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 March 31, 1997
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 1-7179
SONAT INC.
(Exact name of registrant as specified in its charter)
DELAWARE 63-0647939
(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) 325-3800
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, $1.00 PAR VALUE:
86,037,895 SHARES OUTSTANDING ON APRIL 30, 1997
<PAGE>
SONAT INC. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
Page No.
PART I. Financial Information
Item 1. Financial Statements
Condensed Consolidated Balance Sheets--
<S> <C>
March 31, 1997 and December 31, 1996 1
Condensed Consolidated Statements of Income--
Three Months Ended March 31, 1997 and 1996 2
Condensed Consolidated Statements of Cash Flows--
Three Months Ended March 31, 1997 and 1996 3
Notes to Condensed Consolidated Financial
Statements 4 - 9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10 - 22
PART II. Other Information
Item 1. Legal Proceedings 23
Item 4. Submission of Matters to a Vote of Security
Holders 23
Item 6. Exhibits and Reports on Form 8-K 24
</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
SONAT INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
(In Thousands)
ASSETS
Current Assets:
<S> <C> <C>
Cash and cash equivalents $ 21,856 $ 29,639
Accounts receivable 382,010 577,021
Inventories 29,669 30,500
Gas imbalance receivables 20,600 21,694
Other 20,786 34,436
---------- ----------
Total Current Assets 474,921 693,290
---------- ----------
Investments in Unconsolidated Affiliates and Other 479,283 465,121
---------- ----------
Plant, Property and Equipment 5,200,306 5,084,283
Less accumulated depreciation, depletion
and amortization 2,671,139 2,650,419
---------- ----------
2,529,167 2,433,864
---------- ----------
Deferred Charges and Other:
Gas supply realignment costs 8,768 11,144
Other 156,381 171,240
---------- ----------
165,149 182,384
---------- ----------
Total Assets $3,648,520 $3,774,659
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Long-term debt due within one year $ 53,535 $ 53,707
Unsecured notes 140,400 158,030
Accounts payable 369,947 510,130
Accrued income taxes 42,484 26,726
Accrued interest 32,177 28,584
Gas imbalance payables 16,166 20,290
Other 46,629 51,370
---------- ----------
Total Current Liabilities 701,338 848,837
---------- ----------
Long-Term Debt 861,382 872,255
---------- ----------
Deferred Credits and Other:
Deferred income taxes 294,503 284,564
Reserves for regulatory matters 14,933 14,644
Other 169,515 169,995
---------- ----------
478,951 469,203
---------- ----------
Commitments and Contingencies
Stockholders' Equity:
Common stock and other capital 118,163 118,881
Retained earnings 1,538,784 1,495,186
---------- ----------
1,656,947 1,614,067
Less treasury stock (50,098) (29,703)
---------- ----------
Total Stockholders' Equity 1,606,849 1,584,364
---------- ----------
Total Liabilities and Stockholders' Equity $3,648,520 $3,774,659
========== ==========
</TABLE>
See accompanying notes.
<PAGE>
SONAT INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months
Ended March 31,
1997 1996
(In Thousands, Except
Per-Share Amounts)
<S> <C> <C>
Revenues $1,122,289 $734,406
---------- --------
Costs and Expenses:
Natural gas cost 822,979 500,340
Transition cost recovery 2,265 (5,383)
Electric power cost 32,886 4,796
Operating and maintenance 41,935 39,258
General and administrative 41,038 32,958
Depreciation, depletion and amortization 68,483 67,373
Taxes, other than income 5,794 11,833
---------- --------
1,015,380 651,175
---------- --------
Operating Income 106,909 83,231
Other Income (Loss), Net:
Equity in earnings of
unconsolidated affiliates 10,122 8,955
Minority interest (872) (4,662)
Other 3,826 (104)
---------- --------
13,076 4,189
---------- --------
Interest:
Interest income 866 1,623
Interest expense (21,771) (24,219)
Interest capitalized 1,125 1,359
---------- --------
(19,780) (21,237)
---------- --------
Income before Income Taxes 100,205 66,183
Income Tax Expense 33,359 20,614
---------- --------
Net Income $ 66,846 $ 45,569
========== ========
Earnings Per Share of Common Stock $ .78 $ .53
========== ========
Weighted Average Shares Outstanding 86,229 86,128
========== ========
Dividends Paid Per Share $ .27 $ .27
========== ========
</TABLE>
See accompanying notes.
<PAGE>
SONAT INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months
Ended March 31,
1997 1996
(In Thousands)
Cash Flows from Operating Activities:
<S> <C> <C>
Net income $ 66,846 $ 45,569
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation, depletion and amortization 68,483 67,373
Deferred income taxes 9,834 18,990
Equity in earnings of unconsolidated
affiliates, less distributions (10,117) (8,949)
Gas supply realignment costs 2,376 (9,684)
Change in:
Accounts receivable 195,011 (28,175)
Inventories 831 (6,676)
Accounts payable (140,183) 17,733
Accrued interest and income taxes, net 19,798 1,443
Other current assets and liabilities 5,443 5,123
Other 16,947 1,327
----------- -----------
Net cash provided by operating activities 235,269 104,074
----------- -----------
Cash Flows from Investing Activities:
Plant, property and equipment additions (163,539) (124,269)
Net proceeds from disposal of assets 468 3,638
Investments in unconsolidated affiliates and
other (5,129) (2,370)
----------- -----------
Net cash used in investing activities (168,200) (123,001)
----------- -----------
Cash Flows from Financing Activities:
Proceeds from issuance of long-term debt 450,000 -
Payments of long-term debt (461,045) (5,945)
Changes in short-term borrowings (17,630) 22,140
----------- -----------
Net changes in debt (28,675) 16,195
Dividends paid (23,248) (23,261)
Treasury stock purchases and other (22,929) (5,579)
----------- -----------
Net cash used in financing activities (74,852) (12,645)
----------- -----------
Net Decrease in Cash and Cash Equivalents (7,783) (31,572)
Cash and Cash Equivalents at Beginning of Period 29,639 37,289
----------- -----------
Cash and Cash Equivalents at End of Period $ 21,856 $ 5,717
=========== ===========
Supplemental Disclosures of Cash Flow Information
Cash Paid for:
Interest (net of amount capitalized) $ 16,236 $ 15,136
Income taxes, net $ 7,769 $ 872
</TABLE>
See accompanying notes.
