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SEMCO ENERGY Reports Higher First Quarter 1999 Earnings

PORT HURON, Mich., April 20 /PRNewswire/ -- SEMCO ENERGY, Inc. (Nasdaq: SMGS) today reported higher earnings of $10.4 million or $.60 per share for the first quarter of 1999, compared to $8.6 million or $.58 per share for the same period in 1998. The average number of common shares outstanding increased by approximately 18 percent from 14.8 million to 17.4 million. The increase in shares was due primarily to a 1.8 million share public offering in August 1998, and shares issued to finance two acquisitions and the Dividend Reinvestment Plan.

"We are off to a good start in 1999 and tracking with our expectations," said William L. Johnson, Chairman, President and CEO of SEMCO ENERGY. "We're pleased to have sold the energy marketing business and we can now focus our attention on growing our other businesses. I anticipate that 1999 will be a year in which our new diversified businesses will show increased earnings."

The company recorded a gain of $729,000, or $.04 per share in the first quarter of 1999 from the sale of the energy marketing business. According to Johnson, "This was a high risk, low return business, and a poor fit with our new business strategy."

Gas Distribution

The Gas Distribution business reported net income of $10.0 million or $.58 per share for the first quarter of 1999 compared to $8.5 million or $.58 per share for the same period in 1998. The increase in earnings is primarily attributed to higher gas sales from colder weather and continued strong customer growth, and lower costs resulting chiefly from the 1998 early retirement program and lower employee benefit expenses. First quarter 1998 results also included a one-time gain of $1.8 million for a change in accounting for property taxes.

The number of customers served were higher by 6,342 or 2.6 percent at the end of the first quarter of 1999 compared to a year ago. The healthy economy in much of the service territory continued, contributing to customer growth above the industry average. Volumes of gas sold and transported increased 13.3 percent as more normal temperatures were experienced during the first quarter of 1999 compared to the very mild temperatures of first quarter 1998. Weather was approximately 2% warmer than normal in the first quarter of 1999 versus 16% warmer than normal in the first quarter of 1998.

Diversified Businesses

The company's Diversified Businesses which include engineering services, construction services, and propane, pipeline & storage, reported net income of $47,000 for the first quarter of 1999, reflecting the low point in the seasonal earnings pattern of the engineering and construction services business. In the first quarter of 1998, this business group reported net income of $1.2 million, inclusive of a one-time gain of $1.7 million from the divestiture of the company's interest in the NOARK Pipeline.

Engineering Services

The Engineering Services business continued to show strong growth. Revenues which reflect work on turn-key projects increased 82 percent to $5.7 million in the first quarter of 1999 compared to $3.1 million for the same period in 1998. Billed hours increased from 65,000 to 97,000. Operating income improved 9 percent to $.5 million but results also reflect tighter profit margins.

Construction Services

Revenues increased 72 percent to $4.7 million for the first quarter of 1999 compared to the same period in 1998. Feet of pipe installed also increased substantially from 426,000 to 697,000. The first quarter of 1999 includes the financial results of King Energy & Construction Company which was acquired in May 1998 and K&B Construction, Inc. which was acquired in February 1999. Operating losses for both periods were approximately $1.2 million. The operating losses were in line with management's expectations. The seasonal business cycle for the construction industry typically shows losses in the winter months.

Propane, Pipelines & Storage

The Propane, Pipelines and Storage businesses produced operating revenues of $1.9 million, up from $.7 million a year ago. Operating income grew from $.4 million to $.8 million. The primary reason for the growth in revenues and operating income was the acquisition of Hotflame Gas Inc., a propane company acquired at the end of March 1998.

Capital Investments

For the first quarter of 1999 SEMCO ENERGY had capital expenditures of $7.8 million in comparison to $11.4 million in the first quarter of 1998. The decline reflects different timing in the occurrence of gas distribution property additions and business acquisitions. For 1999, the company still anticipates base construction expenditures and property additions of approximately $20 million plus acquisitions.

SEMCO ENERGY, Inc., a diversified energy services and infrastructure company, owns SEMCO ENERGY GAS COMPANY, which distributes natural gas to 250,000 residential, commercial and industrial customers in Michigan's Upper and Lower Peninsulas.

Diversified businesses are owned and operated under SEMCO ENERGY VENTURES, which acquires and operates businesses involved in gas engineering and quality assurance services, pipeline construction services, propane distribution, intrastate pipelines and natural gas storage businesses in Iowa, Kansas, Louisiana, Michigan, Missouri, Nebraska, New Jersey, Tennessee, Texas and Wisconsin.

The following is a "Safe-Harbor" statement under the private Securities Litigation Reform Act of 1995. This release contains forward-looking statements that involve risks and uncertainties, including but not limited to, operating expenses, operating income, returns on invested assets, regulatory approval processes, success in obtaining new business and other risks detailed from time to time in the Company's Security and Exchange Commission filings.

