UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 1994
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from
to
Commission file number 1-2745
SOUTHERN NATURAL GAS COMPANY
(Exact name of registrant as specified in its charter)
DELAWARE 63-0196650
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
AMSOUTH-SONAT TOWER
BIRMINGHAM, ALABAMA 35203
(Address of principal executive offices) (Zip Code)
Registrant's telephone number: (205) 325-7410
NO CHANGE
(Former name, former address and former fiscal year,
if changed since last report)
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 12 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 issuer's classes
of common stock, as of the latest practicable date.
COMMON STOCK, $3.75 PAR VALUE:
1,000 SHARES OUTSTANDING ON OCTOBER 31, 1994
REGISTRANT MEETS THE CONDITIONS SET FORTH IN
GENERAL INSTRUCTION
H(1) (a) AND (b) OF FORM 10-Q AND IS THEREFORE
FILING THIS FORM WITH
THE REDUCED DISCLOSURE FORMAT.<PAGE>
<TABLE>
SOUTHERN NATURAL GAS COMPANY AND SUBSIDIARIES
INDEX
<S> <C>
Page No.
PART I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets--
September 30, 1994 and December 31, 1993 1
Condensed Consolidated Statements of Income--
Three Months and Nine Months
Ended September 30, 1994 and 1993 2
Condensed Consolidated Statements of Cash Flows--
Nine Months Ended September 30, 1994 and 1993 3
Notes to Condensed Consolidated Financial
Statements 4 - 10
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 11 - 19
PART II. Other Information
Item 1. Legal Proceedings 20
Item 6. Exhibits and Reports on Form 8-K 20
</TABLE>
<PAGE>
<TABLE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
SOUTHERN NATURAL GAS COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
<CAPTION>
September 30, December 31,
1994 1993
(In Thousands)
ASSETS
<S> <C> <C>
Current Assets:
Cash $ 753 $ 4,243
Notes receivable from affiliates 265,562 269,661
Accounts receivable 98,616 128,610
Inventories 22,555 23,646
Gas supply realignment costs 51,563 59,862
Recoverable natural gas purchase contract
settlement costs 175 18,535
Gas imbalance receivables 38,655 43,125
Other 6,833 2,622
Total Current Assets 484,712 550,304
Investments in Joint Venture and Other 49,158 46,429
Plant, Property and Equipment 2,230,598 2,206,672
Less accumulated depreciation and amortization 1,449,143 1,419,771
781,455 786,901
Deferred Charges:
Gas supply realignment costs 105,595 119,724
Other 28,214 27,806
133,809 147,530
$1,449,134 $1,531,164
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities:
Long-term debt due within one year $ 6,528 $ 107,298
Accounts payable 45,624 70,298
Accrued income taxes 8,401 14,695
Accrued interest 16,873 19,851
Gas imbalance payables 38,444 51,007
Other 21,680 20,147
Total Current Liabilities 137,550 283,296
Long-Term Debt 323,443 329,403
Deferred Credits and Other:
Deferred income taxes 76,988 84,726
Reserves for regulatory matters 169,178 120,771
Operating and other reserves 67,149 69,168
Other 33,710 23,830
347,025 298,495
Commitments and Contingencies
Stockholder's Equity:
Common stock and other capital 78,635 77,605
Retained earnings 562,481 542,365
Total Stockholder's Equity 641,116 619,970
$1,449,134 $1,531,164
</TABLE>
See accompanying notes.
<TABLE>
SOUTHERN NATURAL GAS COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
1994 1993 1994 1993
(In Thousands)
<S> <C> <C> <C> <C>
Revenues:
Natural gas sales $ 47,444 $ 58,890 $191,591 $340,891
Transportation and storage 70,741 43,739 254,727 138,186
Other 29,209 18,509 113,565 53,670
147,394 121,138 559,883 532,747
Costs and Expenses:
Natural gas cost 47,447 14,290 186,667 179,313
Transition cost recovery and gas
purchase contract settlement costs 22,656 10,945 93,105 39,099
Operating and maintenance 26,240 25,072 72,604 77,073
General and administrative 17,865 21,571 57,124 66,721
Depreciation and amortization (720) 15,928 31,412 47,648
Taxes, other than income 4,599 4,675 13,588 13,929
118,087 92,481 454,500 423,783
Operating Income 29,307 28,657 105,383 108,964
Other Income, Net:
Equity in earnings of
joint venture 2,158 2,090 6,653 6,603
Other 181 240 388 640
2,339 2,330 7,041 7,243
Interest:
Interest income, primarily
from affiliates 3,465 7,148 11,962 15,710
Interest expense (9,744) (11,024) (32,144) (40,976)
Interest capitalized 37 57 663 137
(6,242) (3,819) (19,519) (25,129)
Income before Income Taxes 25,404 27,168 92,905 91,078
Income Taxes 9,586 5,874 35,589 29,951
Net Income $ 15,818 $ 21,294 $ 57,316 $ 61,127
</TABLE>
See accompanying notes.<PAGE>
<TABLE>
SOUTHERN NATURAL GAS COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
Nine Months
Ended September 30,
1994 1993
(In Thousands)
<S> <C> <C>
Cash Flows from Operating Activities:
Net income $ 57,316 $ 61,127
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 31,412 47,648
Deferred income taxes (9,270) (14,343)
Equity in earnings of joint
venture, less distributions (2,653) (2,603)
Reserves for regulatory matters 48,407 10,807
Gas supply realignment costs 22,428 (80,520)
Natural gas purchase contract
settlement costs 18,360 39,219
Change in:
Accounts receivable 29,994 60,657
Inventories 1,091 (67,135)
Accounts payable (24,674) (14,909)
Accrued interest and income taxes, net (9,445) 6,331
Other current assets and liabilities (9,146) 33,345
Other 9,820 13,532
Net cash provided by operating
activities 163,640 93,156
Cash Flows from Investing Activities:
Plant, property and equipment additions (35,323) (33,491)
Notes from affiliates 4,098 (19,946)
Proceeds from disposal of assets and other 8,025 1,997
Net cash used in investing
activities (23,200) (51,440)
Cash Flows from Financing Activities:
Proceeds from issuance of long-term debt - 645
Payments of long-term debt (106,730) (5,960)
Net changes in debt (106,730) (5,315)
Dividends paid (37,200) (37,200)
Net cash used in financing
activities (143,930) (42,515)
Net Decrease in Cash (3,490) (799)
Cash at Beginning of Period 4,243 1,961
Cash at End of Period $ 753 $ 1,162
Supplemental Disclosures of Cash Flow Information
Cash Paid for:
Interest (net of amount capitalized) $ 30,120 $ 21,963
Income taxes, net 50,301 45,073
</TABLE>
See accompanying notes.<PAGE>
1. Basis of Presentation
Southern Natural Gas Company is a wholly owned
subsidiary of Sonat Inc.