<PAGE>
SONAT INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
The accompanying condensed consolidated financial statements of Sonat
Inc. (Sonat) and its subsidiaries (the Company) 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.
Certain amounts in the 1996 condensed consolidated financial statements
have been reclassified to conform with the 1997 presentation.
2. Derivative Financial Instruments
The Company uses futures contracts, options and price swap agreements to
hedge its commodity price risk on crude oil and natural gas. Gains or losses
experienced on hedging transactions are offset by the related gains or losses
recognized on the sale of the commodity. Sonat Marketing Company L.P. (Sonat
Marketing) performs all hedging activity for both its own account and for the
account of Sonat Exploration Company. To date, Sonat Marketing has used
derivatives to hedge only physical transactions. In the second or third quarter
of 1997 Sonat Marketing intends to begin engaging in derivative transactions to
meet its customer needs, subject to policies that limit the aggregate value at
risk and mark to market positions of its transactions.
Futures - Natural gas and oil futures contracts are traded on the New
York Mercantile Exchange (NYMEX). Natural gas contracts are for fixed units of
10,000 MMBtu and are available for up to 36 months in the future. Oil futures
are for fixed units of 1,000 barrels and are available for up to 34 months in
the future. NYMEX requires both parties (buyers and sellers) to futures
contracts to deposit cash or other assets (the margin) with a broker at the time
the contract is initiated. Brokers mark open positions to market daily and
require additional assets to be maintained on deposit when significant
unrealized losses are experienced or allow deposits to be reduced when
unrealized gains are experienced. At March 31, 1997, the Company had net
deposits of $6.9 million with brokers for margin calls, included in other
current assets on the Condensed Consolidated Balance Sheet, of which $2.7
million was for Sonat Marketing's account and $4.2 million for Sonat
Exploration's account.
Sonat Marketing uses natural gas futures contracts to reduce exposure to
price risk when gas is not bought and sold simultaneously. Sonat Exploration
uses futures contracts to lock in the price for portions of its expected future
natural gas production when it believes that prices are at acceptable levels.
<PAGE>
2. Derivative Financial Instruments (Cont'd)
At March 31, 1997, the Company had the following open futures positions:
<TABLE>
<CAPTION>
Deferred Gain or
Open Contracts (Loss)
Long (Short) (In Thousands)
Natural Gas Futures:
<S> <C> <C>
For Marketing's account 1,120 $(2,040)
For Exploration's account (1,884) (272)
------- -------
Total (764) $(2,312)
======= =======
Oil Futures:
For Marketing's account - $ -
For Exploration's account (795) (280)
------- -------
Total (795) $ (280)
======= =======
</TABLE>
The above contracts will mature over 1997 and 1998.
Swaps - Price swap agreements call for one party to make monthly
payments to (or receive payments from) another party based upon the differential
between a fixed and a variable price (fixed-price swap) or two variable prices
(basis swap) for a notional volume specified by the contract. Sonat Marketing
uses swaps to lock in a margin on its gas transactions or to hedge exposure on
swap agreements with Sonat Exploration. Sonat Exploration uses swap agreements
to hedge exposure to changes in spot-market prices on the amount of production
covered in the agreement.
Sonat Exploration has hedged various portions of its 1997 through 2000
production of oil and gas by entering into fixed price swaps with Sonat
Marketing. Marketing has then hedged its risk from entering into these swaps by
putting on futures positions and entering into offsetting swaps with third
parties with aggregate volumes equal to its swaps with Sonat Exploration.
At March 31, 1997, the Company had the following open swap positions:
<TABLE>
<CAPTION>
Number of Fair Duration of
Agreements Value Individual Contracts
(In Thousands)
Natural Gas Swaps:
<S> <C> <C> <C>
For Marketing's account 70 $ (150) 1 month - 67 months
For Exploration's account 34 (15,818) 6 months - 21 months
--- --------
104 $(15,968)
=== ========
</TABLE>
<PAGE>
2. Derivative Financial Instruments (Cont'd)
Options - Options can be exchange traded on the NYMEX or traded over the
counter. Exchange traded options give the owner the right but not the obligation
to a futures contract. Over the counter options give the owner the right but not
the obligation to buy or sell an underlying commodity at a given price. At March
31, 1997, Sonat Marketing had only over the counter options.
In order to meet the requirements of certain gas purchase agreements,
Sonat Marketing has purchased puts of 28 TBtu and sold calls of 22.4 TBtu with a
counterparty at zero cost. Marketing also has sold puts for notional volumes of
5.1 TBtu. At March 31, 1997, the market value of these options was a favorable
$.4 million.
Credit Risk - Due to changes in market conditions the value of swaps and
options can change in relation to their value to the Company. At March 31, 1997,
the market value of the Company's in-the-money swaps was $1.8 million. The
credit risk resulting from in-the-money swaps is monitored on a regular basis.
Sonat Marketing has established policies and procedures to evaluate potential
counterparties for credit worthiness before entering into over the counter swap
and option agreements.
3. Unconsolidated Affiliates
The following table presents the components of equity in earnings of
unconsolidated affiliates:
<TABLE>
<CAPTION>
Three Months
Ended March 31,
1997 1996
(In Thousands)
Company's Share of Reported Earnings (Losses):
<S> <C> <C>
Exploration and Production $ 117 $ 41
------- ------
Natural Gas Transmission:
Citrus Corp. 6,295 5,644
Amortization of Citrus basis difference 346 346
Bear Creek Storage 2,708 2,618
Other (12) (47)
------- ------
9,337 8,561
------- ------
Energy Marketing 292 -
------- ------
Other 376 353
------- ------
$10,122 $8,955
======= ======
</TABLE>
<PAGE>
3. Unconsolidated Affiliates (Cont'd)
Natural Gas Transmission Affiliates - Sonat owns 50 percent of Citrus
Corp., the parent company of Florida Gas Transmission Company. A subsidiary of
Southern owns 50 percent of Bear Creek Storage Company, an underground gas
storage company.
