As filed with the Securities and Exchange Commission on January 26, 2000
=============================================================================
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a)
OF THE SECURITIES EXCHANGE ACT OF 1934
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{_} Definitive Proxy Statement
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{x} Soliciting Material Under Rule 14a-12
THE COASTAL CORPORATION
-----------------------------------------
(Name of Registrant as Specified in Its Charter)
-----------------------------------------
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The press release described below may be deemed to be
solicitation material in respect of the proposed merger ("Merger") of El
Paso Merger Company ("Merger Sub"), a wholly-owned subsidiary of El Paso
Energy Corporation ("El Paso"), with and into The Coastal Corporation
("Coastal"), pursuant to an Agreement and Plan of Merger, dated as of
January 17, 2000, by and among Coastal, El Paso and Merger Sub (the "Merger
Agreement"). A press release announcing Coastal's 1999 earnings that
alludes to the Merger was issued on January 26, 2000 and is attached hereto
as Exhibit 99.1. This filing is being made in connection with Regulation
of Takeovers and Security Holder Communications (Release No. 33-7760, 34-
42055) promulgated by the Securities and Exchange Commission ("SEC").
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
----------- -----------
99.1 Press Release issued by The Coastal Corporation dated
January 26, 2000.
EXHIBIT 99.1
[Coastal Logo]
News Release
Media contact: Greg Clock (713) 877-3993
Investor contacts: Stirling D. Pack, Jr. (713) 877-6924
Sandra M. Ryan (713) 877-7440
COASTAL REPORTS RECORD 1999 EARNINGS
HOUSTON, JANUARY 26, 2000 -- The Coastal Corporation today reported record
annual net earnings of $498.9 million, or $2.30 per share (assuming
dilution), up 13 percent on a per-share basis from comparable 1998 earnings
of $444.4 million, or $2.03 per share.
Coastal also reported record net earnings for the fourth quarter of
1999 of $169.0 million, or 78 cents per share, up 22 percent from 1998
comparable earnings of $137.4 million, or 64 cents per share.
Commenting on the results, David A. Arledge, chairman and chief
executive officer, The Coastal Corporation, said: "Coastal made excellent
progress in executing our integrated natural gas strategy in 1999. This is
evident not only in the strong earnings contributions from our natural gas-
related businesses, but by considerable operational achievements during the
year. While recent warmer-than-normal winters have affected earnings in
some areas, Coastal turned the resulting market conditions to our advantage
by making significant acquisitions at very favorable terms."
Arledge continued, "Exploration and production earnings increased
almost 70 percent in 1999 and 155 percent in the fourth quarter. We
increased natural gas production 24 percent for the year and 51 percent for
the quarter. At the end of 1999, our natural gas production was averaging
about 870 million cubic feet per day (MMcf/d). We significantly increased
our natural gas reserves during 1999, in part by completing several low-
cost, high-potential property acquisitions. Our reserve replacement rate
was 499 percent in 1999, marking the fifth consecutive year of replacing
more than 300 percent of our production. We added proved reserves of 1.3
trillion cubic feet of natural gas equivalent (Tcfe), bringing total proved
reserves to 3.6 Tcfe at year-end. These reserves were added at an average
cost of 81 cents per thousand cubic feet of natural gas equivalent. These
results further solidify Coastal's position as one of the most successful,
low-cost finders and developers of domestic natural gas. About 91 percent
of our reserves are natural gas, and all of these reserves are in North
America.
"Our Natural Gas segment continued to deliver a high level of reliable
earnings in 1999. We completed significant, cost-effective acquisitions in
our midstream natural gas operations during 1999, which more than
quadrupled our processing capacity. These assets are already in operation
and immediately add a substantial earnings base for this segment.
"In the Power segment, we increased net generating capacity by 69
percent, and increased earnings by more than 30 percent for the year and
more than 50 percent for the fourth quarter. We added six new facilities
during 1999, and in early 2000 increased our interest in the Midland
Cogeneration Venture Limited Partnership (MCV) from 20.4 percent to 43.5
percent.
