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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
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QUARTERLY REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Quarter Ended March 31, 1996
Commission File No. 1-8157
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PANENERGY CORP
(Exact name of registrant as specified in its charter)
A Delaware Corporation
(State of Incorporation or Organization)
74-2150460
(IRS Employer Identification No.)
5400 Westheimer Court, P.O. Box 1642, Houston, Texas 77251-1642
(Address of principal executive offices, including zip code)
(713) 627-5400
(Registrant's telephone number, including area code)
Panhandle Eastern Corporation
(Former name, if changed since last report)
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes: X No:
Indicate the number of shares outstanding of each of the registrant's classes
of common stock, as of the latest practicable date:
Class Outstanding at April 30, 1996
-------------------------- -----------------------------
Common Stock, $1 par value 150,839,236
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<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements - Unaudited
PanEnergy Corp and Subsidiaries
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
Three Months Ended
March 31
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Millions, except per share amounts 1996 1995
- ---------------------------------- ------ ------
<S> <C> <C>
Operating Revenues
Sales of natural gas and petroleum products $1,291 $ 812
Transportation and storage of natural gas 401 401
Other 21 19
------ ------
Total (Note 2) 1,713 1,232
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Costs and Expenses
Natural gas and petroleum products purchased 1,158 759
Operating and maintenance 172 149
General and administrative 75 56
Depreciation and amortization 72 69
Miscellaneous taxes 23 22
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Total 1,500 1,055
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Operating Income 213 177
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Other Income and Deductions
Equity in earnings of unconsolidated affiliates 5 24
Other income, net of deductions 4 (4)
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Total 9 20
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Earnings Before Interest and Tax 222 197
Interest Expense 58 58
------ ------
Earnings Before Income Tax 164 139
Income Tax 62 55
------ ------
NET INCOME $ 102 $ 84
====== ======
Average Common Shares Outstanding 150.5 149.2
====== ======
Earnings per Common Share $ 0.68 $ 0.56
====== ======
Dividends per Common Share $0.225 $ 0.21
====== ======
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE>
<PAGE>
Item 1. Financial Statements - Unaudited (Continued)
PanEnergy Corp and Subsidiaries
CONSOLIDATED BALANCE SHEET
ASSETS
<TABLE>
<CAPTION>
March 31, December 31,
Millions 1996 1995
- -------- --------- ------------
<S> <C> <C>
Current Assets
Cash and cash equivalents $ 40 $ 51
Accounts and notes receivable, net 630 505
Inventory and supplies 113 136
Current deferred income tax 73 81
Other (Notes 2 and 6) 262 239
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Total 1,118 1,012
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Investments
Affiliates 181 164
Other 67 66
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Total 248 230
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Plant, Property and Equipment
Original cost 8,311 8,401
Accumulated depreciation and amortization (3,223)(3,251)
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Net plant, property and equipment 5,088 5,150
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Deferred Charges
Goodwill, net 238 240
Prepaid pension 264 259
Other (Notes 2 and 6) 714 736
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Total 1,216 1,235
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TOTAL ASSETS $ 7,670 $ 7,627
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</TABLE>
See accompanying notes to consolidated financial statements
<PAGE>
<PAGE>
Item 1. Financial Statements - Unaudited (Continued)
PanEnergy Corp and Subsidiaries
CONSOLIDATED BALANCE SHEET
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
March 31, December 31,
Millions 1996 1995
- -------- ---------- ------------
<S> <C> <C>
Current Liabilities
Long-term debt due within one year $ 301 $ 180
Notes payable 44 145
Accounts payable 501 391
Rate refund provisions (Note 2) 47 54
Accrued interest 69 69
Taxes payable 98 65
Other (Notes 2 and 6) 425 419
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Total 1,485 1,323
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Deferred Liabilities and Credits
Deferred income tax (Note 3) 1,197 1,183
Other (Notes 2 and 6) 755 802
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Total 1,952 1,985
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Long-term Debt 1,929 2,092
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Commitments and Contingent Liabilities