The following is summarized income statement information for Citrus:
<TABLE>
<CAPTION>
Three Months
Ended March 31,
1997 1996
(In Thousands)
<S> <C> <C>
Revenues $170,763 $184,082
Expenses:
Natural gas cost 83,436 97,673
Operating expenses 22,446 22,395
Depreciation and amortization 20,205 20,214
Interest and other 24,239 25,396
Income taxes 7,847 7,117
-------- --------
Income Reported $ 12,590 $ 11,287
======== ========
</TABLE>
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
Ended March 31,
1997 1996
(In Thousands)
<S> <C> <C>
Revenues $9,346 $9,241
Expenses:
Operating expenses 1,241 1,166
Depreciation 1,356 1,353
Other expenses, net 1,333 1,486
------ ------
Income Reported $5,416 $5,236
====== ======
</TABLE>
<PAGE>
4. Debt and Lines of Credit
Long-Term Debt - Sonat has a bank revolving credit agreement that
provides for periodic borrowings and repayments of up to $500 million through
June 30, 2001. Borrowings are supported by unsecured promissory notes that, at
the option of the Company, will bear interest at the banks' prevailing prime or
international lending rate, or such rates as the banks may competitively bid.
During the first quarter of 1997, $450 million was borrowed and $300 million was
repaid under the revolving credit agreement, resulting in $150 million
outstanding at March 31, 1997, at a rate of 5.58 percent.
Unsecured Notes - Loans outstanding under all short-term credit
facilities are for a duration of less than three months.
Sonat and Southern have available short-term lines of credit of $200.0
million and $50.0 million, respectively, through May 27, 1997. Borrowings are
available for a period of not more than 364 days and are in the form of
unsecured promissory notes that bear interest at rates based on the banks'
prevailing prime, international or money-market lending rates. At March 31,
1997, Sonat had $15.4 million outstanding at a rate of 7.40 percent and no
amount was outstanding under Southern's agreement.
Sonat had $125 million in commercial paper outstanding at an average
rate of 6.24 percent at March 31, 1997.
5. 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. At March 31, 1997, Southern's rates are
established by a settlement with all of its customers (except one representing
approximately 2 percent of Southern's firm transportation volumes) that was
approved by a FERC order issued in 1995 and are not subject to refund. (See Rate
Matters in Item 2 of this report.)
Sea Robin - In January 1995, Sea Robin Pipeline Company, a subsidiary of
Southern, filed with the FERC a petition for a declaratory ruling that the Sea
Robin pipeline system is engaged in the gathering of natural gas and is,
therefore, exempt from FERC regulation under the Natural Gas Act. In June 1995,
the FERC denied Sea Robin's petition on the basis that the primary function of
the Sea Robin system is the interstate transportation of gas. Sea Robin's
request for rehearing of that ruling was denied by the FERC on June 26, 1996.
Sea Robin filed on August 15, 1996, for judicial review of the orders denying
its petition.
<PAGE>
5. Commitments and Contingencies (Cont'd)
Following the filing of Sea Robin's petition for a gathering exemption,
several of the shippers on the Sea Robin system filed with the FERC in February
1995 a complaint against Sea Robin under Section 5 of the Natural Gas Act
claiming that Sea Robin's rates are unjust and unreasonable. In its answer, Sea
Robin asked the FERC to dismiss the complaint or to find that its rates continue
to be just and reasonable based on the data it presented. On August 2, 1996, the
FERC issued an order on the complaint, instituting an investigation and hearing
under Section 5 of the Natural Gas Act and requiring that an initial decision be
issued by May 2, 1997. On December 31, 1996, Sea Robin filed a proposed
settlement of the complaint proceeding pursuant to which it would voluntarily
reduce its transportation rates by $.0042 per decatherm (Dth), calculated on a
100 percent load factor basis, effective January 1, 1997. The settlement was
supported by the staff of the FERC and one of two groups of active intervenors,
but was opposed by the complainant shippers, which was the other group of active
intervenors. By order dated April 16, 1997, the FERC approved the settlement
with modifications, making a merits determination as to just and reasonable rate
levels to become effective for contesting and non-contesting parties as of May
1, 1997. Under the FERC Order, Sea Robin's transportation rates were reduced an
additional $.006 per Dth, calculated on a 100 percent load factor basis, below
the proposed settlement rate level. Sea Robin intends to seek rehearing of the
settlement order on the grounds that it improperly modified the settlement terms
as to non-contesting parties, and that it failed to properly consider the filed
case in making its merits determinations as to contesting parties.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
SONAT INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Operating Income
Business segment operating results for Sonat Inc. and its subsidiaries
(the Company) are presented in the table below. There were no unusual items that
affected operating income and net income comparisons in either period presented.
<TABLE>
<CAPTION>
Three Months
Ended March 31,
1997 1996
(In Millions)
Operating Income:
<S> <C> <C>
Exploration and production $ 56.7 $20.0
Natural gas transmission 46.8 48.1
Energy marketing 1.5 12.4
Other 1.9 2.7
------ -----
Operating Income $106.9 $83.2
====== =====
</TABLE>
EXPLORATION AND PRODUCTION
The Company is engaged in the exploration for and the acquisition,
development and production of oil and natural gas in the United States through
Sonat Exploration Company. In 1996, Sonat Exploration broadened its growth
strategy by increasing its focus on low-risk exploration and aggressive
development drilling as opposed to only property acquisition. Most of Sonat
Exploration's natural gas production is sold to Sonat Marketing Company L.P.
(Sonat Marketing), the Company's affiliate operating in the Energy Marketing
segment.
Sonat Exploration maintained its active development and exploration
drilling program in the first quarter of 1997, participating in the completion
of 86 gross development wells, of which 78 were successful, and five exploratory
wells, three of which were successful. The Austin Chalk trend of east Texas and
west Louisiana was again a very active drilling area. Nine wells were drilled in
the Austin Chalk trend, of which eight were successful.