The accompanying condensed consolidated
financial statements of Southern and its subsidiaries
(Southern) have been prepared in accordance with the
instructions to Form 10-Q and include the information
and footnotes required by such instructions. In the
opinion of management, all adjustments including those
of a normal recurring nature have been made that are
necessary for a fair presentation of the results for
the interim periods presented herein.
In the third quarter of 1994, Southern Natural
Gas Company adjusted its transportation revenue
reserve and depreciation expense by $16 million
reflecting a retroactive reduction in certain
depreciation rates. The entry had no effect on net
income.
Certain amounts in the 1993 condensed
consolidated financial statements have been
reclassified to conform with the 1994 presentation.
2. Joint Venture
Southern owns 50 percent of Bear Creek Storage
Company (Bear Creek), an underground gas storage
company. The following is summarized income statement
information for Bear Creek. No provision for income
taxes has been included since its income taxes are
paid directly by the joint-venture participants.
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
1994 1993 1994 1993
(In Thousands)
<S> <C> <C> <C> <C>
Revenues $8,825 $8,841 $26,698 $27,426
Expenses:
Operating expenses 1,385 1,355 3,950 4,273
Depreciation 1,350 1,349 4,050 4,048
Other expenses, net 1,774 1,957 5,393 5,899
Income Reported $4,316 $4,180 $13,305 $13,206
</TABLE>
3. Long-Term Debt and Notes To and From Affiliates
As part of Sonat's cash management program,
Southern regularly loans funds to or borrows funds from
Sonat. Notes receivable and payable are in the form of
demand notes with rates reflecting Sonat's return on
funds loaned to its other subsidiaries, average short-
term investment rates and cost of borrowed funds. In
certain circumstances, these notes are subordinated in
right of payment to amounts payable by Sonat under
certain long-term credit agreements.
On May 30, 1994, Southern renewed its short-term
lines of credit with several banks to provide for
borrowings of up to $50 million. Borrowings are
available through May 29, 1995, in the form of unsecured
promissory notes and bear interest at rates based on the
banks' prevailing prime, international or money market
lending rates. At September 30, 1994, no amounts were
outstanding.
On June 15, 1994, Southern's $100 million 9
5/8 Percent Notes matured and were redeemed. Funds were
obtained by increased borrowings under Sonat's floating
rate facilities.
Loans outstanding under all short-term credit
facilities are for a duration of less than three months.
4. Commitments and Contingencies
Rate Matters - Periodically, Southern and its
subsidiaries make general rate filings with the Federal
Energy Regulatory Commission (FERC) to provide for the
recovery of cost of service and a return on equity. The
FERC normally allows the filed rates to become
effective, subject to refund, until it rules on the
approved level of rates. Southern and its subsidiaries
provide reserves relating to such amounts collected
subject to refund, as appropriate, and make refunds upon
establishment of the final rates.
On September 1, 1989, Southern implemented new
rates, subject to refund, reflecting a general rate
decrease of $6 million. In January 1991 Southern
implemented new rates, subject to refund, that
restructured its rates consistent with a FERC policy
statement on rate design and increased its sales and
transportation rates by approximately $65 million
annually. These two proceedings have been consolidated
for hearing. On October 7, 1993, the presiding
administrative law judge certified to the FERC a
contested offer of settlement pertaining to the
consolidated rate cases that (1) resolved all
outstanding issues in the rate decrease proceeding,
(2) resolved the cost of service, throughput, billing
determinant and transportation discount issues in the
rate increase proceeding, and (3) provided a method to
resolve all other issues in the latter proceeding,
including the appropriate rate design. Under the
settlement, the FERC will decide the rate design issue
based on written submissions of the parties and the
existing record in the proceeding. By orders issued on
December 16, 1993, and May 5, 1994 (the FERC Orders),
the FERC approved the settlement. One party has sought
judicial review of the FERC Orders. Southern cannot
predict the outcome of this appeal.
On September 1, 1992, Southern implemented another
general rate change. The rates reflected the continuing
shift in the mix of throughput volumes away from sales
and toward transportation and a $5 million reduction in
annual revenues. On April 30, 1993, Southern submitted
a proposed settlement in the proceeding that, if
approved by the FERC, would resolve the throughput and
certain cost of service issues. The rate design issue
is consolidated with similar issues in Southern's rate
proceeding filed May 1, 1993, which is described below,
and will be resolved in that proceeding. The settlement
was approved by the FERC Orders described above.
On May 1, 1993, Southern implemented a general
rate change, subject to refund, that increased its sales
and transportation rates by approximately $57 million
annually. The filing is designed to recover increased
operating costs and to reflect the impact of competition
on both Southern's level and mix of services. A hearing
regarding various cost allocation and rate design issues
in this proceeding is set for November 29, 1994.
Gas Purchase Contracts - Pursuant to a final and
nonappealable FERC order, Southern has collected
substantially all of its gas purchase contract
settlement payments from its customers over a five-year
period that ended on April 30, 1994. Southern currently
is incurring no take-or-pay liabilities under its gas
purchase contracts. Southern regularly evaluates its
position relative to gas purchase contract matters,
including the likelihood of loss from asserted or
unasserted take-or-pay claims or above-market prices.
When a loss is probable and the amount can be reasonably
estimated, it is accrued.
Order No. 636 - In 1992 the FERC issued its Order
No. 636 (the Order). The Order required significant
changes in interstate natural gas pipeline services.