(Notes 2, 4, 6 and 7)
Common Stockholders' Equity
Common stock, 150.8 million (1996) and
150.2 million (1995) shares issued and
outstanding, $1 par value per share 151 150
Paid-in capital 2,228 2,220
Retained earnings (deficit) (75) (143)
------ ------
Total (Note 5) 2,304 2,227
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $7,670 $7,627
====== ======
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE>
<PAGE>
Item 1. Financial Statements - Unaudited (Continued)
PanEnergy Corp and Subsidiaries
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended
March 31
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Millions 1996 1995
- -------- ----- -----
<S> <C> <C>
Operating Activities
Net income $ 102 $ 84
Adjustments to reconcile net income to operating
cash flows:
Depreciation and amortization 72 69
Deferred income tax expense 21 31
Earnings of unconsolidated affiliates,
net of distributions (2) (21)
Net pension benefit (5) (6)
Other non-cash items in net income 6 1
Net change in operating assets
and liabilities (43) 16
----- -----
Net Cash Flows Provided by Operating Activities 151 174
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Investing Activities
Capital expenditures (42) (60)
Investment expenditures (3) (2)
Property retirements and other 23 20
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Net Cash Flows Used in Investing Activities (22) (42)
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Financing Activities
Retirement of debt (40) (185)
Net increase (decrease) in notes payable (101) 98
Accounts payable - banks 30 (27)
Common stock issuance 5 2
Dividends paid (34) (30)
Other - (1)
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Net Cash Flows Used in Financing Activities (140) (143)
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Net Change in Cash
Decrease in cash and cash equivalents (11) (11)
Cash and cash equivalents, beginning of period 51 33
----- -----
Cash and Cash Equivalents, End of Period $ 40 $ 22
===== =====
Supplemental Disclosures
Cash paid for interest (net of amount capitalized) $ 54 $ 59
Cash paid for income tax 1 -
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE>
PANENERGY CORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. General
PanEnergy Corp (PanEnergy), formerly Panhandle Eastern Corporation, and
its subsidiaries (the Company) are involved in the transportation,
storage, gathering and processing of natural gas. The Company is also
a leading marketer of natural gas, electricity, liquefied petroleum
gases and related energy services. The interstate natural gas
transmission operations of Texas Eastern Transmission Corporation
(TETCO), Algonquin Gas Transmission Company (Algonquin), Panhandle
Eastern Pipe Line Company (PEPL) and Trunkline Gas Company (Trunkline),
and the liquefied natural gas (LNG) facilities of Trunkline LNG Company
(Trunkline LNG) are subject to the rules, regulations and accounting
procedures of the Federal Energy Regulatory Commission (FERC).
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect certain reported amounts of assets and
liabilities and disclosure of contingent liabilities at the date of the
financial statements. Certain amounts of reported revenues and expenses
are also affected by these estimates and assumptions. Actual results
could differ from those estimates. Certain amounts for the prior
periods have been reclassified in the consolidated financial statements
to conform to the current presentation.
2. Natural Gas Revenues and Regulatory Matters
When rate cases are pending final FERC approval, a portion of the
revenues collected by each interstate natural gas pipeline is subject
to possible refunds. The Company has established adequate reserves
where required for such cases. The following is a summary of
significant pending rate cases before FERC and certain regulatory
matters.
FERC Order 636 and Transition Costs
During 1993, the Company's interstate natural gas pipelines began
providing restructured services pursuant to FERC Order 636. This order,
which is on appeal to the courts, requires pipeline service
restructuring that unbundles sales, transportation and storage services.
Order 636 allows pipelines to recover eligible costs resulting from
implementation of the order (transition costs).
TETCO's final and nonappealable Order 636 settlement, implemented on
August 1, 1994, provides for the recovery of certain transition costs
through volumetric and reservation charges through 2002 and beyond, if
necessary. Pursuant to the settlement, TETCO will absorb a certain
portion of the transition costs, the amount of which continues to be
subject to change dependent upon natural gas prices and deliverability
levels. In 1993, the Company established an additional provision to
reflect the impact of the settlement and increased its liabilities in
1995 upon producers' discoveries of additional natural gas reserves.
PEPL's transition cost recoveries, which are subject to certain
challenges pending before FERC, will occur through 1998.