<PAGE>
Recent Discoveries
Sonat Exploration's most important exploratory program is in the Cotton
Valley Pinnacle Reef trend in the East Texas salt basin, one of the most active,
high-potential onshore exploratory plays in the lower 48 states. In the first
quarter of 1997, Sonat Exploration completed drilling and testing its fourth
Cotton Valley Pinnacle Reef trend discovery, the Sonat Exploration Cook No. 3
well, in the Bear Grass area of Leon County, Texas. Based on these tests, Sonat
Exploration believes the Cook No. 3 has 60 to 70 billion cubic feet (Bcf) of
recoverable natural gas reserves. Sonat Exploration has a 50 percent working
interest in the well.
In its largest development drilling program, the Austin Chalk trend of
east Texas and west Louisiana, Sonat Exploration had excellent completion
results from its first company-operated well in the Hurricane Branch area of
Vernon Parish, Louisiana, the Scobee No. 1 well. The Scobee No. 1 exhibited the
highest initial hydrocarbon production rate of any Sonat operated well in the
entire Eastern Austin Chalk area, flowing 3,840 barrels of oil and 9.5 million
cubic feet of natural gas per day. Sonat Exploration has a 60 percent working
interest in this well.
EXPLORATION AND PRODUCTION OPERATIONS
<TABLE>
<CAPTION>
Three Months
Ended March 31,
1997 1996
(In Millions)
Revenues:
<S> <C> <C>
Sales to others $ 39.9 $ 15.8
Intersegment sales 114.3 95.8
------ ------
Total Revenues 154.2 111.6
------ ------
Costs and Expenses:
Operating and maintenance 16.1 15.4
Exploration expense 6.0 3.5
General and administrative 13.9 11.9
Depreciation, depletion and
amortization 54.4 54.9
Taxes, other than income 6.4 5.8
Other expenses .7 .1
------ ------
97.5 91.6
------ ------
Operating Income $ 56.7 $ 20.0
====== ======
Net Sales Volumes:
Gas (Bcf) 50 47
Oil and condensate (MBbls) 1,042 1,078
Natural gas liquids (MBbls) 362 386
- ----------------------------------------------------------------------------------------------
Average Sales Prices:
Gas ($/Mcf) $ 2.49 $ 1.92
Oil and condensate ($/Bbl) 22.42 18.10
Natural gas liquids ($/Bbl) 17.13 9.45
- ----------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
First Quarter 1997 to First Quarter 1996 Analysis
Operating income increased $36.7 million primarily due to higher natural
gas and oil prices. Although natural gas prices weakened somewhat during the
quarter, average realized prices increased to $2.49 per thousand cubic feet
(Mcf) in the first quarter of 1997 from $1.92 per Mcf in the first quarter of
1996, a 30 percent increase. Realized oil prices increased 24 percent to an
average of $22.42 per barrel from $18.10 per barrel in the first quarter of
1996. Higher natural gas production also contributed to the increase in
operating income.
Costs and expenses were slightly higher in the first quarter of 1997 due
to several factors. Exploration expense increased $2.5 million as Sonat
Exploration increased its exploration activity. Operating and maintenance
expense increased $.7 million and general and administrative expense increased
$2.0 million due to expanding operations. Lower allocations of corporate charges
slightly offset the increase in general and administrative expense.
Depreciation, depletion and amortization expense decreased slightly as a result
of a lower amortization rate.
Hedging Activities
Sonat Exploration, through Sonat Marketing, uses derivative financial
instruments to manage the risks associated with price volatility for both its
natural gas production and its oil production, which it sells in the spot
market. (See Market and Financial Risk Management and Note 2 of the Notes to
Condensed Consolidated Financial Statements.) Gains or losses experienced on
Sonat Exploration's hedging transactions are offset by the related gains or
losses recognized on the sale of the commodity. Natural gas revenues were
reduced by $12.7 million and $16.1 million and oil revenues were reduced by $.9
million and $1.4 million in the 1997 and 1996 periods, respectively, relating to
hedging activities.
A portion of Sonat Exploration's future production is hedged. Gas
production for the last nine months of 1997 through 2000 in the aggregate amount
of 203.3 TBtus is hedged at a weighted average price of $2.03 per MMBtu. Of this
amount, 47.8 TBtu at a weighted average price of $2.03 relates to remaining 1997
production, which represents approximately 23 percent of expected production.
Oil production of approximately 800 thousand barrels, or 14 percent of expected
production, is hedged for the remainder of 1997 at a weighted average price of
$20.42 per barrel.
NATURAL GAS TRANSMISSION
The Company is engaged in the natural gas transmission business through
Southern Natural Gas Company and its subsidiaries (Southern), and Citrus Corp.
(a 50 percent-owned company).
Southern is aggressively seeking to expand its pipeline system in its
traditional market area and to connect new gas supplies.
<PAGE>
In April 1997, an amended application and tariff for the Destin Pipeline
was filed with the Federal Energy Regulatory Commission (FERC) to reflect the
fact that units of Shell Oil Company and Amoco Corporation have joined in the
ownership of this 1 Bcf per day, $300 million pipeline designed to transport
natural gas from the growing eastern Gulf of Mexico production area. Southern
has a one-third interest in this pipeline. Shell and Amoco have made substantial
firm transportation commitments to this pipeline, and discussions are underway
with other prospective shippers. The pipeline, which is still subject to FERC
approval, is expected to be completed in mid-1998.
Also in April 1997, the FERC issued an order that permits Southern to
begin construction on a $36 million project that will add 46 million cubic feet
per day of firm capacity for customers in Georgia and Tennessee. Construction is
planned to begin in mid-May, and this project is expected to be in service in
late 1997. Southern is also moving forward on expansions to eastern Tennessee
and northern Alabama that have a total estimated capital cost of $107 million.
The North Alabama expansion, which is pending before the FERC, is now
anticipated to go in service in the summer of 1998. The East Tennessee expansion
is anticipated to go in service in November 1998, subject to FERC approval of an
application that is expected to be filed in May.