Interstate pipeline companies, including Southern, are
incurring certain costs (transition costs) as a result
of the Order. The principal transition cost is related
to amendment or termination of existing gas purchase
contracts, which are referred to as gas supply
realignment (GSR) costs. The Order provided for the
recovery of 100 percent of the GSR costs and other
transition costs to the extent the pipeline can prove
that they are eligible, that is, incurred as a result of
customers' service choices in the implementation of the
Order, and were incurred prudently. The prudence review
will extend both to the prudence of the underlying gas
purchase contracts, based on the circumstances that
existed at the time the contracts were executed, and to
the prudence of the amendments or terminations of the
contracts. Numerous parties have appealed the Order to
the Circuit Courts of Appeal.
On September 3, 1993, the FERC generally approved
a compliance plan for Southern and directed Southern to
implement its restructured services pursuant to the
Order on November 1, 1993 (the September 3 order).
Pursuant to Southern's compliance plan, GSR costs that
are eligible for recovery include payments to reform or
terminate gas purchase contracts. Where Southern can
show that it can minimize transition costs by continuing
to purchase gas under the contract (i.e., it is more
economic to continue to perform), eligible GSR costs
would also include the difference between the contract
price and the higher of (a) the sales price for gas
purchased under the contract or (b) a price established
by an objective index of spot-market prices. Recovery
of these "price differential" costs is permitted for an
initial period of two years.
Southern's compliance plan contains two mechanisms
pursuant to which Southern is permitted to recover
100 percent of its GSR costs. The first mechanism is a
monthly fixed charge designed to recover 90 percent of
the GSR costs from Southern's firm transportation
customers. The second mechanism is a volumetric charge
designed to collect the remaining 10 percent of such
costs from Southern's interruptible transportation
customers. These funding mechanisms will continue until
the GSR costs are fully recovered or funded. The FERC
also indicated that Southern could file to recover any
GSR costs not recovered through the volumetric charge
after a period of two years. In addition, Southern's
compliance plan provides for the recovery of other
transition costs as they are incurred and any remaining
transition costs may be recovered through a regular rate
filing.
Southern's customers have generally opposed the
recovery of Southern's GSR costs based on both
eligibility and prudence grounds. The September 3 order
rejected the argument of certain customers that a 1988
take-or-pay recovery settlement bars Southern from
recovering GSR costs under gas purchase contracts
executed before March 31, 1989, which comprise most of
Southern's GSR costs. Those customers subsequently
filed motions urging the FERC to reverse its ruling on
that issue. On December 16, 1993, the FERC affirmed its
September 3 ruling with respect to the 1988 take-or-pay
recovery settlement (the December 16 order). The FERC's
finding that the 1988 settlement is not a bar in general
to the recovery as GSR costs of payments made to amend
or to terminate these contracts does not prevent an
eligibility challenge to specific payments, however, on
the theory that they are actually take-or-pay costs that
would have been unavoidable regardless of the Order.
The December 16 order generally approved Southern's
restructuring tariff submitted pursuant to the
September 3 order. Various parties have sought judicial
review of the September 3 and December 16 orders.
During 1993 Southern reached agreements to reduce
significantly the price payable under a number of above-
market gas purchase contracts in exchange for payments
of approximately $114 million. On December 1, 1993,
Southern filed with the FERC to recover such costs and
approximately $3 million of prefiling interest (the
December 1 filing). On December 30, 1993, the FERC
accepted such filing to become effective
January 1, 1994, subject to refund, and subject to a
determination through a hearing before an administrative
law judge as to whether such costs were prudently
incurred and are eligible for recovery under the Order.
Southern's customers are opposing its recovery of the
GSR costs in this proceeding based on both eligibility
and prudence grounds. The December 30 order rejected
arguments of various parties that, as a matter of law,
a pipeline's payments to affiliates, in this case
Southern's payment to a subsidiary of Sonat Exploration
that represented approximately $34 million of the
December 1 filing, may not be recovered under the Order.
The payment is still subject to challenge on both
eligibility and prudence grounds.
In December 1993 Southern reached agreement to
reduce the price under another contract in exchange for
payments initially having a present value of
approximately $52 million, the unpaid balance of which
is included in "Deferred Credits and Other" in the
Condensed Consolidated Balance Sheet. Payments will be
made in equal monthly installments over an eight-year
period ending December 31, 2001. On February 14, 1994,
Southern made a rate filing to recover those costs as
well as approximately $3 million of other settlement
costs and prefiling interest. In an order issued on
March 16, 1994, the FERC accepted such filing to become
effective on April 1, 1994, subject to refund, and
subject to a hearing before an administrative law judge
as to whether such costs were prudently incurred and are
eligible for recovery under the Order. In its order the
FERC directed that the monthly installment payments be
recovered over the eight-year period during which they
will be incurred. Southern's customers are opposing, on
grounds of both eligibility and prudence, its recovery
of the GSR costs in this proceeding, which has been
consolidated with the proceeding on the December 1
filing.
Since November 1, 1993, Southern has also incurred
"price differential" costs while continuing to purchase
gas under contracts that are in excess of current market
prices. On March 1, 1994, Southern made a rate filing
to recover $17.5 million of these costs that had been
incurred through January 31, 1994. In an order issued on
March 31, 1994, the FERC accepted such filing to become
effective on April 1, 1994, subject to refund, and
subject to a hearing before an administrative law judge
as to whether such costs were prudently incurred and are
eligible for recovery under the Order. On May 31, 1994,
Southern made a rate filing to recover an additional
$15.4 million of these costs that had been incurred
through April 30, 1994. In an order issued on
June 30, 1994, the FERC accepted such filing to become
effective on July 1, 1994, subject to refund, and
subject to a hearing before an administrative law judge
as to whether such costs were prudently incurred and are
eligible for recovery under the Order. Southern's
customers are opposing, on grounds of both eligibility
and prudence, its recovery of the GSR costs in these
proceedings, which have been consolidated with the
proceedings on the December 1 filing and the February 14
filing.
On May 27, 1994, the FERC issued an order dealing
with compliance filings and rehearing requests that had
been filed in response to its earlier orders permitting
the recovery, subject to refund, of GSR costs sought to
be collected by Southern. In that order, the FERC
accepted revised tariff sheets that provide for the
recovery of GSR costs related to the termination or
amendment of gas purchase contracts over 36 months,
rather than through a direct bill or over a 15-month
period as earlier proposed by Southern, and permitted on
rehearing the amortization of price differential GSR
costs allocated to interruptible transportation
customers over 12 months, as originally proposed by
Southern, rather than over three months as required by
the FERC in its order of March 16, 1994. The FERC
further ordered that Southern remove certain
"transaction costs" that had been included in its
quarterly GSR filings, noting that they were more
properly included as administrative costs in the next
general rate filing of Southern. Finally, the FERC
ordered that Southern recompute on the basis of actual
prices rather than average prices, and authenticate
through supporting documentation, its claimed price
differential costs that had been included in its
quarterly GSR filings.