<PAGE>
<PAGE>
At March 31, 1996 and December 31, 1995, the Company's interstate
pipelines had recorded $68 million and $303 million (1996), and
$70 million and $310 million (1995) of current and long-term regulatory
assets, respectively, representing transition costs incurred or
estimated to be incurred that will be recovered. At March 31, 1996 and
December 31, 1995, the Company had recorded estimated current and
long-term liabilities related to Order 636 transition costs of
$115 million and $148 million (1996), and $125 million and $165 million
(1995), respectively.
In the past, during the normal course of business, the Company's
interstate pipelines entered into certain gas purchase contracts
containing take-or-pay provisions, which may expose the Company to
financial risk. PEPL and Trunkline are currently collecting certain
take-or-pay settlement costs with respect to such contracts through
volumetric surcharges with interest through 1997. Trunkline intends to
file after 1997 for recovery of amounts not fully recovered by these
surcharges.
The U.S. Department of the Interior announced its intention to seek
additional royalties from gas producers as a result of payments received
by such producers in connection with past take-or-pay settlements, and
buyouts and buydowns of gas sales contracts with natural gas pipelines.
The Company's pipelines, with respect to certain producer contract
settlements, may be contractually required to reimburse or, in some
instances, to indemnify producers against such royalty claims. The
potential liability of the producers to the government and of the
pipelines to the producers involves complex issues of law and fact which
are likely to take a substantial period of time to resolve. If the
Company's pipelines ultimately have to reimburse or indemnify the
producers, the Company's pipelines will file with FERC to recover a
portion of these costs from pipeline customers.
The Company believes the exposure associated with gas purchase contract
commitments and the termination of the Company's pipeline merchant
services is substantially mitigated by transition cost recoveries
pursuant to TETCO's settlement, Order 636 and other mechanisms. As a
result, the Company believes that Order 636 transition cost issues and
take-or-pay settlement matters will not have a material adverse effect
on future consolidated results of operations or financial position.
Jurisdictional Transportation and Sales Rates
PEPL - On April 1, 1992 and November 1, 1992, PEPL placed into effect,
subject to refund, general rate increases. FERC issued an order on
May 25, 1995 on the earlier rate proceeding and PEPL has requested
rehearing of certain matters in that order. On February 5, 1996, FERC
issued an order on the latter rate proceeding and PEPL has also
requested rehearing of various items in this order.
Effective April 1, 1989, PEPL placed into effect, subject to refund,
sales and transportation rates reflecting a restructuring of rates,
including seasonal rate structures. On December 7, 1995, FERC issued
an order, subject to rehearing, which addressed all remaining matters
on the rate proceeding, with no additional refunds due customers. <PAGE>
<PAGE>
Trunkline - On September 1, 1994, Trunkline placed into effect, subject
to refund, a general rate increase as a result of a filing made in
accordance with terms of a rate case settlement in 1993. A settlement
resolving this case became effective February 1, 1996.
On January 30, 1996, Trunkline filed a new general rate increase. FERC
issued an order on February 29, 1996 suspending the effective date to
August 1, 1996.
Algonquin - On March 29, 1996, Algonquin filed a limited rate filing
reflecting changes in net plant, property and equipment pursuant to a
settlement approved by FERC in July 1994. FERC issued an order on
April 26, 1996 suspending the effective date to May 1, 1996, subject to
refund.
Other - The Company's pipelines, pursuant to FERC requirements,
requested FERC approval to record the impact of adopting Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes,"
including the recognition of a portion of the impact as an increase to
stockholders' equity. The FERC accounting branch has denied approval
of certain of these requests pending future rate proceedings, and the
Company's pipelines, where approval has been denied, have filed for
rehearing. While it is not known when FERC will address this issue, the
Company believes the ultimate resolution of this matter will not have
a material adverse effect on consolidated financial position.
3. Income Tax
The Company's investment tax credit (ITC) carryforward of $25 million
at December 31, 1995, which is expected to be fully utilized in 1996,
will begin to expire in 1997 and will be extinguished in 2002 if not
utilized sooner. The Company's alternative minimum tax credit
carryforward of $79 million at December 31, 1995 can be carried forward
indefinitely.