NATURAL GAS TRANSMISSION
<TABLE>
<CAPTION>
Three Months
Ended March 31,
1997 1996
(In Millions)
Operating Income (Loss):
Southern Natural Gas Company and
<S> <C> <C>
subsidiaries $ 46.6 $ 48.2
Other 0.2 (0.1)
------ ------
Total Operating Income $ 46.8 $ 48.1
====== ======
</TABLE>
<PAGE>
SOUTHERN NATURAL GAS COMPANY AND SUBSIDIARIES
<TABLE>
<CAPTION>
Three Months
Ended March 31,
1997 1996
(In Millions)
Revenues:
<S> <C> <C>
Gas sales $ 51.0 $ 60.2
Market transportation and storage 83.2 84.4
Supply transportation 10.5 11.2
Other 7.8 1.5
------ ------
Total Revenues 152.5 157.3
------ ------
Costs and Expenses:
Natural gas cost 51.1 57.6
Transition cost recovery 2.3 (5.4)
Operating and maintenance 17.6 19.9
General and administrative 18.0 19.5
Depreciation and amortization 11.7 12.4
Taxes, other than income 5.2 5.1
------ ------
105.9 109.1
------ ------
Operating Income $ 46.6 $ 48.2
====== ======
Equity in Earnings of
Unconsolidated Affiliates $ 2.7 $ 2.6
====== ======
(Billion Cubic Feet)
Volumes:
Intrastate gas sales - 2
Market transportation 170 208
--- ---
Total Market Throughput 170 210
Supply transportation 80 85
--- ---
Total Volumes 250 295
=== ===
Transition gas sales 18 17
=== ===
CITRUS CORP.
(In Millions)
Equity in Earnings of
Citrus Corp. $6.6 $6.0
==== ====
(Billion Cubic Feet)
Florida Gas Volumes (100%):
Market transportation 98 91
Supply transportation 8 8
--- ---
Total Volumes 106 99
=== ===
</TABLE>
<PAGE>
First Quarter 1997 to First Quarter 1996 Analysis
Southern Natural Gas - Operating results for the first quarter of 1997
were down slightly compared with the prior year primarily due to lower
throughput, partially offset by lower expenses.
Gas sales revenue and natural gas cost decreased in the 1997 period due
to lower volumes resulting from the transfer to Sonat of its ownership of a
small intrastate pipeline, which was immaterial to operating results, and sales
of storage gas in 1996. Market transportation revenues decreased due to lower
volumes resulting primarily from warmer weather. The decrease in supply
transportation revenues reflects lower transportation volumes at Sea Robin
Pipeline Company, a wholly owned subsidiary of Southern. Other revenues and
transition cost recovery in the 1997 period were higher due to a $16 million gas
supply realignment (GSR) cost refund made pursuant to Southern's approved
settlement. Since the impact of this refund was offsetting in nature, operating
income was not affected. Absent the GSR refund, other revenues and transition
cost recovery were lower in 1997 due to a higher GSR recovery rate in the 1996
period. Operating and maintenance expenses decreased in 1997 as a result of cost
cutting measures, and general and administrative expenses decreased primarily
due to lower allocations of corporate charges.
Citrus - Equity in earnings of Citrus increased $.6 million to $6.6
million.
Natural Gas Sales and Supply
Sales by Southern of natural gas are anticipated to continue only until
Southern's remaining supply contracts expire, are terminated, or are assigned.
As a result of FERC Order No. 636, Southern has terminated or renegotiated to
market pricing substantially all of its gas supply contracts through which it
had historically obtained its long-term gas supply. Southern currently is
incurring no take-or-pay liabilities under any of these contracts. Two
market-priced contracts entered into with Exxon Corporation in 1995 as part of a
settlement of certain other gas purchase contracts account for 85 percent of the
purchase commitments in 1997 described below. Based on Southern's current
expectations with respect to natural gas prices in the years following 1997,
only a small amount of gas volumes are expected to be at prices above market.
Pending the termination of these remaining supply contracts, Southern is selling
a portion of its remaining gas supply to a number of its firm transportation
customers under contracts that have been extended through November 30, 1997. The
remainder of Southern's gas supply will continue to be sold on a month-to-month
basis.
<PAGE>
Southern's purchase commitments under its remaining gas supply contracts
for the last nine months of 1997 and years 1998 through 2001 are estimated as
follows:
Estimated
Purchase
Commitments
(In Millions)
1997 $136
1998 19
1999 17
2000 15
2001 10
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
A settlement approved by the FERC in 1995 resolved all of Southern's
previously pending rate proceedings and proceedings to recover GSR and other
transition costs associated with the implementation of FERC Order No. 636,
except for one contesting party that represents approximately 2 percent of
Southern's firm transportation volumes. That party has appealed the FERC's
approval of the settlement and orders in the proceedings to the United States
Circuit Court of Appeals. The settlement provides that, except in certain
limited circumstances, Southern will not file a general rate case to be
effective prior to March 1, 1998, but requires Southern to file a new rate case
no later than September 1, 1999.
ENERGY MARKETING
Sonat Energy Services, through its subsidiaries, Sonat Marketing and
Sonat Power Marketing L.P. (Sonat Power Marketing), conducts marketing business
in the natural gas and electric industries, respectively. Sonat Marketing
purchases and resells substantially all of Sonat Exploration Company's natural
gas production.
Sonat Marketing's business has continued to grow rapidly. Sonat
Marketing's average daily sales volumes increased to 3.5 billion cubic feet
during the first quarter of 1997, up 52 percent from the 2.3 billion cubic feet
reported during the first quarter of 1996. This growth was achieved in large
part by the Company's focus on its strategy of working closer with its customers
and delivering outstanding customer service.
<PAGE>
Sonat Marketing uses natural gas and oil futures contracts, options, and
gas and oil price swap agreements to hedge the effects of market price
volatility on its operating results. These instruments are used to lock in
margins on Sonat Marketing's gas transactions. Sonat Marketing also uses futures
to enable it to hedge fixed-price contracts to both its suppliers and its
customers. (See Market and Financial Risk Management and Note 2 of the Notes to
Condensed Consolidated Financial Statements.)