In compliance with the May 27 order, Southern
filed revised tariff sheets that reduced its claimed GSR
costs by approximately $700,000. These revised tariff
sheets were accepted by the FERC in an order issued
June 30, 1994.
On August 31, 1994, Southern made its third
quarterly rate filing to recover $16.4 million of GSR
costs incurred from May 1, 1994, through July 31, 1994.
The GSR costs in the filing included $12.7 million in
price differential costs and $3.7 million in contract
termination and reformation costs. In an order issued
on September 29, 1994, the FERC accepted such filing to
become effective on October 11, 1994, subject to refund
and to certain conditions, including the removal by
Southern of approximately $6.4 million in price
differential GSR costs related to a gas purchase
contract dated August 29, 1989, between Southern and
Exxon Corporation (Exxon) based on a summary judgment
order that gave Southern the right to terminate the
contract effective March 1, 1994. Southern has filed a
request for rehearing with the FERC asserting error in
requiring removal of the $6.4 million of costs prior to
the receipt of refund of such costs from Exxon, which
will not be forthcoming until all appeals have been
exhausted. Southern's August 31 filing was also made
subject to a hearing before an administrative law judge
as to whether such costs were prudently incurred and are
eligible for recovery under the Order. Southern's
customers are opposing, on grounds of both eligibility
and prudence, its recovery of the GSR costs in this
proceeding, which has been consolidated with the
proceedings on its previous GSR filings.
Southern plans to make additional rate filings
quarterly to recover its "price differential" costs and
any other GSR costs. Additionally, Southern continues
to make monthly filings designed to adjust the billing
determinants and associated surcharges for its firm
transportation customers to reflect changes in the level
of systemwide contract demands and effective carrying
charges that occur from time to time. The total GSR
costs of $157 million, net of recoveries, accrued
through September 30, 1994, are included in current and
long-term gas supply realignment costs in the Condensed
Consolidated Balance Sheet.
Administrative Law Judge Ruling Concerning
Recoverability of Investment in Offshore Gas Supply
Facilities - In an initial decision issued on
May 2, 1994, an administrative law judge ruled, in a
rate case Southern had filed before the FERC, that
Southern could not include in its rates the
approximately $45 million cost of certain pipeline
facilities placed in service by Southern in 1992 to
connect to its interstate pipeline system extensive new
gas reserves being developed by Exxon in the Mississippi
Canyon and Ewing Bank Area Blocks, offshore Louisiana
(the Mississippi Canyon Facilities). The judge ruled
that Southern's recovery of these costs was precluded by
the 1988 settlement with Southern's customers that
limits the amount of take-or-pay payments Southern may
recover in its rates. The judge found that the cost of
the facilities constitutes non-cash consideration to
Exxon for a 1989 take-or-pay settlement and is therefore
subject to the dollar "cap" on these payments contained
in the 1988 settlement. Southern has previously
recovered the maximum amount permitted by the
1988 settlement in its rates.
The judge found alternatively that the Mississippi
Canyon Facilities were underutilized for purposes of
certain "at-risk" conditions contained in the FERC
certificate authorizing the construction of the
facilities and that, in the event his decision that the
cost of the facilities is subject to the take-or-pay
settlement cap were to be overturned on appeal, Southern
should recover only the amount of the annual cost of
service of the facilities proportional to their level of
utilization during the period of time under review,
November 1, 1992, through April 30, 1993. The judge
calculated the utilization level at 32 percent, and when
this factor is applied to the $11.9 million cost of
service attributable to the facilities accepted by the
judge, Southern would be permitted to include only
$3.8 million of that amount in its rates for this
period.
On July 29, 1994, Southern filed a brief on
exceptions with the FERC seeking to overturn the initial
decision of the administrative law judge as it relates
to the recoverability of its Mississippi Canyon
Facilities investment, but Southern cannot predict the
action that may be taken by the FERC or the outcome of
any subsequent appeal concerning the rate treatment of
the approximately $45 million cost of these facilities.
With respect to the recoverability of GSR costs by
Southern under the Order associated with Southern's gas
supply contract with Exxon relating to the reserves
connected by the Mississippi Canyon Facilities,
Southern's customers have asserted in a separate
proceeding before the FERC that the gas supply contract
was non-cash consideration for the Exxon take-or-pay
settlement and that recovery by Southern of GSR costs
incurred with respect to such contract is also precluded
by the 1988 take-or-pay settlement. GSR costs under
this contract through the scheduled renegotiation of its
pricing provisions in 1997 are estimated to be
approximately $92 million on a present value basis,
although such estimate is subject to significant
uncertainty since the assumptions inherent in the
estimate (including underlying reserves, future
deliverability, and a range of estimated future gas
market prices) are not known today with certainty and
there is a wide range of possible outcomes for each
assumption. In addition, Southern has given notice to
Exxon that effective March 1, 1994, it has terminated
the gas purchase contract covering gas reserves
connected by the Mississippi Canyon Facilities pursuant
to certain provisions of the contract. Such
termination, if effective, would reduce GSR costs
associated with such contract to $14 million. Exxon has
filed suit against Southern seeking a declaratory
judgment that Southern does not have the right to
terminate the contract or alternatively for damages of
an unspecified amount arising out of the alleged
repudiation or breach of the contract by Southern. The
court entered a summary judgment order upholding
Southern's termination of this contract, which Exxon has
appealed to the Fifth Circuit Court of Appeals.
Southern cannot predict the outcome of pending or future
proceedings for the recovery of GSR costs related to the
gas supplies connected by the Mississippi Canyon
Facilities or its pending litigation with Exxon
regarding Southern's notice of termination of the gas
supply contract.