4. Other Contingencies
TEPPCO Partners, L.P. - The Company has a 10.45% ownership interest in
TEPPCO Partners, L.P., a master limited partnership (MLP) that owns and
operates a petroleum products pipeline. A subsidiary partnership of the
MLP has $340 million in First Mortgage Notes outstanding with recourse
to the general partner, a subsidiary of PanEnergy. These notes have
annual principal payments due through 2010. In the opinion of
management, the probability that the PanEnergy subsidiary will be
required to perform under this recourse provision is remote.
Petrolane Incorporated (Petrolane) - In connection with the sale of
Petrolane in 1989, Texas Eastern Corporation (TEC), a subsidiary of
PanEnergy, agreed to indemnify Petrolane against certain obligations for
guaranteed leases and environmental matters. Certain of the lease
obligations relate to Petrolane's divestiture of supermarket operations
prior to its acquisition by TEC and as of December 31, 1995 totaled
approximately $73 million over the remaining terms of the leases, which
expire in 2006. In the opinion of management, the probability that TEC
will be required to perform under this indemnity provision is remote.
<PAGE>
Northern Border Pipeline Company (Northern Border) - PEPL owns an
effective 5.95% ownership interest in Northern Border through an MLP.
Under the terms of a settlement related to a transportation agreement
between PEPL and Northern Border, PEPL guarantees payment to Northern
Border under a transportation agreement by an affiliate of Pan-Alberta
Gas Limited. The transportation agreement requires estimated total
payments of $163 million for the years 1996 through 2001. In the
opinion of management, the probability that PEPL will be required to
perform under this guarantee is remote.
5. Stockholders' Equity
Under the most restrictive covenants contained in the Company's debt
agreements, $1.1 billion of PanEnergy's consolidated common stock-
holders' equity was available for the payment of dividends at March 31,
1996.
6. Environmental Matters
TETCO is currently conducting PCB (polychlorinated biphenyl) assessment
and cleanup programs at certain of its compressor station sites under
conditions stipulated by a U.S. Consent Decree. The programs include
on- and off-site assessment, installation of on-site source control
equipment and groundwater monitoring wells, and on- and off-site cleanup
work. TETCO expects to complete the cleanup programs at up to 89 sites
in as many as 14 states by the year 1998. Groundwater monitoring
activities will continue beyond 1998.
In addition, TETCO has been conducting PCB cleanup work at certain on-
and off-site areas pursuant to separate agreements with the states of
Pennsylvania and New Jersey. These agreements generally impose cleanup
levels that are more stringent than those required by the U.S. Consent
Decree.
In 1987, the Commonwealth of Kentucky instituted suit in state court
against TETCO, alleging improper disposal of PCBs at TETCO's three
compressor station sites in Kentucky. This suit, which is still
pending, seeks penalties for violations of Kentucky environmental
statutes. The Company previously established a reserve for potential
fines and penalties. In 1991, TETCO and the Commonwealth executed a
consent order in which TETCO agreed to perform site assessments at its
sites in Kentucky, and this work has been substantially completed.
TETCO completed cleanup of one of its Kentucky sites in 1994, another
in 1995 and intends to complete the final site in 1996.
<PAGE>
<PAGE>
The Company has also identified environmental contamination at up to
53 sites on the PEPL and Trunkline systems and is undertaking cleanup
programs at these sites. The contamination resulted from the past use
of lubricants containing PCBs and the prior use of wastewater collection
facilities and other on-site disposal areas. Soil and sediment testing,
to date, has detected no significant off-site contamination. The
Company has communicated with the Environmental Protection Agency and
appropriate state regulatory agencies on these matters. In August 1995,
Trunkline entered into a consent order under a cleanup program with the
Tennessee Department of Environment and Conservation for the cleanup of
its Tennessee facility. Cleanups in other states by PEPL and Trunkline
are also proceeding. The environmental cleanup programs are expected
to continue until 2002.
At March 31, 1996 and December 31, 1995, the Company had total current
and long-term liabilities recorded of $66 million and $206 million
(1996), and $56 million and $226 million (1995), respectively, for
remaining estimated cleanup costs on the TETCO, PEPL and Trunkline
systems. These cost estimates represent gross cleanup costs expected
to be incurred, have not been discounted or reduced by customer
recoveries and do not include fines, penalties or third-party claims.
