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SEMCO ENERGY Reports Higher Second Quarter 1999 Earnings

PORT HURON, Mich., July 26 /PRNewswire/ -- SEMCO ENERGY, Inc. (Nasdaq: SMGS) today reported earnings of $.1 million or $.01 per share for the second quarter of 1999, compared to a loss of $2.6 million or $.17 per share for the same period of 1998.

The average number of common shares outstanding increased by approximately 17 percent from 15.2 million shares to 17.7 million shares. The increase in shares was due primarily to the 1.8 million-share public offering in August 1998, and shares issued to finance acquisitions and the Dividend Reinvestment Plan.

William L. Johnson, Chairman, President and Chief Executive Officer, said, "The increase in second quarter 1999 results compared to 1998 comes from increased earnings of the Gas Distribution business and the absence of losses from the Gas Marketing business, which was sold during the first quarter of 1999. Earnings for the second quarter 1999 would have been better by $1.3 million or $.07 per share had there been normal weather. Temperatures were approximately 25 percent warmer than normal but comparable to temperatures experienced during the second quarter of 1998."

GAS DISTRIBUTION

The Gas Distribution business reported net income of $1.0 million or $.06 per share for the second quarter of 1999 compared to a loss of $.7 million or $.05 per share for the same period of 1998. The increase in earnings is primarily attributed to profits from a third party gas supply and storage arrangement, lower taxes based on appeals of prior years' personal property assessments and additional revenues from continued strong customer growth.

The number of customers served increased by 2.5 percent. The continued healthy economy was responsible in part for customer growth, which continues at nearly twice the industry average.

DIVERSIFIED BUSINESSES

The company's Diversified Businesses reported a net loss of $.9 million for the second quarter of 1999 compared to a net loss of $1.0 million for the same period of 1998. The results reflect a typical low point in the seasonal earnings pattern of the engineering and construction services businesses.

Engineering Services

The Engineering Services business incurred an operating loss of $.5 million in the second quarter of 1999 compared to operating income of $.7 million for the same period of 1998. Revenues declined from $9.2 million in the second quarter of 1998 to $3.7 million in 1999. The operating results reflect a decrease in turnkey projects and pipeline inspection work, as a result of a slowdown and deferral of pipeline projects in various sectors of the energy industry. Billed hours declined 48 percent from the prior year. Results for the second quarter of 1999 also reflect expenses related to a pipeline turnkey project completed in 1998.

Construction Services

Construction Services reported operating income of $.3 million for the second quarter of 1999, an improvement of $.4 million compared to the same period in 1998. Revenues grew from $6.5 million in 1998 to $12.0 million in 1999. The increase in operating income is due primarily to the operating results of K&B Construction and Iowa Pipeline Associates, which were acquired earlier in 1999, and the absence of losses incurred during 1998 from start-up operations in Florida.

Propane, Pipelines & Storage

Operating income and revenues for the second quarter of 1999 were essentially unchanged from 1998 at $.4 million and $1.3 million respectively in the Propane, Pipelines & Storage business.

YEAR TO DATE RESULTS

For the six months ended June 30, 1999 the company reported net income of $10.5 million or $.60 per share compared to $5.9 million or $.40 per share for the same period in 1998. The average number of common shares outstanding increased by approximately 17 percent from 15 million to 17.6 million shares. The increase in net income is due primarily to increased earnings of the Gas Distribution business and the absence of losses from the Gas Marketing business. Stronger earnings in Gas Distribution came from more favorable weather in 1999 and profits from the company's third party gas supply and storage arrangement.

CAPITAL INVESTMENTS

For the second quarter of 1999 SEMCO ENERGY had capital expenditures for property additions of $7.7 million in comparison to $5.3 million for the second quarter of 1998. The increase reflects timing differences in the occurrence of property additions. Capital expenditures for business acquisitions were $2.0 million for the second quarter of 1999 compared to $.3 million for the same period in 1998. For the six months ended June 30, 1999, the company had capital expenditures for property additions of $13.5 million compared to $10.7 million for the same period in 1998. Capital expenditures for business acquisitions for the six months of 1999 were $4.0 million versus $6.3 million for the same six months of 1998. For 1999, the company anticipates property additions of approximately $26 million plus acquisitions.

On July 15, 1999, SEMCO ENERGY announced that it had signed a definitive agreement to acquire ENSTAR Natural Gas Company and the Alaska Pipeline Company (together known as "ENSTAR") from Ocean Energy. The company has agreed to buy ENSTAR for approximately $290 million in cash including $60 million of debt. The acquisition is expected to close within six months.

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 Securities and Exchange Commission filings.