Settlement Discussions - Southern has continued to
have settlement discussions with its major customers in
an effort to resolve all of Southern's outstanding rate
and service agreement issues and its Order No. 636
transition cost recovery. Southern cannot predict the
outcome of those discussions or whether any settlement
will be reached with its customers. Southern is also
unable to predict all of the elements of the outcome of
its Order No. 636 restructuring proceeding or its rate
filings to recover its transition costs.<PAGE>
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
SOUTHERN NATURAL GAS COMPANY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Southern Natural Gas Company and its subsidiaries
(Southern) participate principally in the interstate
transmission of natural gas in the southeastern United
States and are regulated by the Federal Energy
Regulatory Commission (FERC). The natural gas
transmission industry, although regulated, is very
competitive. Effective November 1, 1993, Southern
separated its transportation, storage, and merchant
services to comply with Order No. 636 (see following
discussion) and essentially became solely a gas
transporter. Even before the Order No. 636
restructuring, customers had switched much of their
volumes from a bundled merchant service to
transportation service, reflecting an increased
willingness to rely on gas supply under unregulated
arrangements. Southern competes with several pipelines
for the transportation business of its customers and at
times discounts its transportation rates in order to
maintain market share. Although it is now predominantly
a transporter of gas, Southern continues to make limited
sales pending the expiration, termination or assignment
of its remaining gas supply contracts and, in this
capacity, competes with other suppliers, gas producers,
marketers and alternate fuels.
Southern is pursuing growth opportunities to
expand the level of services in its traditional market
area and to connect new gas supplies. On May 1, 1994,
Southern completed its second pipeline expansion into
northern Florida and southwestern Georgia that increased
firm daily capacity by 40 million cubic feet per day.
On July 22, 1994, Southern filed an application with the
FERC for authorization to construct a 21-mile pipeline
extension to a delivery point near Chattanooga that will
deliver natural gas to a group of new customers who have
agreed to sign ten-year contracts for firm
transportation volumes totaling approximately 11 million
cubic feet per day.
<TABLE>
<PAGE>
Operations
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
1994 1993 1994 1993
(Dollars in Millions)
<S> <C> <C> <C> <C>
Revenues:
Gas sold $ 47 $ 59 $192 $341
Market transportation and
storage 63 33 229 104
Supply transportation 8 11 26 34
Other 29 18 113 54
Total Revenues $147 $121 $560 $533
Natural Gas Cost:
Purchased from others $ 43 $ 9 $175 $163
Purchased from affiliates 4 5 12 16
Total Natural Gas Cost $ 47 $ 14 $187 $179
Transition Cost Recovery and
Gas Purchase Contract
Settlement Costs $ 23 $ 11 $ 93 $ 39
Depreciation and Amortization $ - $ 16 $ 31 $ 48
Operating Income $ 29 $ 29 $105 $109
Equity in Earnings of
Joint Venture $ 2 $ 2 $ 7 $ 7
(Billion Cubic Feet)
Volumes:
Gas sold - 5 - 66
Market transportation 118 93 402 294
Total Market Throughput 118 98 402 360
Supply transportation 87 80 249 247
Total Volumes 205 178 651 607
Transition gas sales 23 - 80 -
</TABLE>
Quarter-to-Quarter Analysis
Southern's operating results for the third quarter
were up slightly primarily due to a change to a less
seasonal rate design under Order No. 636. Operating
results were also favorably affected by lower general
and administrative expenses due to a $4 million
reduction in employee related benefit expenses.
Operating results in 1993 included favorable reserve
adjustments of $4 million and a $3 million AFUDC
adjustment relating to an idle liquefied natural gas
facility.
Southern's gas sales revenues and gas costs
represent recognition of gas sales made from supply
remaining under contract after the implementation of
Order No. 636 (see Order No. 636 discussion below). The
volumes associated with these sales are included in
transportation volumes because, as required by Order
No. 636, all sales are now made at the wellhead.
The implementation of Order No. 636 resulted in
higher transportation revenues and volumes compared to
the 1993 third quarter. Southern's transportation
revenues and depreciation expense include a $16 million
decrease reflecting a retroactive reduction in certain
depreciation rates. Other revenue also increased due to
the recovery of transition costs related to the
implementation of Order No. 636.
Year-to-Date Analysis
Southern's operating results for the nine-month
period were down slightly due to the rate base reduction
under Order No. 636 and the reserve and AFUDC
adjustments made in 1993. These declines were partially
offset by lower operating and maintenance expense
resulting from a $4 million reduction in fuel gas
liability and lower general and administrative expenses
due to a $9 million reduction in employee related
benefit expenses.
Southern's gas sales revenues and gas costs were
down significantly for the nine-month period as a result
of implementing Order No. 636 and primarily represent
recognition of gas sales made from supply remaining
under contract after the implementation of Order No. 636
(see Order No. 636 discussion below). The volumes
associated with these sales are included in
transportation volumes because, as required by Order
No. 636, all sales are now made at the wellhead.
Higher transportation revenues and volumes are a
result of the shift from sales to transportation due to
the implementation of Order No. 636. Southern's
transportation revenues and depreciation expense include
a $16 million decrease reflecting a retroactive
reduction in certain depreciation rates. Other revenue
also increased for the nine-month period due to the
recovery of transition costs related to the
implementation of Order No. 636.
Order No. 636
In 1992 the FERC issued its Order No. 636 (the
Order). As required by the Order, interstate natural
gas pipeline companies have made significant changes in
the way they operate. The Order required pipelines,
among other things, to: (1) separate (unbundle) their
sales, transportation, and storage services; (2) provide
a variety of transportation services, including a "no-
notice" service pursuant to which the customer is
entitled to receive gas from the pipeline to meet
fluctuating requirements without having previously
scheduled delivery of that gas; (3) adopt a straight-
fixed-variable (SFV) method for rate design (which
assigns more costs to the demand component of the rates
than do other rate design methodologies previously
utilized by pipelines); and (4) implement a pipeline
capacity release program under which firm customers have
the ability to "broker" the pipeline capacity for which
they have contracted. The Order also authorized
pipelines to offer unbundled sales services at market-
based rates and allowed for pregranted abandonment of
some services.
In requiring that Southern provide unbundled
storage service, the Order resulted in a substantial
reduction of Southern's working storage gas inventory
and consequently a reduction in its rate base. This
reduction was effective on November 1, 1993, when
Southern restructured pursuant to the Order and sold, at
its cost, $123 million of its working storage gas
inventory to its customers. The Order also resulted in
rates that are less seasonal, thereby shifting revenues
and earnings for Southern out of the winter months.
