999 period.
During the quarter, Coastal made further progress on projects to position
its pipeline assets to move natural gas from major producing areas to growing
markets. In May, Coastal's Gulfstream Natural Gas System, a major 744- mile
pipeline project, received a preliminary determination from FERC, which covers
all non-environmental aspects of Gulfstream's application. A draft environmental
impact statement is expected to be issued by FERC this summer with a final
decision in early 2001. When complete, Gulfstream will have the capacity to
deliver up to 1.1 billion cubic feet of natural gas per day (Bcf/d) from Alabama
across the Gulf of Mexico to Florida's East Coast.
In June, a successful open season for Whitecap Energy System was concluded.
Whitecap is a new natural gas pipeline project to serve growing energy markets
in northwestern Indiana, northern Illinois and southeastern Wisconsin. The
pipeline project is sponsored by Coastal and Peoples Energy.
Also in June, natural gas from Hoover Diana, a deepwater Gulf of Mexico
production facility, began flowing on Coastal's 50 percent-owned East Breaks
Gathering System to High Island Offshore System, which is also 50 percent owned
by Coastal. East Breaks is an 85-mile, 400 MMcf/d capacity gathering line at
4,700 feet water depth. Natural gas liquids from this rich associated gas are
extracted at Coastal's Eunice Gas Processing and Fractionation Plant, onshore
Louisiana.
Construction continued on the 1.3 Bcf/d Alliance Pipeline, which will be
completed in the fourth quarter of 2000. Coastal has a 14.4 percent interest in
both Alliance and the Aux Sable facility, which will process natural gas
transported through Alliance.
In July, FERC approved both the SupplyLink and Independence Pipeline
projects. SupplyLink is a 750 MMcf/d expansion of Coastal's ANR Pipeline
Company's (ANR) existing system between Sandwich, Illinois, and Defiance, Ohio.
Independence is a joint-venture project to build a 400-mile, 916 MMcf/d pipeline
from ANR's existing facilities at Defiance, Ohio, to Leidy, Pennsylvania. Both
projects are designed to facilitate the transportation of natural gas from the
Alliance terminus near Chicago to growth markets in Ohio, Pennsylvania and the
eastern United States. The estimated in-service date for both projects is
November 2002.
Six-month EBIT for the Natural Gas segment was $321.6 million compared with
$302.4 million for the same period in 1999.
Throughput for Coastal's regulated pipeline subsidiaries was 1,081.0 Bcf
for the first six months of 2000 compared with 1,054.2 Bcf for the 1999 period.
In unregulated natural gas operations, Coastal Field Services' net processing
throughput was 2.2 Bcf/d in the first half of 2000, up about 265 percent from
0.6 Bcf/d in the 1999 period. This increase resulted primarily from the
acquisition of midstream assets during 1999.
Refining, Marketing and Chemicals
Second quarter 2000 EBIT for the Refining, Marketing and Chemicals segment
was $51.8 million compared to $63.7 million in the 1999 quarter. Lower earnings
from refining and marketing activities were partially offset by improved
earnings from chemical operations. Refining operations for the 2000 second
quarter were impacted by 17 days
<PAGE>
of catalytic cracker downtime at Coastal's Eagle Point refinery and temporary
delays in start-up of a major expansion at the Aruba refinery. The expansion is
supported by a five-year supply agreement with Mexico's national oil company.
Year-to-date 2000 segment EBIT was $91.1 million, versus $133.3 million for
the 1999 period. Included in 2000 EBIT is a charge of $6 million related to a
legal settlement recorded by Coastal's Corpus Christi refinery.
Risk management activities, which are focused on reducing volatility,
benefited margins in the 1999 periods, but have limited margins in 2000. In
addition, current year earnings have been affected by higher crude oil prices,
which have increased the cost of fuel consumed in the refining process.
Crude throughput at Coastal's refineries averaged 470,000 bpd for the first
half of 2000 versus 460,000 bpd in the 1999 period. Sales of refined products
during the first half of 2000, including products purchased from others,
averaged 815,000 bpd, compared with 846,000 bpd for the same period in 1999.
Power
Second quarter 2000 EBIT for Coastal's Power segment was $25.4 million
compared with $24.8 million for the same period last year. Earnings from new
projects placed in service since the 1999 quarter were largely offset by higher
fuel costs.
During the quarter, Coastal finished building its 265-megawatt ManChief
power plant in Colorado. The plant began operating in early July. Coastal owns
and operates the plant, which has a power purchase agreement with Public Service
Company of Colorado.
