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Southeastern Michigan Gas Enterprises, Inc. Reports Third Quarter Results

PORT HURON, Mich., Oct. 30 /PRNewswire/ -- William L. Johnson, President and Chief Executive Officer of Southeastern Michigan Gas Enterprises, Inc. (Nasdaq: SMGS) reported a net loss of $2,853,000 ($.23 per share) for the third quarter of 1996 compared to a net loss of $2,688,000 ($.22 per share) for the third quarter of 1995. A net loss for the third quarter is normal because the Company's primary business of natural gas distribution is dependent upon the winter heating months for the majority of its annual operating revenues.

Quarter Results

Gross margin on gas sales increased by $250,000 (3%) as gas volumes sold for the three month period ended September 30, 1996 increased 4% from the same period in 1995. Volumes increased primarily due to the addition of over 6,100 gas sales customers.

Gas marketing revenue increased by $40,651,000 (175%) as volumes increased by 15,206,000 thousand cubic feet (Mcf) (92%). Gas marketing volumes increased significantly due to new business generated by the Northeast and Midwest marketing units of SEMCO Energy Services, Inc. (SEMCO).

A significant share of the increased marketing volumes in the third quarter of 1996 are wholesale sales to gas utilities and other gas marketers as opposed to retail sales to end-users. Wholesale marketing margins generally contribute less than half the margin of retail sales. These large increases in revenues and volumes increased gas marketing margin by $335,000 (41%).

The Northeast marketing unit of SEMCO was established by Cynthia L. Armstrong, in New York, in October 1995 and covers a number of northeastern states. The Midwest unit was expanded from offices in Battle Creek, Michigan (west Michigan markets) and Port Huron, Michigan (midwest and Ontario markets) by adding a Chicago office (Chicago and Wisconsin markets) in November 1995.

SEMCO, a wholly owned subsidiary of the Company, recently announced the opening of two additional marketing offices in Charleston, West Virginia and Louisville, Kentucky that serve markets in Maryland, Virginia and Washington, D.C. Eric G. Shobe, in Charleston, and Paul B. Cox, in Louisville, conduct wholesale and retail trading and marketing for SEMCO in the mid-Atlantic market. The move furthers SEMCO's development of sales channels that deliver a full complement of wholesale and retail-oriented products and services.

Other income (loss), net, reflects the after-tax loss from the Company's investment in the NOARK Pipeline System (NOARK) of $442,000 for the three months ended September 30, 1996. This compares to a loss from NOARK of $421,000 for the same period in 1995.

Year-To-Date Results

For the nine-month period ended September 30, 1996, net income was $5,978,000 ($.48 per share) compared to $5,064,000 ($.41 per share) for the same period in 1995.

Colder weather in 1996, and the addition of over 6,000 gas sales customers, resulted in increased gas sales margin of $4,595,000 (11%) on an increase of 12% in gas volumes sold. Temperatures during the first nine months of 1996 were 6% colder than normal, while temperatures in the first nine months of 1995 were 3% colder than normal.

Gas marketing revenue increased $93,289,000 (99%) for the first nine months of 1996 over the same period in 1995, as volumes increased by 21,648,000 Mcf (35%). Gas marketing margin also increased by $876,000 (33%) during these periods -- only slightly less than the percentage increase in volumes. The increased volumes were due to new marketing business generated by SEMCO's marketing offices. While a significant portion of this increased volume is lower-margin wholesale volumes, average per-unit margins did not decline significantly between the periods because of high-margin sales generated in the first quarter of 1996.

Partially offsetting the improved sales and marketing margins between these periods was an increase in operations and maintenance expense of $3,162,000 (12%). These higher expenses were primarily due to costs associated with SEMCO's new marketing units, slightly higher employee compensation and benefits expenses, and severance costs incurred in 1996.

Other income (loss), net, includes after-tax losses from NOARK of $1,248,000 and $1,244,000 for the nine months ended September 30, 1996 and 1995, respectively.

Twelve-Month Results

Net income was $12,245,000 ($.99 per share) and $8,880,000 ($.72 per share) for the twelve-month periods ended September 30, 1996 and 1995, respectively.

Gas sales margin increased $8,497,000 (14%) for the twelve month period ended September 30, 1996, compared to the same period a year earlier. Eleven percent colder weather and the addition of over 6,100 gas sales customers contributed to the increase.