Sonat Power Marketing has executed electric power purchase, sales and
transmission agreements with numerous companies. In the first quarter of 1997,
Sonat Power Marketing has remained focused on expanding its wholesale electric
business, which is evidenced by the significant growth in sales volumes. Sales
volumes grew to 1.4 million megawatt hours in the first quarter of 1997 from 210
thousand megawatt hours in the first quarter of 1996.
ENERGY MARKETING
<TABLE>
<CAPTION>
Three Months
Ended March 31,
1997 1996
(In Millions)
<S> <C> <C>
Revenues $959.7 $596.8
====== ======
Operating Income $ 1.5 $ 12.4
====== ======
Sonat Marketing Gas Sales Volumes (100%)
(Billion Cubic Feet) 304 209
===== ===
Sonat Power Marketing Sales Volumes (100%)
(Thousands of Megawatt Hours) 1,397 210
===== ===
</TABLE>
First Quarter 1997 to First Quarter 1996 Analysis
Although revenues and sales volumes grew significantly, Sonat Energy
Services' operating income declined $10.9 million in the first quarter of 1997
compared to the 1996 period. In the first quarter of 1996, increased price
volatility and tight natural gas supplies in certain markets created excellent
trading opportunities for Sonat Marketing. Similar conditions and opportunities
did not occur in the first quarter of 1997. Additionally, general and
administrative expense increased due to growth in operations.
<PAGE>
Other Income Statement Items
<TABLE>
<CAPTION>
Three Months
Ended March 31,
1997 1996
(In Millions)
Other Income (Loss), Net:
<S> <C> <C>
Equity in earnings of unconsolidated affiliates $ 10.1 $ 9.0
Minority interest (0.9) (4.7)
Other 3.9 (0.1)
------ ------
$ 13.1 $ 4.2
====== ======
</TABLE>
The increase in equity in earnings of unconsolidated affiliates is
primarily due to improved results at Citrus. Minority interest reflects AGL
Resource's 35 percent share of earnings in Sonat Marketing and Sonat Power
Marketing (operating results were discussed earlier in the Energy Marketing
section). In addition, Other in the 1997 period includes a gain on the
termination of an interest rate swap and higher levels of allowances for funds
capitalized at Southern.
<TABLE>
<S> <C> <C>
Interest Expense, Net $ 19.8 $ 21.2
</TABLE>
Net interest expense decreased in 1997 due to sharply lower interest
expense resulting from lower average regulatory reserve balances. Partially
offsetting the reduction was lower GSR related interest income and higher
interest expense related to higher average debt levels.
<TABLE>
<S> <C> <C>
Income Tax Expense $ 33.4 $ 20.6
</TABLE>
Income tax expense increased in the 1997 period due to higher pretax
income.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows
<TABLE>
<S> <C> <C>
Operating Activities $235.3 $104.1
</TABLE>
Cash flow from operations increased $131.2 million compared with the
1996 period primarily due to improved operating results at Sonat Exploration
(discussed earlier in the Results of Operations section) and higher cash flow at
Southern.
The change in deferred income taxes is primarily due to higher levels of
intangible drilling costs at Sonat Exploration in the 1996 quarter. The change
in net GSR costs represents net recoveries in the current period compared to net
payments in the prior period. The change in accounts receivable and accounts
payable is primarily attributable to improved operating results and to the
expanding business of Energy Marketing, which had high receivables and payables
balances in December 1996 due to natural gas prices. The change in inventory
resulted from Southern's purchase of materials for various expansion projects in
1996. The change in interest and taxes primarily reflects higher intangible
drilling costs in the prior period and higher taxable income in the current
period. The increase in Other is primarily due to the 1996 period's higher
purchases of gas stored underground by Southern and deferred losses on hedging
transactions.
<PAGE>
<TABLE>
<CAPTION>
Three Months
Ended March 31,
1997 1996
(In Millions)
<S> <C> <C>
Investing Activities $(168.2) $(123.0)
</TABLE>
Net cash used in investing activities was $45.2 million higher in 1997
compared to 1996. The increase was primarily attributable to capital
expenditures, which were higher due to increased developmental drilling at Sonat
Exploration and system expansions at Southern.
Capital expenditures for the Company's business segments (excluding
exploratory costs and unconsolidated affiliates) were as follows:
<TABLE>
<S> <C> <C>
Exploration and Production $ 128.0 $ 107.0
Natural Gas Transmission 31.7 15.5
Energy Marketing 2.8 0.4
Other 1.0 1.4
------- -------
Total $ 163.5 $ 124.3
======= =======
</TABLE>
The Company's share of capital expenditures by its unconsolidated
affiliates was $2.0 million and $2.5 million in the first quarter of 1997 and
1996, respectively.
<TABLE>
<S> <C> <C>
Financing Activities $ (74.9) $ (12.6)
</TABLE>
Net cash used in financing activities was $62.3 million higher in the
1997 period compared to the 1996 period. The repayment of short term borrowings
by Sonat and the purchase of stock under the stock repurchase program were the
primary reasons for the increased cash requirements in the 1997 period.
CAPITAL RESOURCES
At March 31, 1997, the Company had lines of credit and a revolving
credit agreement with a total capacity of $750 million. Of this, $460 million
was available. The Company has a policy that bank and commercial paper
borrowings in the aggregate will not exceed the maximum amount available under
its lines of credit and revolving credit agreement, and, as a result, at that
date the Company would not have deemed available under the lines of credit and
the revolving credit agreement an amount equal to the $125 million of commercial
paper then outstanding.
<PAGE>
Sonat has a shelf registration with the Securities and Exchange
Commission (SEC) that provides for issuance of up to $500 million in debt
securities of which $200 million has been issued. Southern also has a shelf
registration with the SEC for up to $200 million in debt securities, of which
$100 million has been issued.
The Company has a stock repurchase program in effect through the end of
1997. As of March 31, 1997, the Company had remaining authority to purchase
approximately 470,000 shares of the Company's common stock. Shares purchased are
intended for reissuance in connection with employee stock options and restricted
stock programs.