Estimated liabilities for remaining TETCO PCB cleanup costs were reduced
in the fourth quarter 1995 as a result of lower-than-projected cleanup
costs incurred on completed sites. As a result of the reduction in
estimated cleanup costs, the related regulatory assets were also
reduced. At March 31, 1996 and December 31, 1995, the Company had total
current and long-term regulatory assets recorded of $22 million and
$152 million (1996), and $21 million and $177 million (1995),
respectively, representing costs to be recovered from customers.
The federal and state cleanup programs are not expected to interrupt or
diminish the Company's ability to deliver natural gas to customers. The
Company believes the ultimate resolution of matters relating to the
environmental issues discussed above will not have a material adverse
effect on consolidated results of operations or financial position.
7. Litigation
In connection with a rupture and fire that occurred on TETCO's 36-inch
natural gas pipeline on March 23, 1994 in Edison, New Jersey, claims
have been made and numerous lawsuits have been filed in the Superior
Court of New Jersey, Middlesex County against TETCO and other private
and governmental entities by or on behalf of hundreds of individuals and
general businesses. These claimants seek compensatory damages for
personal injuries and/or property losses, as well as punitive damages.
The property insurers of an apartment complex adjacent to the asphalt
plant where the rupture occurred also have filed suits against TETCO and
other defendants in Superior Court seeking to recover amounts paid under
pertinent policies of insurance. Quality Materials, Inc. (Quality), the
owner of the asphalt plant, filed suit in the U.S. District Court for
the District of New Jersey against TETCO seeking to recover unspecified
property damages, lost income and punitive damages. TETCO filed a
counterclaim against Quality. In April 1996, the U.S. District Court
dismissed the suit by Quality and the counterclaim by TETCO on the
grounds that all claims should be resolved in the pending Middlesex
County litigation.
<PAGE>
The findings of an investigation of the incident by the Company and the
National Transportation Safety Board (NTSB) indicate third-party damage
to be the cause of the rupture. Additionally, an NTSB report found that
TETCO's pipeline operations met or exceeded federal safety regulations.
The Company recorded a provision in 1994 for costs related to this
incident that are not recoverable under the Company's insurance
policies. The Company expects the resolution of these matters will not
have a material adverse effect on consolidated results of operations or
financial position.
The Company is also involved in various other legal actions and claims
arising in the normal course of business. Based upon its current
assessment of the facts and the law, management does not believe that
the outcome of any such action or claim will have a material adverse
effect upon the consolidated financial position of the Company.
However, these actions and claims in the aggregate seek substantial
damages against the Company and are subject to the uncertainties
inherent in any litigation. The Company is defending itself vigorously
in all the above suits.
8. Fair Presentation
The information as furnished reflects all normal recurring adjustments
that are, in the opinion of management, necessary for a fair
presentation of the Company's financial position as of March 31, 1996,
and results of operations and cash flows for the three months ended
March 31, 1996 and 1995.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following information is provided to facilitate increased understanding
of the 1996 and 1995 interim consolidated financial statements and
accompanying notes presented in Item 1. The discussion of the Company's
"Operating Environment and Outlook" addresses key trends and future plans.
Material period-to-period variances in the consolidated statement of income
are discussed under "Results of Operations." The "Capital Resources, Liquidity
and Financial Position" section analyzes cash flows and financial position.
Throughout these discussions, management addresses items that are reasonably
likely to materially affect future liquidity or earnings.
<PAGE>
<PAGE>
OPERATING ENVIRONMENT AND OUTLOOK
The changing environment resulting from the restructuring of the natural gas
industry in the post-Order 636 environment has led to industry consolidations
and created additional growth opportunities for the Company. The Company
continues its growth strategy of expanding non-jurisdictional businesses,
while also continuing to advance interstate gas pipeline market-expansion
projects and providing new services to customers.
In the Energy Services segment, the Company in January 1996 signed a
non-binding letter of intent with a subsidiary of Mobil Corporation (Mobil)
for two transactions which are expected to be completed by mid-1996. One
transaction would involve a purchase of Mobil's interests in certain
gathering, processing and related facilities for approximately $300 million.
The other transaction would combine the marketing operations of Gas and Power
Services with those of Mobil, with the resulting entity operated by the
Company and owned 60% by the Company and 40% by Mobil.