"Refining, Marketing and Chemicals 1999 earnings declined only
slightly from those of 1998 despite significantly lower refining margins.
This stable performance results from operational improvements to our
refineries, refocusing our wholesale and retail marketing operations and
strengthening our contractual position and risk management activities. In
the years ahead, this division will further benefit from the supply
agreements in place for two of our three major refineries, as well as the
related expansion of Aruba, which will increase capacity by over 50,000
barrels per day.
"Coastal's growth strategies are in place to deliver double-digit
earnings growth for the next several years. Our proposed merger with El
Paso Energy Corporation will provide the foundation of assets, personnel
and financial strength to accelerate this growth and create a truly unique
company which is a major player in all aspects of the converging North
American natural gas and power markets," Arledge concluded.
Coastal's 1999 earnings from continuing operations were $498.9
million, or $2.30 per share, versus $482.9 million, or $2.21 per share, in
1998. Comparable earnings for the fourth quarter of 1999 were $169.0
million, or 78 cents per share, versus $174.8 million, or 81 cents per
share, in the 1998 period. Net earnings for 1998 included a $38.1 million,
or 18 cents per share, fourth-quarter gain from the sale of certain non-
core natural gas gathering and processing assets.
Also included in 1998 net earnings was $38.5 million, or 18 cents per
share, of operating losses and one-time charges relating to the
discontinuance of the Company's 50 percent investment in common carrier
trucking. For the 1998 fourth quarter, the losses from discontinued
operations were $37.4 million, or 17 cents per share.
Coastal's overall earnings before interest and income taxes (EBIT) for
1999 were $996.1 million versus $944.5 million in 1998. In the 1999 fourth
quarter, EBIT was $297.3 million versus $289.9 million in the 1998 quarter.
The 1998 fourth quarter included a $58.6 million gain from the sale of
certain non-core natural gas gathering and processing assets.
-NATURAL GAS-
Coastal's Natural Gas segment reported 1999 EBIT of $573.8 million,
compared with $594.3 million in 1998. Results for 1998 included a net
benefit related to the final settlement of the rate case at Coastal's ANR
Pipeline Company subsidiary (ANR), as well as a one-time charge of $14.6
million related primarily to the default on delivery obligations by a
supplier of electricity to Engage Energy, Coastal's joint venture marketing
subsidiary. Fourth quarter 1999 EBIT was $157.8 million compared to $191.8
million for the 1998 period. The 1998 fourth quarter EBIT included a $58.6
million gain from the sale of certain non-core natural gas gathering and
processing assets.
Throughput for Coastal's regulated pipeline subsidiaries was 2,108.8
billion cubic feet (Bcf) of natural gas in 1999 versus 2,132.0 Bcf in 1998.
During 1999, Coastal made significant progress in positioning its
pipeline assets to move natural gas from major producing areas to growing
demand markets. Construction of the 1.3 billion cubic feet per day (Bcf/d)
Alliance Pipeline began in mid-year and is on schedule for completion in
late 2000. Coastal has a 14.4 percent interest in both Alliance and the Aux
Sable facility, which will process natural gas transported through
Alliance. The Company increased its ownership in three offshore natural gas
pipelines to 50 percent and acquired 50 percent of a fourth pipeline
offshore Louisiana in October 1999. These systems connect to Coastal's ANR
natural gas transportation system. Also in October, Coastal filed an
application with the Federal Energy Regulatory Commission to build and
operate the 1.1 Bcf/d Gulfstream Natural Gas System. Development is
continuing on this major 744-mile pipeline project which will originate
near Mobile, Alabama, and is anticipated to begin delivering natural gas to
growing Florida energy markets in 2002. In November, Coastal's Wyoming
Interstate Company (WIC) completed its Medicine Bow lateral pipeline. WIC
plans to increase Medicine Bow's capacity from the current 273 MMcf/d to
400 MMcf/d by October 2000.
Coastal Field Services (CFS) acquired significant gathering and
processing assets in December 1999, becoming the second largest natural gas
processor in Louisiana. This acquisition positions Coastal to maximize
profits from growing natural gas production from deep Gulf of Mexico wells.