The Company believes that cash flow from operations and borrowings under
its existing credit facilities and shelf registrations would provide the Company
with the means to fund operations and currently planned investment and capital
expenditures.
MARKET AND FINANCIAL RISK MANAGEMENT
The Company's primary market risk exposure is the volatility of
spot-market natural gas and oil prices, which affects the operating results of
Sonat Exploration and Sonat Marketing. The Company's use of derivatives to
reduce the effect of this volatility is described in Note 2 of the Notes to
Condensed Consolidated Financial Statements.
The Company's use of these derivative instruments is implemented under a
set of policies approved by the Board of Directors. Speculative transactions
using financial derivatives are prohibited. In the case of Sonat Exploration,
these policies prohibit transactions not matched by physical commodity
positions. For commodity price hedges, these policies set limits regarding
volumes relative to budgeted production or sales levels. Sonat Marketing uses
derivatives to hedge physical positions and is authorized to engage in financial
transactions to support its customers needs subject to a policy that limits the
net positions to specific value at risk limits. Material forward rate agreements
and swap counterparties are approved by the Board, and volume limits for swaps
are set for any single counterparty. Reports detailing each transaction, mark to
market and value at risk positions, are reviewed by management. In addition, all
hedge activities are internally reviewed by a Risk Oversight Committee to ensure
compliance with all policies. (See Note 2 of the Notes to Condensed Consolidated
Financial Statements.)
<PAGE>
FORWARD LOOKING STATEMENTS
From time to time the Company may make or publish forward-looking
statements relating to such matters as anticipated financial performance,
business plans and prospects, objectives, future projects, and similar matters.
This report contains such forward-looking statements. These forward-looking
statements are based on assumptions that the Company believes are reasonable. A
variety of factors, however, could cause the Company's actual results and
experience to differ materially from the anticipated results or other
expectations expressed in the Company's forward-looking statements.
Important factors that could cause actual results to differ include the
timing and extent of changes in oil and gas prices and underlying demand, which
would affect profitability and might cause the Company to alter its plans; the
timing and results of oil and gas exploratory and development drilling and
acquisition programs, which are subject to all the geologic and engineering
risks typically associated with such activities and which results determine
production levels and reserves; the possibility that actual recoverable reserves
may vary adversely from the Company's reserve estimates due to factors outside
the Company's control or ability to estimate; the results of the Company's
hedging activities; the pace of deregulation of retail natural gas and
electricity markets in the United States; and the success of management's cost
reduction activities. Realization of the Company's objectives and expected
performance can also be adversely affected by the actions of customers and
competitors, changes in governmental regulation of the Company's businesses, and
changes in general economic conditions and the state of domestic capital
markets. Any of the foregoing circumstances may cause the Company's management
to change its operating or capital plans.
The success and growth of the Company's exploration and development
programs are dependent upon a number of factors that cannot be predicted with
certainty. These factors include the Company's ability to expand its leased land
positions in desirable areas, which often are subject to intensely competitive
leasing conditions such as currently exist in the Cotton Valley Reef Trend; the
results of future wells, especially those in the Cotton Valley Reef Trend and
the Austin Chalk, which are key prospective areas for the Company; and the
ability of the Company to identify and precisely locate prospective geologic
structures and to drill and successfully complete wells in those structures. In
addition, the Company's expectations for continued growth in the Cotton Valley
Reef Trend are based in part on seismic surveys. Some of the available data is
based on 2D seismic surveys. While 2D seismic data is helpful in identifying
prospects, there is no basis to predict how many prospects identified by 2D
seismic data will be confirmed by 3D seismic surveys. The Company plans to drill
only Reef prospects that are confirmed by 3D seismic data. Furthermore, 3D
seismic data alone cannot confirm that economically productive hydrocarbons will
be present in the reefs and current limitations on such technology are such that
there is no assurance that the Company will be able to locate and penetrate the
reef formations. In addition, in certain other areas, such as the Austin Chalk,
the Company's exploratory and development activities are not aided by seismic
data because of the nature of the targeted reservoirs.
<PAGE>
The success of the Company's expansion projects in its natural gas
transmission segment is dependent on obtaining both the necessary number of
customer commitments for a project and regulatory approval of the project, which
may encounter opposition by the staff of the FERC, environmental groups, local
landowners, and customers of the Company or its local distribution customers.
The Company's regulated natural gas transmission subsidiaries recover
substantially all of their fixed costs, a return on equity, and income taxes in
the capacity reservation component of their firm transportation rates. There can
be no assurance, however, that the existing customers of the Company's natural
gas transmission subsidiaries will extend their firm service agreements at the
same levels when their current service agreements expire.
Competition in the Company's energy marketing segment is intense, which
will affect the Company's efforts to expand its presence into other natural gas
markets, including those in the north and midwest. There can be no assurance
that the Company will achieve any additional strategic alliances with other gas
or electric marketers, producers, generators, or local distribution companies or
that any such additional alliances will be profitable. A factor in the level of
margins achieved by marketers, both gas and electric, is market volatility,
which cannot be predicted, and which may not recur in the future either with the
same frequency or at the same level as it has in the past.
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
In Jack J. Grynberg, ex rel. v. Alaska Pipeline Company, et al., which
is described in Part I, Item 3, of the Company's report on Form 10-K for the
year ended December 31, 1996, the court on March 27, 1997, granted the motion to
dismiss filed by the Combined Defendants Group, which included Southern and Sea
Robin. The dismissal, which was without prejudice against refiling, was based on
two grounds: (1) the defendants were improperly joined in a single action, and
(2) the complaint failed to plead fraud with sufficient particularity to state a
claim.
Item 4. Submission of Matters to a Vote of Security Holders
The Company held its 1997 Annual Meeting of Stockholders in Houston,
Texas, on April 24, 1997. The stockholders voted (1) to elect five Directors as
members of the Board of Directors of the Company, to serve until the 2000 Annual
Meeting of Stockholders and until their respective successors have been duly
elected and qualified, and (2) on a proposal to elect Ernst & Young LLP as the
Company's Auditor ("Proposal No. 1").