For the first six months of 2000, EBIT for the Power segment was $67.9
million compared with $43.7 million for the 1999 period. The 2000 period
includes a $16.5 million gain from the disposition of Coastal's one-third
interest in a power facility in Guatemala.
Coastal's net generating capacity in operation on June 30, 2000, was
1,767.8 megawatts, up 75 percent from 1,007.9 megawatts on June 30, 1999.
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 2000 EBIT for the Company's Coal segment was $4.2 million
compared with $2.6 million for the 1999 period. The increased earnings reflect
higher sales volumes, partially offset by lower sales prices. Year-to-date 2000
EBIT was $7.4 million compared with $6.9 million for the first six months of
1999.
Coal sales from company-owned mines were 5.1 million tons for the first six
months of 2000, up 16 percent from 4.4 million tons for the 1999 period.
The Coastal Corporation (NYSE:CGP) is a Houston-based energy holding
company with consolidated assets of $15 billion and subsidiary operations in
natural gas transmission, storage, gathering/processing and marketing; oil and
gas exploration and production; petroleum refining, marketing and distribution;
chemicals; power production; and coal. Coastal and El Paso Energy Corporation
(NYSE:EPG) announced on Jan. 18 a definitive agreement to merge Coastal with a
subsidiary of El Paso, subject to various approvals. The merger is expected to
be completed during the fourth quarter of this year. Coastal's World Wide Web
site at www.coastalcorp.com provides additional information on the company.
<PAGE>
THE COASTAL CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
(millions except per share)
Three Months Six Months
--------------------------- ----------------------------
PERIODS ENDED JUNE 30 2000 1999 2000 1999
--------------------- --------- --------- ---------- ----------
<S> <C> <C> <C> <C>
Operating revenues $ 3,071.1 $ 1,892.1 $ 5,998.7 $ 3,601.7
Operating costs and expenses
Purchases 2,164.7 1,184.3 4,168.8 2,130.2
Operating and general expenses 502.8 413.1 976.8 824.5
Depreciation, depletion and amortization 151.7 115.8 294.2 224.4
--------- --------- ---------- ----------
2,819.2 1,713.2 5,439.8 3,179.1
--------- --------- ---------- ----------
Other income - net 33.0 29.8 64.6 55.1
--------- --------- ---------- ----------
Earnings before interest and income taxes 284.9 208.7 623.5 477.7
--------- --------- ---------- ----------
Interest and debt expense 100.4 81.5 190.6 158.5
Taxes on income 56.8 33.9 131.6 91.4
--------- --------- ---------- ----------
Net earnings 127.7 93.3 301.3 227.8
Dividends on preferred stock .1 .1 .2 .2
--------- --------- ---------- ----------
Net earnings available
to common stockholders $ 127.6 $ 93.2 $ 301.1 $ 227.6
========= ========= ========== ==========
Basic earnings per share $ .60 $ .44 $ 1.41 $ 1.07
========= ========= ========== ==========
Average common shares 214.1 213.2 213.9 213.0
Diluted earnings per share $ .58 $ .43 $ 1.38 $ 1.05
========= ========= ========== ==========
Diluted shares 220.3 217.1 218.9 216.6
Earnings (loss) before interest and
income taxes by segment
Natural gas $ 129.3 $ 115.5 $ 321.6 $ 302.4
Refining, marketing and chemicals 51.8 63.7 91.1 133.3
Exploration and production 119.0 24.1 220.1 35.5
Power 25.4 24.8 67.9 43.7
Coal 4.2 2.6 7.4 6.9
Corporate and other (44.8) (22.0) (84.6) (44.1)
--------- --------- ---------- ----------
$ 284.9 $ 208.7 $ 623.5 $ 477.7
========= ========= ========== ==========
</TABLE>
This information includes certain forward-looking statements reflecting the
Company's expectations and objectives in the future; however, many factors which
may affect the actual results, including commodity prices, market and economic
conditions, industry competition, and changing regulations, are difficult to
predict. Accordingly, there is no assurance that the Company's expectations and
objectives will be realized.
The terms "Coastal," "Company," "we," "our," "its" and "segment" are used in
this release for purposes of convenience and are intended to refer to The
Coastal Corporation and/or its subsidiaries either individually or collectively,
as the context may require. These references are not intended to suggest that
the various Coastal companies referred to are not independent corporate entities
having their separate corporate identities and management.