                              SEMCO ENERGY, INC.
                     News Release Statistics (Unaudited)

                                Three Months Ended       Six Months Ended
                                      June 30,               June 30,
                                  1999      1998 (g)     1999       1998 (g)

    Financial Summary
    (in Thousands, Except Per Share Amounts)

    Operating Revenues (f)      $51,229    $111,280    $235,109    $337,750

    Operating Expenses (f)      $47,761    $111,172    $214,294    $326,701

    Operating Income             $3,468        $108     $20,815     $11,049
      Other Income and (Deductions)
       Business Divestitures         $-          $-      $1,122      $1,480
       Interest Expense          (3,775)     (3,541)     (7,670)     (7,229)
       Other                        574         480         553         807
         Total Other Income
          and (Deductions)      $(3,201)    $(3,061)    $(5,995)    $(4,942)

    Income Taxes                   $146       $(812)     $4,295      $1,460

    Net Income
      Gas Distribution (c)       $1,041       $(683)    $11,036      $7,834
      Diversified
       Businesses (a) (d)          (920)       (979)       (872)        198
      Energy Marketing (b)            -        (978)        361      (2,100)
        Total Net Income           $121     $(2,640)    $10,525      $5,932

    Net Income--Weather
     Normalized                  $1,439     $(1,280)    $12,510      $9,892

    Earnings Per Share-Basic and Diluted (e)
      Gas Distribution (c)        $0.06      $(0.05)      $0.63       $0.52
      Diversified
       Businesses (a) (d)         (0.05)      (0.06)      (0.05)       0.02
      Energy Marketing (b)            -       (0.06)       0.02       (0.14)
        Total Earnings Per Share-
         Basic and Diluted        $0.01      $(0.17)      $0.60       $0.40

    Earnings Per Share-Basic
     and Diluted--Weather
     Normalized (a)(b)(c)(d)(e)   $0.08      $(0.08)      $0.71       $0.66

    Cash Dividend Per Share (e)  $0.255      $0.190      $0.455      $0.360

    Average Number Of Common Shares
      Outstanding (e)            17,703      15,185      17,571      15,000

    Return on Average Common Shareholder's
      Equity:
        As Reported                   -           -           -           -
        Weather Normalized            -           -           -           -


                                Twelve Months Ended
                                      June 30,
                                  1999      1998 (g)

    Financial Summary
    (in Thousands, Except Per Share Amounts)

     Operating Revenues (f)    $534,844    $736,458

     Operating Expenses (f)    $500,881    $717,582

     Operating Income           $33,963     $18,876

     Other Income and (Deductions)
       Business Divestitures     $4,690      $9,210
       Interest Expense         (15,252)    (14,291)
       Other                        389         799
         Total Other Income
          and (Deductions)     $(10,173)    $(4,282)

    Income Taxes                 $9,157      $4,562

    Net Income
      Gas Distribution (c)      $13,035      $9,452
      Diversified
       Businesses (a) (d)            98       5,206
      Energy Marketing (b)        1,500      (3,341)
        Total Net Income        $14,633     $11,317

    Net Income--Weather
     Normalized                 $19,838     $16,052

    Earnings Per Share-Basic and Diluted (e)
      Gas Distribution (c)        $0.76       $0.64
      Diversified
       Businesses (a) (d)             -        0.35
       Energy Marketing (b)        0.09       (0.23)
         Total Earnings Per Share-
          Basic and Diluted       $0.85       $0.76

    Earnings Per Share-Basic and Diluted--Weather
      Normalized  (a)(b)(c)(d)(e) $1.15       $1.08

    Cash Dividend Per Share (e)  $0.845      $0.720

    Average Number Of Common Shares
      Outstanding (e)            17,183      14,822

    Return on Average Common Shareholder's
      Equity:
        As Reported               11.91%      11.49%
        Weather Normalized        16.15%      16.29%

(a) The six months and twelve months ended June 30, 1998 include after- tax income of $1,708 ($0.11 per share) and $6,733 ($0.45 per share), respectively, related to the divestiture of the NOARK investment.

(b) The six months and twelve months ended June 30, 1999 include after- tax income of $729 ($0.04 per share) related to the divestiture of the Company's energy marketing business.

(c) The six months and twelve months ended June 30, 1998 include after- tax income of $1,784 ($0.12 per share) from a change in the method of accounting for property taxes.

(d) The three months, six months and twelve months ended June 30, 1998 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) The decrease in operating revenues and operating expenses for the three, six and twelve month periods ended June 30, 1999 compared to the same periods of 1998 is due primarily to the energy marketing business which was sold effective March 31, 1999.