The FERC issued an order on September 3, 1993 (the
September 3 order), that generally approved a compliance
plan for Southern and directed it to implement
restructured services on November 1, 1993. In
accordance with the September 3 order, Southern
solicited service elections from its customers in order
to implement its restructured services on
November 1, 1993. Southern's largest customer, Atlanta
Gas Light Company and its subsidiary, Chattanooga Gas
Company (collectively Atlanta) signed firm
transportation service agreements with transportation
demands of 582 million cubic feet per day for a one-year
term ending October 31, 1994, and 118 million cubic feet
per day for a term extending until April 30, 2007, at
the maximum FERC-approved rates. This represented an
aggregate reduction of 100 million cubic feet per day
from Atlanta's level of service prior to
November 1, 1993. Southern's other customers elected in
aggregate to obtain an amount of firm transportation
services that represented a slight increase from their
level of firm sales and transportation services from
Southern prior to Southern's implementation of Order
No. 636, at the maximum FERC-approved tariff rates, for
terms ranging from one to ten or more years.
Atlanta has elected to renew its firm
transportation service agreements with transportation
demands of 582 million cubic feet per day, which expired
October 31, 1994, for a one-year term beginning
November 1, 1994, at the maximum FERC-approved rates, in
return for Southern's agreement that such rates will be
reduced if an overall rate settlement is achieved. In
the third quarter of 1994, Atlanta and South Carolina
Pipeline Corporation executed three-year firm service
agreements with transportation demands of an additional
100 million cubic feet per day and 28 million cubic feet
per day, respectively. With these additional
subscriptions, all of Southern's firm capacity available
without further system expansions or improvements in its
largest market area, encompassing the states of Georgia,
Tennessee, and South Carolina, is fully subscribed.
Southern's discussions are continuing with Atlanta
and its other distribution customers regarding their
elections for firm transportation service on Southern's
system. It is possible that these discussions could
result in a rate reduction by Southern as part of an
overall settlement of Southern's pending rate and GSR
recovery proceedings. Although management believes that
most of Southern's distribution customers ultimately
will commit to some type of new firm transportation
agreements with Southern under its restructuring program
beyond those described above, it is unable to predict at
what total contract level or for what duration such
commitments will be made.
Natural Gas Sales and Supply
As discussed in Note 4 of the Notes to Condensed
Consolidated Financial Statements, Southern is incurring
certain transition costs as a result of implementing
Order No. 636, and for Southern, those are primarily gas
supply realignment (GSR) costs relating to amendment or
termination of existing gas purchase contracts. In its
restructuring settlement discussions, Southern has
advised its customers that the amount of GSR costs that
it actually incurs will depend on a number of variables,
including future natural gas and fuel oil prices, future
deliverability under Southern's existing gas purchase
contracts, and Southern's ability to renegotiate certain
of these contracts. While the level of GSR costs is
impossible to predict with certainty because of these
numerous variables and the outcome of the lawsuit with
Exxon Corporation (Exxon) also discussed in Note 4,
based on current spot-market prices, a range of
estimates of future oil and gas prices, recent contract
renegotiations and "price differential" costs actually
incurred, the amount of GSR costs are estimated to be in
the range of approximately $275-$300 million on a
present value basis. This amount includes the payments
made to amend or terminate gas purchase contracts
described in Note 4, but it excludes the approximate
$78 million of GSR costs that would be expected to be
incurred if the summary judgement against Exxon
discussed in Note 4 were to be reversed and Exxon were
ultimately to prevail in its action challenging
Southern's termination of its gas purchase contract.
Sales by Southern are anticipated to continue only
until Southern's remaining supply contracts expire, are
terminated, or are assigned. Southern is attempting to
terminate its remaining gas purchase contracts through
which it had traditionally obtained its long-term gas
supply. Some of these contracts contain clauses
requiring Southern either to purchase minimum volumes of
gas under the contract or to pay for it (take-or-pay
clauses). Although Southern currently is incurring no
take-or-pay liabilities under these contracts, the
annual weighted average cost of gas under these
contracts is in excess of current spot-market prices.
Pending the termination of these remaining supply
contracts, Southern has agreed to sell a portion of its
remaining gas supply to a number of its firm
transportation customers for a one-year term that began
November 1, 1993. A portion of these sales agreements
have been extended for an additional one-year term. The
sales agreements with Atlanta were extended through
March 31, 1995. The remainder of Southern's gas supply
will be sold on a month-to-month basis. Southern will
file to recover as a GSR cost pursuant to Order No. 636
the difference between the cost associated with the gas
supply contracts and the revenue from the sales
agreements and month-to-month sales as well as any cost
previously incurred or incurred in the future as a
result of Order No. 636 to terminate or reduce the price
under Southern's remaining contracts.
Through September 30, 1994, Southern has paid
$130 million to reduce or terminate the price payable
under a number of above-market gas purchase contracts.
In addition, Southern has paid $55 million in excess of
current spot-market prices under its remaining gas
purchase contracts since implementing Order No. 636 on
November 1, 1993. Southern's rate filings to recover
these payments as GSR costs are described in Note 4.
Southern's purchase commitments under its
remaining gas supply contracts for the years 1994
through 1998 (which exclude those under the Exxon
contract related to the Mississippi Canyon Facilities
discussed in Note 4) are estimated as follows:
Estimated
Purchase
Commitments
(In Millions)
1994 $200
1995 150
1996 85
1997 70
1998 65
Total $570
These estimates are subject to significant
uncertainty due both to the number of assumptions
inherent in these estimates and to the wide range of
possible outcomes for each assumption. None of the
three major factors that determine purchase commitments
(underlying reserves, future deliverability, and future
price) is known today with certainty.
Rate Matters
Several general rate changes have been implemented
by Southern and remain subject to refund. See Note 4 of
the Notes to Condensed Consolidated Financial Statements
for a discussion of rate matters.
Settlement Discussions
As discussed in Note 4, Southern's customers are
challenging its recovery of GSR costs and Southern is
subject to other litigation. Southern has continued to
have settlement discussions with its major customers in
an effort to resolve all of Southern's outstanding rate
and service agreement issues and its Order No. 636
transition cost recovery. Southern cannot predict the
outcome of those discussions or whether any settlement
will be reached with its customers. Southern is also
unable to predict all of the elements of the outcome of
its Order No. 636 restructuring proceeding or its rate
filings to recover its transition costs.