In November, CFS acquired a 125 MMcf/d natural gas processing plant located
in South Texas, one of Coastal's key natural gas production areas. Earlier
in the year, CFS acquired facilities in Colorado and Utah, further
strengthening Coastal's integrated Rocky Mountain natural gas operations.
It also increased its interests in a natural gas processing plant, natural
gas liquids pipeline and other assets located in the Mobile Bay area.
Coastal produces natural gas offshore Alabama and Louisiana and has
projects underway to connect with growing deep Gulf natural gas production
projects in both areas.
-EXPLORATION AND PRODUCTION-
Exploration and Production EBIT in 1999 was $185.9 million, up almost
70 percent from $109.8 million in 1998. Fourth quarter EBIT more than
doubled from $38.1 million in 1998 to $97.0 million in the 1999 quarter.
Earnings improved due to significantly higher natural gas production
volumes and improved prices for both natural gas and crude oil and
condensate, partially offset by lower crude oil and condensate production.
Coastal's natural gas production averaged 631.6 MMcf/d during 1999, up
24 percent from 508.9 MMcf/d in 1998. Fourth quarter natural gas production
averaged 777.1 MMcf/d in 1999, up 51 percent from 515.6 MMcf/d for the
fourth quarter of 1998.
Net crude oil and condensate production averaged 10,694 barrels per
day (bpd) for the year versus 14,678 bpd in 1998. Fourth quarter 1999 crude
oil and condensate production averaged 11,299 bpd versus 12,563 bpd in the
fourth quarter of 1998. Lower 1999 crude oil and condensate production
volumes reflect the Company's strong emphasis on natural gas. However,
recent activities have resulted in crude oil and condensate production of
13,436 bpd in December 1999, up from 12,628 bpd in December 1998.
In 1999, prices realized for natural gas averaged $2.19 per thousand
cubic feet (Mcf) ($2.17 after hedging), versus $1.95 per Mcf ($2.02 after
hedging) in 1998. During the fourth quarter of 1999, prices realized for
natural gas averaged $2.48 per Mcf ($2.71 after hedging) versus $1.88 per
Mcf ($2.10 after hedging) in 1998.
Crude oil and condensate prices averaged $16.27 per barrel ($13.97
after hedging) in 1999, compared with $11.63 per barrel ($12.28 after
hedging) in 1998. For the fourth quarter of 1999, crude oil and condensate
prices averaged $21.42 per barrel ($17.61 after hedging), compared with
$9.99 per barrel in the 1998 quarter.
Coastal took advantage of the favorable market for natural gas
property acquisitions during 1999, adding significant low-cost developable
reserves in each of its three focus areas. In May, Coastal completed two
significant natural gas property acquisitions, one in the Gulf of Mexico
and one in South Texas. Additional high-potential acreage was acquired in
Coastal's Rocky Mountain focus area in July. In September, Coastal
completed an exchange of properties that added to its existing interests in
the Gulf of Mexico, the Jeffress Field in South Texas and Utah's Uinta
Basin in exchange for non-focus area properties. The Company also acquired
more than 100,000 acres in natural gas producing areas along the Alliance
Pipeline route in Canada.
In January 2000, Coastal acquired properties in South Texas including
approximately 10,650 net developed and undeveloped acres with interests in
61 wells and associated pipelines, gathering systems and production
facilities. All of the properties are in or near Coastal's Jeffress Field
area.
Coastal participated in drilling 249.5 net wells in 1999 versus 173.2
net wells in 1998.