(g) 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       Six Months Ended
                                      June 30,                 June 30,
                                  1999        1998 (g)     1999       1998 (g)

    Business Segment Information
    (in thousands)

    Operating Revenues
      Gas Distribution          $36,708     $30,071    $113,688    $105,860
      Engineering Services        3,659       9,244       9,379      12,391
      Construction Services      12,032       6,507      16,716       9,227
      Propane/Pipelines/Storage   1,284       1,279       3,228       1,969
      Energy Marketing (i)            -      68,329      96,904     216,602
      Corporate and Other (h)    (2,454)     (4,150)     (4,806)     (8,299)
      Total Operating Revenues  $51,229    $111,280    $235,109    $337,750

    Operating Income (Loss)
      Gas Distribution           $4,064      $1,021     $21,931     $14,035
      Engineering Services         (544)        733         (92)      1,147
      Construction Services         321        (127)       (925)     (1,287)
      Propane/Pipelines/Storage     371         375       1,167         748
      Energy Marketing (i)            -      (1,614)       (341)     (3,305)
      Corporate and Other (h)      (744)       (280)       (925)       (289)
      Total Operating Income     $3,468        $108     $20,815     $11,049

    Operating Statistics

    Gas Distribution:
      Volumes Sold (MMcf)         4,319       4,652      20,194      20,222
      Volumes Transported (MMcf)  5,528       5,274      14,573      11,707
      Number of Customers
       at End of Period               -           -           -           -
       Degree Days                  737         694       3,975       3,478
      Percent Colder (Warmer)
       Than Normal                (25.3)%     (28.5)%      (7.5)%     (18.8)%
      Increase (Decrease) From Normal In:
        Net Income
         (in thousands)         $(1,200)    $(1,250)    $(1,800)    $(3,850)
        Earnings Per Share       $(0.07)     $(0.08)     $(0.10)     $(0.25)

    Engineering Services:
      Billed Hours               95,000     181,000     192,000     246,000

    Construction Services:
      Feet of Pipe Installed  1,479,000   1,142,000   2,176,000   1,568,000

      Propane Distribution:
        Volumes Sold (Gallons)  591,000     554,000   2,235,000     554,000
        Degree Days               1,191       1,027       4,945       1,027
        Percent Colder
         (Warmer) Than Normal     (14.6)%     (28.2)%      (8.0)%     (28.2)%
        Increase (Decrease) From Normal In:
          Net Income
           (in thousands)         $(118)      $(110)      $(185)      $(110)
          Earnings Per Share      $0.00      $(0.01)     $(0.01)     $(0.01)


                                 Twelve Months Ended
                                      June 30,
                                  1999        1998 (g)

    Business Segment Information
    (in thousands)

    Operating Revenues
      Gas Distribution         $192,050    $204,465
      Engineering Services       38,354      15,043
      Construction Services      33,394      22,434
      Propane/Pipelines/Storage   6,111       3,479
      Energy Marketing (i)      278,190     519,446
      Corporate and Other (h)   (13,255)    (28,409)
        Total Operating
         Revenues              $534,844    $736,458


    Operating Income (Loss)
      Gas Distribution          $30,260     $21,700
      Engineering Services        1,698       1,441
      Construction Services         261        (525)
      Propane/Pipelines/Storage   2,004       1,510
      Energy Marketing (i)        2,269      (4,721)
      Corporate and Other (h)    (2,529)       (529)
      Total Operating Income    $33,963     $18,876

    Operating Statistics

    Gas Distribution:
      Volumes Sold (MMcf)        32,219      36,316
      Volumes Transported (MMcf) 26,657      21,900
      Number of Customers
       at End of Period         249,650     243,550
      Degree Days                 6,063       6,072
      Percent Colder (Warmer)
       Than Normal                (12.7)%     (12.5)%
      Increase (Decrease) From Normal In:
        Net Income
         (in thousands)         $(4,950)    $(4,625)
        Earnings Per Share       $(0.29)     $(0.31)

    Engineering Services:
      Billed Hours              532,000     335,000

    Construction Services:
      Feet of Pipe Installed  5,039,000   3,989,000


    Propane Distribution:
      Volumes Sold (Gallons)  5,464,000     554,000
      Degree Days                 7,651       1,027
      Percent Colder (Warmer)
       Than Normal                (12.9)%     (28.2)%
      Increase (Decrease) From Normal In:
        Net Income (in thousands) $(255)      $(110)
        Earnings Per Share       $(0.01)     $(0.01)


(g) Amounts have been restated as a result of the acquisition of OMC, in November 1998, which was accounted for as a pooling of interests.

(h) Includes intercompany eliminations

(i) The Energy Marketing business was sold effective March 31, 1999
SOURCE SEMCO ENERGY, Inc.
CONTACT: Media: Francis R. Lieder, Jr., 810-987-2200, ext. 4186, or fax, 810-989-4098, or Analysts: Edric R. Mason, Jr., 810-989-4104, or fax, 810-989-4098, both of SEMCO ENERGY

"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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