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
1994 1993 1994 1993
(In Millions)
<S> <C> <C> <C> <C>
Interest Expense, Net $(6) $(4) $(20) $(25)
</TABLE>
The increase in net interest expense in the third
quarter is due to lower interest income on notes
receivable from affiliates, partially offset by lower
interest expense. Interest income is lower due to lower
average rates on notes from affiliates. Interest
expense is lower due to the redemption of the
$100 million 9 5/8 Percent Notes and to lower average
rates on debt. Other interest expense increased in 1994
due to higher balances of revenue reserves.
The decrease in interest expense for the nine-
month period is due primarily to $8 million of accrued
interest expense provided on certain income tax issues
in 1993, partially offset by the reasons mentioned
above.
<TABLE>
<S> <C> <C> <C> <C>
Income Taxes $10 $ 6 $ 36 $ 30
</TABLE>
Income taxes increased for the three-month period
due primarily to various favorable tax adjustments made
in 1993. Income taxes increased for the nine-month
period due to the 1993 tax adjustments and to higher
1994 pre-tax income.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows
<TABLE>
<CAPTION>
Nine Months
Ended September 30,
1994 1993
(In Millions)
<S> <C> <C>
Operating Activities $164 $93
</TABLE>
Net cash provided by operating activities was
higher in 1994 due to cash outflows in 1993 of
approximately $81 million for GSR payments and cash
inflows in 1994 of approximately $22 million from net
GSR recoveries. The increase was slightly offset by
higher take-or-pay recoveries in 1993.
The significant change in inventory includes
$63 million relating to the change in Southern's
business under Order No. 636. Southern no longer has a
merchant function and accordingly does not purchase
storage gas in preparation for resale in the winter
months. The primary reason for the $42 million change
in other current assets and liabilities was the
settlement of gas imbalances allowed under Order
No. 636.
<TABLE>
<CAPTION>
Nine Months
Ended September 30,
1994 1993
(In Millions)
<S> <C> <C>
Investing Activities $ (23) $(51)
</TABLE>
The change in cash flows from investing activities
is due to fluctuations in loans to Southern's parent and
to the receipt in 1994 of insurance proceeds of
$7.1 million related to damages from Hurricane Andrew.
<TABLE>
<S> <C> <C>
Financing Activities $(144) $(43)
</TABLE>
Net cash used in financing activities increased
due to the maturity and redemption of Southern's
$100 million 9 5/8 Percent Notes.
Capital Resources
At September 30, 1994, Southern had available
$50 million under lines of credit. Southern also has a
shelf registration with the Securities and Exchange
Commission for up to $200 million in debt securities of
which $100 million has been issued. Southern expects to
continue to use cash from operations and borrowings on
the public or private markets or loans from affiliates
to finance its capital and other corporate expenditures.
<TABLE>
<CAPTION>
September 30, December 31,
<S> <C> <C>
Capitalization Information 1994 1993
Debt to Capitalization 34% 41%
</TABLE>
The debt to capitalization ratio decreased for the
1994 period due to scheduled repayments of long-term
debt.
ENVIRONMENTAL MATTERS
The Environmental Protection Agency (EPA) notified
Southern by letter dated October 21, 1994, that Southern
is a potentially responsible party (PRP) at a Superfund
site in Mississippi known as the Pike County Drum Site.
Southern allegedly arranged for disposal of hazardous
substances, pollutants, or contaminants at the site.
Since Southern has not yet had sufficient time even to
conduct a preliminary investigation into the factual
basis of the EPA's allegations or the potential legal
liability the Company may have, if any, relating to the
site, Southern cannot at this time make a reasonable
estimate of whether it will incur costs and expenses
related to this site that will be material.
In connection with the Superfund Site in Alabama
known as the Fuels and Chemicals Site, both Southern and
the company in which a subsidiary of Sonat Exploration
is a 50-percent shareholder have signed an
Administrative Order on Consent for Removal Action (AOC)
with the EPA for removal actions at the site. To
satisfy their obligations under the AOC, all of the
signatory PRP's to the AOC have entered into an
Indemnification, Reopener and Settlement Bank Fund
Agreement (the Indemnification Agreement) with one of
the largest PRP's who has agreed to undertake to perform
all remedial actions required by the AOC and any
additional response obligations required by EPA or the
Alabama Department of Environmental Management. In
return for payments not material to Sonat, this PRP has
agreed to indemnify the two Sonat entities against any
further liability related to the AOC and a prior AOC
dated July 20, 1993, (the Phase I AOC) unless costs of
complying with the AOC and the Phase I AOC exceed a
specified amount. Based on the information that it
currently possesses, the Company does not expect the
specified amount to be exceeded.
During the course of retirement and removal of
certain field compressors, Southern discovered soil and
groundwater contamination in the Logansport and Joaquin
Fields, respectively, in the states of Louisiana and
Texas. Although no link between Southern's operations
and the groundwater contamination has been established,
Southern notified the Louisiana Department of
Environmental Quality (LADEQ) of this discovery because
of a possibility that the groundwater contamination may
be associated to some extent with Southern's past
operations in the area. On November 8, 1994, Southern
received a request from the LADEQ for an Assessment Work
Plan (the Plan) designed to determine the extent,
source, and magnitude of soil and groundwater
contamination discovered near one of the field
compressors, including evaluation procedures used to
determine recommendations for remediation of soil and
groundwater. While Southern has not yet prepared the
Plan, it has characterized the soil contamination at all
of the field compressors and, based on the information
currently in its possession, Southern believes that the
cost to clean up such soil contamination will not be
material. To date, Southern does not have in its
possession sufficient information to reasonably estimate
the cost, if any, that it may be required to bear for
any cleanup of groundwater contamination. No reporting
was required in Texas.
Sonat generally considers environmental assessment
and remediation costs and costs associated with
compliance with environmental standards incurred by
Southern to be recoverable through rates since they are
prudent costs incurred in the ordinary course of
business and, accordingly, Southern would expect to seek
recovery of such costs through rate filings, although no
assurance can be given with regard to their ultimate
recovery.