-REFINING, MARKETING AND CHEMICALS-
Coastal's Refining, Marketing and Chemicals segment EBIT was $228.5
million in compared with $243.9 million in 1998. A $53.5 million
improvement from marketing and trading operations partially offset lower
refining margins. Chemical results were unchanged from the low levels
experienced in 1998. Fourth quarter 1999 segment EBIT was $42.6 million
compared to $67.6 million in 1998.
During 1999, Coastal signed a three-year supply and processing
agreement with an affiliate of Norway's Statoil Group to supply 64,000 bpd
of crude oil to Coastal's Eagle Point refinery. An expansion to increase
refining capacity from 225,000 bpd to 280,000 bpd at Coastal's Aruba
refinery is supported by a five-year supply agreement with Mexico's
national oil company. The agreement commences with the upgrade completion
in the second quarter of 2000.
Crude throughput at Coastal's refineries averaged 451,000 bpd in 1999
compared to 402,000 bpd in 1998. Higher throughput in 1999 is primarily
reflective of a major scheduled turnaround at Coastal's Aruba refinery
during 1998 which increased 1999 throughput. Sales of refined products,
including products purchased from others, during 1999 averaged 785,000 bpd
compared with 823,000 bpd in 1998.
-POWER-
EBIT for Coastal's Power segment increased to $89.0 million in 1999,
compared to $67.8 million in 1998. Fourth quarter EBIT was $24.0 million, a
54 percent increase from $15.6 million in the 1998 quarter. Earnings
increases reflect the continuing strong growth in Coastal's power
generation capabilities. Results for 1998 included a $17.2 million net
benefit from the restructuring of power purchase agreements.
During 1999, Coastal completed construction and placed in service two
plants in Pakistan and a plant in Nicaragua. Also during the year, Coastal
acquired a facility in New York, and interests in facilities in Panama and
the Dominican Republic. Construction is continuing on Coastal's 265-
megawatt facility in Colorado, which is scheduled to begin operating in May
2000. In January 2000, the Company acquired an additional 23.1 percent
interest in MCV, increasing its ownership to 43.5 percent. MCV operates a
1,500-megawatt, natural gas-fired cogeneration facility in Midland,
Michigan.
Coastal's net generating capacity in operation on December 31, 1999,
was 1,422 megawatts, up 69 percent from 839 megawatts on December 31, 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 Company fuel supply and logistics
capabilities.
-COAL-
Coastal's Coal segment 1999 EBIT was $15.8 million compared to $17.4
million in 1998. A 10 percent increase in production was offset by lower
sales prices. Earnings in 1998 included income from the sale of reclaimed
mine properties. Fourth quarter 1999 EBIT was $3.0 million compared to $2.4
million in 1998.
Coal sales from subsidiary-owned mines were 9.0 million tons in 1999
compared with 8.2 million tons in 1998.
The Coastal Corporation (NYSE:CGP) is a Houston-based energy holding
company with consolidated assets of more than $14 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's World Wide Web site at www.coastalcorp.com provides additional
information on the Company.
