Dynegy execs say energy markets to recover in second half of 2002

By the OGJ Online Staff

HOUSTON, Jan. 23, 2002 -- In a tumultuous 2001 for Dynegy Inc., profits improved to $648 million, or $1.90/share, on $42.2 billion of revenue, up from $501 million, or $1.48/share, on $29.4 billion in 2000.

However, the fourth quarter 2001 slipped over one-time charges related to the failed merger attempt with Enron Corp. and reserves for losses in contracts associated with Enron's Chapter 11 bankruptcy filing. Dynegy reported income of $77 million, down from $106 million for the comparable 2000 fourth quarter. Earnings per share fell 11¢/share to 21¢ from 32¢.

Dynegy executives built into their 2002 earnings estimates based an improving economy by the third quarter. For 2002, executives called for earnings per share to be $2.26 with 62% of that being generated in the third and fourth quarter because of an expected economic recovery in the second part of the year and adding new generation late in the second quarter and in the third quarter.

CEO Chuck Watson said Dynegy performed well despite the "significant industry events" and the increased financial scrutiny the energy industry endured after Enron filed for Chapter 11 bankruptcy protection. In a reference to the failed merger attempt with Enron in the fourth quarter, Watson said the event would not affect the company's interest in pursuing other deals.

The company reacted to the increased demands of the financial community after the Enron collapse by shoring up its balance sheet with an equity offering in late December and intends to sell some assets later in the year. Responding to analysts' questions, the company provided more details on its capital structure and income from the marketing and trading business.

Executives said Dynegy ended the year with $3.9 billion in debt and a debt to capital ratio of 50% using the calculations of Standard & Poor's. But chief financial officer Rob Doty said Moody's Investors Service calculates Dynegy's debt to equity ratio at 61% because it counts the company's minority interests in outside entities as debt and not equity.

"Our strategy hasn't changed. Even though some have mischaracterized Dynegy as a trading company, we still focus on marketing, origination, and delivery logistics around our assets and network," Doty said. "We were asset focused before asset focused was cool."

He said 70% of the company's recurring financial contribution was generated by assets owned by Dynegy.

In an effort to distinguish itself from more pure trading companies, Dynegy renamed Dynegy Marketing and Trade, Wholesale Energy Network or WEN. The organization will continue to be engaged in the physical supply and risk management activities around wholesale natural gas, power, and coal. Recurring net income for the WEN segment was $660 million in 2001, up from $354 million in 2000

Dynegy said 55% of that income was generated from its asset businesses. The rest was from customer and risk management activities. Natural gas sales volumes increased 16% to 11.3 bcfd in 200, up from 9.7 bcfd in 2000. Physical power sold also increased to 317 million Mw-hr in 2001, compared to 138 million Mw-hrs in 2000.

Company officials attributed much of the increase in power volume to the initial "demise" of Enron. They said they don't expect that kind of volume growth to continue into 2002.

Dynegy Midstream Services, or natural gas liquids processing, marketing, and transportation, increased its income to $59 million for 2001, up from $55 million for 2000. Dynegy restructured contracts and realized some higher prices from a forward sales program. Dynegy is anticipating continued growth because Dynegy purchased all of ChevronTexaco Inc.'s liquids production through 2006.

The company's distribution and transmission businesses had flat income year over year and its communications segment reported a $61 million loss for 2001. The loss resulted from the "extremely depressed" conditions in the technology and telecommunications markets. Dynegy said.

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