In April 1996, FERC issued its final ruling ordering traditional power
companies to make their transmission systems common carriers, which should
further open the electric power market to competition. Gas and Power Services
currently markets natural gas to approximately 300 retail customers.
The new PanEnergy Corp name reflects the broad range of energy services now
provided by the Company. The Company plans to continue to pursue strategic
opportunities that emerge, in the U.S. and internationally, via joint
ventures, expansion projects and acquisitions in both the Natural Gas
Transmission and the Energy Services segments.
RESULTS OF OPERATIONS
Consolidated net income for the three months ended March 31, 1996 was
$102 million, or $0.68 per share on 150.5 million average common shares
outstanding, compared with $84 million, or $0.56 per share on 149.2 million
average common shares outstanding, for the same period in 1995.
Earnings Before Interest and Tax Analysis
Consolidated earnings before interest and tax increased to $222 million in the
first three months of 1996 compared with $197 million for the same period in
1995, reflecting improvements in both the Natural Gas Transmission and Energy
Services groups. Slightly colder-than-normal winter temperatures and improved
operations from business expansions and increased margins contributed to a
$25 million, or 13%, increase in earnings before interest and tax, partially
offset by a non-recurring $17 million charge from a first-quarter 1996 work
force reduction.
<PAGE>
<PAGE>
Ear nings Before Interest and Tax by Business Group
- --- -----------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended
March 31
------------------
Millions 1996 1995
-------- ---- ----
<S> <C> <C>
Natural Gas Transmission
TETCO $ 87 $ 80
Algonquin 18 22
PEPL 33 38
Trunkline 20 14
---- ----
Total 158 154
---- ----
Energy Services
Field Services 31 19
Gas and Power Services 21 9
Crude Oil 3 2
---- ----
Total 55 30
---- ----
Other 9 13
---- ----
Consolidated Earnings Before Interest and Tax $222 $197
==== ====
</TABLE>
Equity in Earnings (Losses) of Unconsolidated Affiliates
(included in Earnings Before Interest and Tax)
--------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended
March 31
------------------
Millions 1996 1995
-------- ---- ----
<S> <C> <C>
Natural Gas Transmission
Northern Border Partners, L.P. $ 1 $ 4
--- ---
Energy Services
Midland Cogeneration Venture - 3
--- ---
Other
National Methanol Company 3 15
TEPPCO Partners, L.P. 3 2
Other affiliates (2) -
--- ---
Total 4 17
--- ---
Total Equity in Earnings $ 5 $24
=== ===
</TABLE>
<PAGE>
Operating Data
--------------
<TABLE>
<CAPTION>
Three Months Ended
March 31
------------------
1996 1995
---- ----
<S> <C> <C>
Natural Gas Transmission Volumes,
Trillion British Thermal Units (TBtu)
Market Area
TETCO 401 345
Algonquin 105 102
PEPL 210 191
Trunkline 153 99
Eliminations (12) (18)
---- ----
Total 857 719
---- ----
Supply Area
TETCO 32 21
PEPL 8 12
Trunkline 28 34
---- ----
Total 68 67
---- ----
Total Volumes 925 786
==== ====
Energy Services Volumes
Field Services
Natural gas gathered/
processed, TBtu/d(1) 2.5 1.7
NGL production, MBbl/d(2) 58.2 53.2
Gas and Power Services
Natural gas marketed, TBtu/d 4.4 3.6
Crude Oil
Crude oil pipeline volumes, MBbl/d 68.4 79.8
NGL pipeline volumes, MBbl/d 20.2 15.5
----------
(1) Trillion British thermal units per day.
(2) Thousand barrels per day.
</TABLE>
<PAGE>
<PAGE>
Natural Gas Transmission
Earnings before interest and tax for Natural Gas Transmission increased
$4 million, or 3%, to $158 million in the first three months of 1996 compared
with the same period in 1995.
TETCO - Earnings before interest and tax for TETCO increased $7 million
comparing the first three months of 1996 with the prior-year period. Revenues
increased $11 million, or 5%, primarily due to colder weather and new pipeline
expansion projects. Higher expenses, including $2 million of severance
expense, partially offset the increase in revenues.
Algonquin - Algonquin's earnings before interest and tax remained flat at
$18 million in the first three months of 1996 compared with the same period
in 1995, excluding $4 million of revenues recognized in the first quarter 1995
applicable to the resolution of a regulatory issue.