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
In Exxon Corporation v. Southern Natural Gas
Company, which is described in Item 3. Legal Proceedings
of the Company's Annual Report on Form 10-K for the year
ended December 31, 1993, the U.S. District Court for the
Southern District of Texas entered a summary judgment
order on August 29, 1994, upholding Southern's
termination of its gas purchase contract with Exxon
Corporation ("Exxon") providing for the sale and
purchase of gas produced from the Mississippi Canyon and
Ewing Bank Area Blocks, offshore Louisiana (the
"Contract"), which Southern gave notice of termination
effective March 1, 1994. On September 6, 1994, Exxon
filed an appeal of the summary judgment order with the
U.S. Court of Appeals for the Fifth Circuit. Management
remains unable to predict the outcome of this litigation
or whether its position that it has the right to
terminate the Contract will be sustained.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit
Number Exhibits
10.1 Service Agreements Nos. 901710
and 901711, effective June 1,
1994, and No. 902516, effective
October 1, 1994, between
Southern Natural Gas Company
and South Carolina Corporation,
filed as Exhibit 10.5 to Form
10-Q of Sonat Inc. for the
quarter ended September 30,
1994
10.2 Service Agreement No. 902470,
effective September 1, 1994,
between Southern Natural Gas
Company and Atlanta Gas Light
Company, filed as Exhibit 10.6
to Form 10-Q of Sonat Inc. for
the quarter ended September 30,
1994
10.3 Service Agreement No. 904460,
effective November 1, 1994,
between Southern Natural Gas
Company and Atlanta Gas Light
Company, filed as Exhibit 10.7
to Form 10-Q of Sonat Inc. for
the quarter ended September 30,
1994
10.4 Service Agreement No. 904461,
effective November 1, 1994,
between Southern Natural Gas
Company and Atlanta Gas Light
Company, filed as Exhibit 10.8
to Form 10-Q of Sonat Inc. for
the quarter ended September 30,
1994
10.5 Service Agreement No. 904480,
effective November 1, 1994,
between Southern Natural Gas
Company and Atlanta Gas Light
Company, filed as Exhibit 10.9
to Form 10-Q of Sonat Inc. for
the quarter ended September 30,
1994
10.6 Service Agreement No. 904481,
effective November 1, 1994,
between Southern Natural Gas
Company and Atlanta Gas Light
Company, filed as Exhibit 10.10
to Form 10-Q of Sonat Inc. for
the quarter ended September 30,
1994
10.7 Service Agreement No. S20150,
effective November 1, 1994,
between Southern Natural Gas
Company and Atlanta Gas Light
Company, filed as Exhibit 10.11
to Form 10-Q of Sonat Inc. for
the quarter ended September 30,
1994
10.8 Service Agreement No. S20140,
effective November 1, 1994,
between Southern Natural Gas
Company and Atlanta Gas Light
Company, filed as Exhibit 10.12
to Form 10-Q of Sonat Inc. for
the quarter ended September 30,
1994
12 Computation of Ratio of
Earnings to Fixed Charges filed
herewith
27 Financial Data Schedule for the period
September 30, 1994, filed electronically
with the Securities and Exchange Commission
(1) The Company will furnish to requesting security
holders the exhibits on this list upon the payment of a
fee of 10 cents per page up to a maximum of $5.00 per
exhibit. Requests must be in writing and should be
addressed to R. David Hendrickson, Secretary, Southern
Natural Gas Company, P. O. Box 2563, Birmingham, Alabama
35202-2563.
(b) Reports on Form 8-K
The Company did not file any report on Form 8-K
during the quarter ended September 30, 1994.<PAGE>
SOUTHERN NATURAL GAS COMPANY AND SUBSIDIARIES
SIGNATURES
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 thereunto duly authorized.
Southern Natural Gas Company
Date: November 9, 1994 By: /s/ Thomas W. Barker, Jr.
Thomas W. Barker, Jr.
Treasurer
Date: November 9, 1994 By: /s/ G. Layne Finlay
G. Layne Finlay
Vice President & Controller
<TABLE>
EXHIBIT 12-(1)
SOUTHERN NATURAL GAS COMPANY AND SUBSIDIARIES
Computation of Ratios of Earnings
from Continuing Operations to Fixed Charges
Total Enterprise (a)
<CAPTION>
Nine Months Ended Sept 30, Years Ended December 31,
1994 1993 1993 1992 1991 1990 1989
(In Thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Earnings from Continuing Operations:
Income (loss) before income taxes $ 92,905 $ 91,078 $127,617 $126,691 $119,326 $103,797 $152,925
Fixed charges (see computation below) 36,820 45,957 59,171 49,131 46,596 49,899 51,211
Total Earnings Available for Fixed Charges$129,725 $137,035 $186,788 $175,822 $165,922 $153,696 $204,136
Fixed Charges:
Interest expense before deducting
interest capitalized $ 34,955 $ 44,016 $ 56,599 $ 46,298 $ 42,957 $ 47,323 $ 49,832
Rentals(b) 1,865 1,941 2,572 2,833 3,639 2,576 1,379
$ 36,820 $ 45,957 $ 59,171 $ 49,131 $ 46,596 $ 49,899 $ 51,211
Ratio of Earnings to Fixed Charges 3.5 3.0 3.2 3.6 3.6 3.1 4.0
</TABLE>
________________
(a) Amounts include the Company's portion of the captions as they relate to
persons accounted for by the equity method.
(b) These amounts represent 1/3 of rentals which approximate the interest
factor applicable to such rentals of the Company and its subsidiaries and
continuing unconsolidated affiliates.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> SEP-30-1994
<CASH> 753
<SECURITIES> 0
<RECEIVABLES> 364178
<ALLOWANCES> 0
<INVENTORY> 22555
<CURRENT-ASSETS> 484712
<PP&E> 2230598
<DEPRECIATION> 1449143
<TOTAL-ASSETS> 1449134
<CURRENT-LIABILITIES> 137550
<BONDS> 323443
<COMMON> 4
0
0
<OTHER-SE> 641112
<TOTAL-LIABILITY-AND-EQUITY> 1449134
<SALES> 191591
<TOTAL-REVENUES> 559883
<CGS> 186667
<TOTAL-COSTS> 352376
<OTHER-EXPENSES> 31412
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 31481
<INCOME-PRETAX> 92905
<INCOME-TAX> 35589
<INCOME-CONTINUING> 57316
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 57316
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