                              SEMCO ENERGY, INC.
                     News Release Statistics (Unaudited)

                              Three Months Ended        Twelve Months Ended
    Financial Summary              March 31,                  March 31,
    (in thousands, except     1999          1998 (f)    1999          1998 (f)
      per share amounts)

    Operating Revenues     $183,880      $226,471    $594,895      $748,166

    Operating Expenses     $166,533      $213,634    $566,189      $724,312

    Operating Income       $ 17,347      $ 12,837    $ 28,706      $ 23,854

    Other Income and
     (Deductions)          $ (2,794)     $ (1,993)   $ (8,637)     $ (4,200)

    Income Taxes           $  4,150      $  2,272    $  8,198      $  5,467

    Net Income
      Gas Distribution (c) $  9,995      $  8,517    $ 11,311      $ 10,472
      Diversified
       Businesses (a)(d)         47         1,178          38         6,230
      Energy Marketing (b)      361        (1,123)        522        (2,515)
        Total Net Income    $10,403        $8,572     $11,871       $14,187

    Net Income --
      Weather Normalized    $11,070       $11,172     $17,118       $16,862

    Earnings Per Share - Basic and Diluted (e)
      Gas Distribution (c)    $0.58         $0.58       $0.69         $0.71
      Diversified
       Businesses (a)(d)       0.00          0.08        0.00          0.43
      Energy Marketing (b)     0.02         (0.08)       0.03         (0.17)
          Total Earnings
           Per Share - Basic
           and Diluted        $0.60         $0.58       $0.72         $0.97


    Earnings Per Share - Basic and Diluted
      Weather Normalized
       (a)(b)(c)(d)(e)        $0.63         $0.75       $1.03         $1.15

    Cash Dividend Per
     Share (e)                $0.20         $0.18       $0.77         $0.71

    Average Number of Common
     Shares Outstanding (e)  17,438        14,814      16,553        14,666

    Return on Average Common Shareholder's Equity:
      As Reported                                        9.50%        14.00%
      Weather Normalized                                13.70%        16.65%


    (a) The three months and  twelve months ended March 31, 1998 include
        after-tax income of $1,708 ($0.12 per share) and $5,025 ($0.34 per
        share), respectively, related to the divestiture of the NOARK
        Investment.
    (b) The three months and twelve months ended March 31, 1999 include after-
        tax income of $729 ($0.04 per share) related to the divestiture of the
        Company's energy marketing business.
    (c) The three months and twelve months ended March 31, 1998 include after-
        tax income of $1,784 ($0.12 per share) from a change in accounting for
        property taxes.
    (d) The twelve months ended March 31, 1999 include an after-tax charge of
        $499 ($0.03 per share) from an early retirement of long-term debt.
    (e) Adjusted to give retroactive effect to a 5% stock dividend in May
        1998.
    (f) Amounts have been restated as a result of the acquisition of OMC, in
        November 1998, which was accounted for as a pooling of interests.


                              SEMCO ENERGY, INC.
                     News Release Statistics (Unaudited)

                             Three Months Ended        Twelve Months Ended
                                  March 31,                  March 31,
                             1999          1998          1999         1998

    Business Segment Information
    (in thousands)

     Operating Revenues
        Gas Distribution   $76,980       $75,789      $185,413      $214,139
        Engineering
         Services            5,719         3,148        43,938         7,306
        Construction
         Services            4,685         2,720        27,869        15,927
        Propane/Pipelines
         /Storage            1,944           690         6,106         2,957
        Energy Marketing    96,904       148,273       346,519       537,271
        Corporate and
         Other (g)          (2,352)       (4,149)      (14,950)      (29,434)
            Total Operating
             Revenues     $183,880      $226,471      $594,895      $748,166

    Operating Income (Loss)
        Gas Distribution   $17,867       $13,013       $27,217       $23,661
        Engineering
         Services              451           414         2,975           864
        Construction
         Services           (1,245)       (1,160)         (186)         (398)
        Propane/Pipelines
         /Storage              796           374         2,008         1,501
        Energy Marketing      (341)          206        (1,243)       (1,429)
        Corporate and
         Other (g)            (181)          (10)       (2,065)         (345)
            Total Operating
             Income        $17,347       $12,837       $28,706       $23,854

    Operating Statistics

       Gas Distribution:
          Volumes Sold
           (MMcf)           15,875        15,569        32,552        39,030
          Volumes Transported
           (MMcf)            9,045         6,433        26,403        21,536
          Number of Customers at end
           of Period                                   250,065       243,723
          Degree Days        3,239         2,784         6,021         6,455
          Percent Colder (Warmer)
           Than Normal        (2.1)%       (16.0)%       (12.5)%        (6.1)%
          Increase (Decrease) From Normal in:
             Net Income
              (in thousands) $(600)      $(2,600)      $(5,000)      $(2,675)
             Earnings Per
              Share         $(0.03)       $(0.17)       $(0.30)       $(0.18)

       Engineering Services:
          Billed Hours      97,000        65,000       619,000       160,000

       Construction Services:
          Billed Hours     122,000        54,000       632,000       345,000
          Feet of Pipe
           Installed       697,000       426,000     4,702,000     2,847,000

       Propane Distribution:
          Volumes Sold
           (Gallons)     1,644,000           n/a     4,051,000           n/a
          Degree Days        3,754           n/a         7,487           n/a
          Percent Colder (Warmer)
           Than Normal        (0.5)%         n/a         (10.5)%         n/a
         Increase (Decrease) From Normal in:
            Net Income
             (in thousands)   $(67)          n/a         $(247)          n/a
            Earnings Per
             Share            $nmf           n/a        $(0.01)          n/a

    (g)  Includes intercompany eliminations

SOURCE SEMCO ENERGY, Inc.
CONTACT: Edric Mason of SEMCO ENERGY, 810-989-4104, or fax, 810-989-4098

"Safe Harbor" Statement under the Private Securities Litigation Reform Act of 1995: Statements in this press release regarding SEMCO Energy's business which are not historical facts are "forward-looking statements" that involve risks and uncertainties. For a discussion of such risks and uncertainties, which could cause actual results to differ from those contained in the forward-looking statements, see "Risk Factors" in the Company's Annual Report or Form 10-K for the most recently ended fiscal year.

 
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