PEPL - PEPL's earnings before interest and tax decreased $5 million, or 13%,
comparing the first three months of 1996 with the prior-year period. The
reduction resulted from $10 million of severance expense in the first quarter
1996 and $3 million of lower equity earnings from Northern Border Partners,
L.P., which more than offset higher earnings from increased rate realization.
Trunkline - Earnings before interest and tax for Trunkline increased
$6 million comparing the first three months of 1996 with the same period in
1995. The net increase was due to higher throughput and transportation
revenues during the colder winter weather, which was partially offset by
$5 million of severance expense.
Energy Services
Earnings before interest and tax for Energy Services increased $25 million,
or 83%, comparing the first three months of 1996 with the same period in 1995,
primarily from the strong natural gas liquids (NGL) prices and weather-related
price movements in natural gas.
Field Services - Field Services' earnings before interest and tax increased
$12 million for the first three months of 1996 as compared to the prior-year
period. Net revenues increased $22 million, or 46%, resulting from higher NGL
prices and increased gathering and processing volumes related to business
expansions and weather. Higher operating expenses partially offset the
increase in net revenues.
Gas and Power Services - Earnings before interest and tax for Gas and Power
Services increased $12 million for the first three months of 1996 compared to
the same period in 1995, primarily due to higher gas margins, resulting from
colder weather and rising gas prices, and higher risk management margins
realized. Marketed volumes also increased 22% to 4.4 TBtu/d. This increase
was partially offset by increased operating expenses and $3 million of lower
equity in earnings from Midland Cogeneration Venture.
<PAGE>
<PAGE>
Crude Oil - Crude Oil's earnings before interest and tax increased $1 million
to $3 million for the first three months of 1996 compared with the same period
for 1995.
Risk Management - The Company uses financial instruments to reduce its
exposure to market fluctuations in the price and transportation costs of
natural gas and petroleum products. The Company's general strategy is to
hedge price and location risk with futures, swaps and options; however, net
open positions in terms of price, volume and specified delivery point do
occur. In addition to hedging activities, the Company also engages in trading
of such instruments. The Company manages open positions with strict policies
which limit its exposure to market risk and require reporting to management
potential financial exposure on a daily basis. These policies include
statistical risk tolerance limits using weighted price movements to calculate
a daily earning at risk (DEAR) as well as a total value at risk (VAR)
measurement.
Other Operations
Earnings before interest and tax for other operations decreased $4 million
comparing the first three months of 1996 with the same period in 1995. Equity
in earnings from National Methanol Company decreased $12 million to $3 million
in 1996 due primarily to significantly lower methanol margins, which more than
offset a $9 million increase in earnings before interest and tax by the LNG
Project attributed primarily to higher charter revenues.
CAPITAL RESOURCES, LIQUIDITY AND FINANCIAL POSITION
Operating Cash Flow
<TABLE>
<CAPTION>
Three Months Ended
March 31
------------------
Millions 1996 1995
- -------- ---- ----
<S> <C> <C>
Net Cash Flows Provided by Operating Activities $151 $174
---- ----
</TABLE>
Historical Analysis - Operating cash flows decreased $23 million comparing the
first three months in 1996 to the same period in 1995. This decrease reflects
higher accounts receivable balances, partially offset by increased accounts
payable and higher 1996 earnings.
Order 636 Transition Costs - With implementation of Order 636 and the
elimination of pipeline merchant services, the Company's interstate natural
gas pipelines are incurring certain costs related to the transition, primarily
TETCO's gas purchase contract commitments. At March 31, 1996, TETCO's gross
commitments under gas purchase contracts that do not contain market-sensitive
pricing provisions were approximately $160 million, $115 million, $60 million
and $25 million for the years 1996 through 1999, respectively, with no
significant amounts thereafter. These estimates reflect significant
assumptions regarding deliverability and natural gas prices. <PAGE>
<PAGE>
TETCO's final and nonappealable Order 636 settlement, implemented on August 1,
1994, provides for the recovery of certain transition costs through volumetric
and reservation charges through 2002 and beyond, if necessary. Pursuant to
the settlement, TETCO will absorb a certain portion of the transition costs,
the amount of which continues to be subject to change dependent upon natural
gas prices and deliverability levels. The Company has established provisions
to reflect the impact of the settlement. PEPL's transition cost recoveries,
which are subject to certain challenges pending before FERC, will occur
through 1998. See Note 2 of the Notes to Consolidated Financial Statements.