The vote for the nominees for Director was as follows:
--------------------------- --------------- -----------------------
Name of Nominee Voted For Authority Withheld
--------------------------- --------------- -----------------------
--------------------------- --------------- -----------------------
Jerome J. Richardson 75,278,744 232,418
--------------------------- --------------- -----------------------
--------------------------- --------------- -----------------------
Donald G. Russell 75,275,259 235,903
--------------------------- --------------- -----------------------
--------------------------- --------------- -----------------------
Adrian M. Tocklin 75,278,245 232,917
--------------------------- --------------- -----------------------
--------------------------- --------------- -----------------------
James B. Williams 75,274,126 237,036
--------------------------- --------------- -----------------------
--------------------------- --------------- -----------------------
Joe B. Wyatt 75,282,584 228,578
--------------------------- --------------- -----------------------
The vote on Proposal No. 1 was as follows:
------------------- --------------- ------------------ -------------
Voted For Voted Against Abstained
------------------- --------------- ------------------ -------------
------------------- --------------- ------------------ -------------
Proposal No. 1 75,188,097 148,288 174,777
------------------- --------------- ------------------ -------------
There were no broker non-votes with respect to either matter voted upon at the
meeting. The five nominees for Director were duly elected as members of the
Board of Directors and Proposal No. 1 was approved by the stockholders.
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits(1)
Exhibit
Number Exhibits
11* Computation of Earnings per Share
12* Computation of Ratio of Earnings to Fixed Charges
27* Financial Data Schedules for the period ended March 31, 1997
- -------------
* Filed herewith
(b) Reports on Form 8-K
The Company did not file any report on Form 8-K during the quarter ended
March 31, 1997.
(1) The Company will furnish to requesting security holders the exhibits on
this list upon the payment of a fee of $.10 per page up to a maximum of
$5.00 per exhibit. Requests must be in writing and should be addressed to
Beverley T. Krannich, Secretary, Sonat Inc., P. O. Box 2563, Birmingham,
Alabama 35202-2563.
<PAGE>
SONAT INC. 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.
SONAT INC.
Date: May 9, 1997 By: /s/ James A. Rubright
------------------------ -----------------------
James A. Rubright
Senior Vice President and
General Counsel
Date: May 9, 1997 By: /s/ Thomas W. Barker, Jr.
------------------------ ---------------------------
Thomas W. Barker, Jr.
Vice President-Finance and
Treasurer
Exhibit 11
SONAT INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
Three Months
Ended March 31,
1997 1996
(In Thousands Except
Per-Share Amounts)
Primary Earnings Per Share(1)
<S> <C> <C>
Net Income $66,846 $45,569
======= =======
Common Stock and Common Stock Equivalents:
Weighted Average Number of Shares
of Common Stock Outstanding 86,229 86,128
Common Stock Equivalents Applicable
to Outstanding Stock Options 1,670 1,097
------- -------
Weighted Average Number of Shares
of Common Stock and Common Stock
Equivalents Outstanding 87,899 87,225
======= =======
Primary Earnings Per Share $ .76 $ .52
======= =======
</TABLE>
(1) This calculation is submitted in accordance with Regulation S-K Item
601(b)(11) although not required by Footnote 2 to Paragraph 14 of APB
Opinion No. 15 because it results in dilution of less than 3%. For this
reason, the primary earnings per share amounts shown for both periods
do not agree with primary earnings per share shown on the Condensed
Consolidated Statements of Income in Part I.
EXHIBIT 12
SONAT INC. AND SUBSIDIARIES
Computation of Ratios of Earnings
from Continuing Operations to Fixed Charges
Total Enterprise (a)
<TABLE>
<CAPTION>
Three Months Ended March 31, Years Ended December 31,
1997 1996 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ---- ----
(In Thousands)
Earnings from Continuing Operations:
<S> <C> <C> <C> <C> <C> <C> <C>
Income (loss) before income taxes $100,205 $ 66,183 $294,304 $282,497 $154,871 $364,198 $133,728
Fixed charges (see computation below) 36,578 39,746 152,830 165,154 127,909 129,160 156,428
Less allowance for interest capitalized (1,126) (1,359) (5,094) (6,540) (6,692) (4,101) (8,422)
-------- -------- -------- -------- -------- -------- --------
Total Earnings Available for Fixed Charges $135,657 $104,570 $442,040 $441,111 $276,088 $489,257 $281,734
======== ======== ======== ======== ======== ======== ========
Fixed Charges:
Interest expense before deducting
interest capitalized $ 34,630 $ 37,854 $145,406 $157,653 $120,295 $122,204 $149,165
Rentals(b) 1,948 1,892 7,424 7,501 7,614 6,956 7,263
-------- -------- -------- -------- -------- -------- --------
$ 36,578 $ 39,746 $152,830 $165,154 $127,909 $129,160 $156,428
======== ======== ======== ======== ======== ======== ========
Ratio of Earnings to Fixed Charges 3.7 2.6 2.9 2.7 2.2 3.8 1.8
======== ======== ======== ======== ======== ======== ========
</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> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 21,856
<SECURITIES> 0
<RECEIVABLES> 382,010
<ALLOWANCES> 0
<INVENTORY> 29,669
<CURRENT-ASSETS> 474,921
<PP&E> 5,200,306
<DEPRECIATION> 2,671,139
<TOTAL-ASSETS> 3,648,520
<CURRENT-LIABILITIES> 701,338
<BONDS> 861,382
0
0
<COMMON> 87,230
<OTHER-SE> 1,519,619
<TOTAL-LIABILITY-AND-EQUITY> 3,648,520
<SALES> 990,002
<TOTAL-REVENUES> 1,122,289
<CGS> 855,865
<TOTAL-COSTS> 900,065
<OTHER-EXPENSES> 68,483
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 20,646
<INCOME-PRETAX> 100,205
<INCOME-TAX> 33,359
<INCOME-CONTINUING> 66,846
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 66,846
<EPS-PRIMARY> .78
<EPS-DILUTED> .78
</TABLE>