# # #
<TABLE>
<CAPTION>
THE COASTAL CORPORATION AND SUBSIDIARIES
(millions except per share)
Three Months Twelve Months
----------------------- ------------------------
PERIODS ENDED DECEMBER 31 1999 1998 (a) 1999 1998 (a)
------------------------- ---- -------- ---- --------
<S> <C> <C> <C> <C>
Operating revenues $ 2,535.4 $ 1,825.7 $ 8,197.2 $ 7,368.2
Operating costs and expenses
Purchases 1,723.0 1,046.7 5,148.7 4,376.8
Operating and general expenses 420.5 403.8 1,687.2 1,674.9
Depreciation, depletion and amortization 131.0 108.3 479.6 443.2
---------- ---------- ---------- ----------
2,274.5 1,558.8 7,315.5 6,494.9
---------- ---------- ---------- ----------
Other income - net 36.4 23.0 114.4 71.2
---------- ---------- ---------- ----------
Earnings before interest and income taxes 297.3 289.9 996.1 944.5
---------- ---------- ---------- ----------
Interest and debt expense 83.3 73.7 323.3 294.9
Taxes on income 45.0 41.4 173.9 166.7
---------- ---------- ---------- ----------
Earnings from continuing operations 169.0 174.8 498.9 482.9
Loss from discontinued operations -- (2.4) -- (3.5)
Loss on disposal of discontinued operations -- (35.0) -- (35.0)
---------- ---------- ---------- ----------
Net earnings 169.0 137.4 498.9 444.4
Dividends on preferred stock .1 -- .3 6.0
---------- ---------- ---------- ----------
Net earnings available to common stockholders $ 168.9 $ 137.4 $ 498.6 $ 438.4
========== ========== ========== ==========
Basic earnings per share
From continuing operations $ .79 $ .82 $ 2.34 $ 2.24
Discontinued operations -- (.18) -- (.18)
---------- ---------- ---------- ----------
Net $ .79 $ .64 $ 2.34 $ 2.06
========== ========== ========== ==========
Average common shares 213.6 212.7 213.3 212.5
Diluted earnings per share
From continuing operations $ .78 $ .81 $ 2.30 $ 2.21
Discontinued operations -- (.17) -- (.18)
---------- ---------- ---------- ----------
Net $ .78 $ .64 $ 2.30 $ 2.03
========== ========== ========== ==========
Diluted shares 217.1 216.3 217.0 216.1
Earnings (loss) before interest and
income taxes by segment
Natural gas $ 157.8 $ 191.8 $ 573.8 $ 594.3
Refining, marketing and chemicals 42.6 67.6 228.5 243.9
Exploration and production 97.0 38.1 185.9 109.8
Power 24.0 15.6 89.0 67.8
Coal 3.0 2.4 15.8 17.4
Corporate and other (27.1) (25.6) (96.9) (88.7)
---------- ---------- ---------- ----------
$ 297.3 $ 289.9 $ 996.1 $ 944.5
========== ========== ========== ==========
</TABLE>
a) Earnings from continuing operations for 1998 included a gain of
$58.6 million, ($38.1 million net of income taxes, or 18 cents per
share), from the fourth quarter sale of certain non-core natural gas
gathering and processing assets.
This information includes certain forward-looking statements reflecting the
Company's expectations and objectives in the near future; however, many
factors that 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 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.
ON JANUARY 18, COASTAL ANNOUNCED A PROPOSED MERGER WITH EL PASO ENERGY
CORPORATION IN A STOCK-FOR-STOCK TRANSACTION. INVESTORS ARE URGED TO READ
THE PROXY STATEMENT/PROSPECTUS WHICH WILL BE INCLUDED IN THE REGISTRATION
STATEMENT ON FORM S-4 TO BE FILED WITH THE SEC IN CONNECTION WITH THE
PROPOSED MERGER BECAUSE IT WILL CONTAIN IMPORTANT INFORMATION. AFTER IT IS
FILED WITH THE SEC, THE PROXY STATEMENT/PROSPECTUS WILL BE AVAILABLE FOR
FREE ON THE SEC'S WEB SITE (www.sec.gov), FROM COASTAL'S OFFICE OF THE
CORPORATE SECRETARY AND FROM EL PASO'S OFFICE OF INVESTOR RELATIONS. IN
ADDITION, THE IDENTITY OF THE PEOPLE WHO, UNDER SEC RULES, MAY BE
CONSIDERED PARTICIPANTS IN THE SOLICITATION OF COASTAL'S AND EL PASO'S
SHAREHOLDERS IN CONNECTION WITH THE PROPOSED MERGER, AND A DESCRIPTION OF
THEIR INTERESTS, IS AVAILABLE IN SEC FILINGS UNDER SCHEDULE 14A MADE BY
COASTAL AND EL PASO ON JANUARY 18, 2000.