During the next two years, above-market gas purchase contract payments by
TETCO are expected to exceed transition cost collections from customers. Net
cash receipts related to transition costs are expected to occur in periods
thereafter.
Environmental Matters - For information concerning cleanup programs and
environmental litigation, see Note 6 of the Notes to Consolidated Financial
Statements.
Litigation - For information concerning other litigation matters, see Note 7
of the Notes to Consolidated Financial Statements.
Other - See Notes 2 and 4 of the Notes to Consolidated Financial Statements
for a discussion of certain other regulatory proceedings and other
contingencies.
The carrying value of LNG project assets is expected to be recovered through
estimated future cash flows. Current estimates of future cash flows are based
on significant business relationships and assumptions of future natural gas
prices, supply availability and demand for LNG, which are subject to change.
The Company believes the regulatory, environmental and legal issues discussed
above will not have a material adverse effect on the Company's consolidated
results of operations, financial position or liquidity.
Investing Cash Flow
<TABLE>
<CAPTION>
Three Months Ended
March 31
- -------------------
Millions 1996 1995
- -------- ---- ----
<S> <C> <C>
Net Cash Flows Used in Investing Activities $22 $42
--- ---
</TABLE>
<PAGE>
<PAGE>
Capital and Investment Expenditures - Capital and investment expenditures
totaled $45 million in the first three months of 1996, compared with
$62 million for the same period in 1995. The Company currently expects to
invest approximately $400 million in base 1996 capital and investment
expenditures, with approximately 50% for Natural Gas Transmission and 40% for
Energy Services, with the remainder budgeted for international and other
development projects. The Company's base expenditure plans include
approximately $225 million for market-expansion projects by the Natural Gas
Transmission and Energy Services segments. Estimated expenditures of
approximately $300 million related to the proposed transactions with Mobil are
not included in the aforementioned budgeted expenditures and percentages.
Asset Sale - The Company sold certain pipeline assets on March 1, 1996 for
approximately $23 million.
Financing Cash Flow
<TABLE>
<CAPTION>
Three Months Ended
March 31
- ------------------
Millions 1996 1995
- -------- ---- ----
<S> <C> <C>
Net Cash Flows Used in Financing Activities $140 $143
---- ----
</TABLE>
Debt and Credit Facilities - PanEnergy has two variable-rate bank credit
agreements, dated January 31, 1996, that permit PanEnergy to borrow up to
$400 million under a five-year facility and $400 million under a 364-day
facility. At March 31, 1996, there were no amounts outstanding under the
credit agreements.
Stockholders Equity - The board of directors increased the quarterly dividend
on common stock from $0.225 to $0.24 per common share effective with the 1996
second quarter.
Financing Requirements - Dividends and debt repayments for the next 12 months,
along with operating and investing requirements as previously discussed in the
Operating and Investing Cash Flow sections, are expected to be funded by cash
from operations, debt issuances, periodic sales of customer accounts with
limited recourse and/or available credit facilities. As of the date of this
report, PanEnergy, TETCO and PEPL each have effective shelf registration
statements with the Securities and Exchange Commission for the issuance of
$100 million each of unsecured debt securities.
<PAGE>
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
See Notes 2, 6 and 7 of the Notes to Consolidated Financial Statements in
Part I of this Report, which are incorporated herein by reference. See also
Item 3 of PanEnergy's Annual Report on Form 10-K for the year ended
December 31, 1995.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits -
Exhibit Number Description
27 Financial Data Schedule
(b) Reports on Form 8-K - None
<PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be signed on its behalf
by the undersigned duly authorized officer and chief accounting officer.
PanEnergy Corp
(Registrant)
/s/ Sandra P. Meyer
-------------------------------
Sandra P. Meyer, Vice President
and Controller
Date: May 13, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
PanEnergy Corp Quarterly Report on Form 10-Q for the quarter ended
March 31, 1996 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<CIK> 0000351696
<NAME> PANENERGY CORP
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<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
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