Gas marketing revenues and volumes increased $86,633,000 (62%) and 16,915,000 Mcf (19%), respectively, from the prior period, generating a $327,000 (8%) increase in marketing margin. The twelve-month comparison of marketing activities highlights the increased volumes from SEMCO's establishment of new marketing offices in late-1995 and the impact of increased lower-margin wholesale volumes on per-unit margins.

Other income (loss), net, improved from a loss of $679,000 for the twelve months ended September 30, 1995 to a loss of $100,000 in the same period ending September 30, 1996. The twelve-month results for 1996 include a non- recurring gain of $1,251,000, net of tax, on the settlement of a lawsuit involving NOARK. Excluding this gain, the loss from NOARK, net of tax, was $1,843,000 for the twelve-month period ended September 30, 1996 compared to $1,670,000 for the same period ended September 30, 1995.

Other Third Quarter Notes

Transportation volumes decreased in each of the three, nine, and twelve-month periods ending September 30, 1996, compared to respective periods a year earlier. The decrease was primarily due to decreased volumes from gas transportation customers who have alternative fuel sources -- primarily coal. During 1996, "coal-displacement" transportation volumes were significantly lower than the prior year. Transportation revenues declined only slightly, despite the larger volume declines, because coal-displacement volumes generally contribute a lower margin per unit.

    Further detail is shown in the following table (unaudited):
                                              Quarter Ended September 30,
                                                 1996            1995
                                                     (unaudited)
    Financial Summary
      Total Operating Revenues               $91,082,000     $50,607,000
        Gas Distribution Margin              $ 8,542,000     $ 8,292,000
        Gas Marketing Margin                 $ 1,145,000     $   810,000
        Transportation Revenue               $ 2,471,000     $ 2,540,000
      Operating Income                       $    34,000     $     7,000
      Other Income (Loss), Net               $  (162,000)    $  (113,000)
      Net Income (Loss) Available for Common $(2,853,000)    $(2,688,000)
      Earnings (Loss) Per Share*             $      (.23)    $      (.22)
      Dividends Per Share*                   $       .20     $       .19
      Average Common Shares Outstanding*      12,400,000      12,391,000

    Operations Summary
      Volumes -- million cubic feet
        Gas Sold                                   3,116           2,984
        Gas Marketed                              31,706          16,500
        Gas Transported                            4,120           4,952
      Gas Sales Customers - Average              227,680         221,491
      Degree Days - Percent of Normal                 70%            106%
                  - Actual                           166             230


                                           Nine Months Ended September 30,
                                                1996            1995
                                                     (unaudited)
    Financial Summary
      Total Operating Revenues              $349,600,000    $233,653,000
        Gas Distribution Margin             $ 47,764,000    $ 43,169,000
        Gas Marketing Margin                $  3,515,000    $  2,639,000
        Transportation Revenue              $  8,810,000    $  8,998,000
      Operating Income                      $ 14,589,000    $ 13,626,000
      Other Income (Loss), Net              $   (481,000)   $   (560,000)
      Net Income Available for Common       $  5,978,000    $  5,064,000
      Earnings Per Share*                   $        .48    $        .41
      Dividends Per Share*                  $        .58    $        .55
      Average Common Shares Outstanding*      12,394,000      12,429,000

    Operations Summary
      Volumes -- million cubic feet
        Gas Sold                                  29,897          26,625
        Gas Marketed                              83,201          61,553
        Gas Transported                           14,741          17,896
      Gas Sales Customers - Average              227,583         221,531
      Degree Days - Percent of Normal                106%            103%
                  - Actual                         4,695           4,529


                                         Twelve Months Ended September 30,
                                                1996            1995
                                                     (unaudited)
    Financial Summary
      Total Operating Revenues              $451,485,000    $334,889,000
        Gas Distribution Margin             $ 68,000,000    $ 59,503,000
        Gas Marketing Margin                $  4,185,000    $  3,858,000
        Transportation Revenue              $ 12,260,000    $ 12,266,000
      Operating Income                      $ 23,389,000    $ 20,582,000
      Other Income (Loss), Net              $   (100,000)   $   (679,000)
      Net Income Available for Common       $ 12,245,000    $  8,880,000
      Earnings Per Share*                   $        .99    $        .72
      Dividends Per Share*                  $        .77    $        .73
      Average Common Shares Outstanding*      12,398,000      12,414,000
    Operations Summary
      Volumes -- million cubic feet
        Gas Sold                                  44,059          37,841
        Gas Marketed                             104,152          87,237
        Gas Transported                           20,694          24,191
      Gas Sales Customers - Average              226,898         220,740
      Degree Days - Percent of Normal                107%             97%
                  - Actual                         7,324           6,604


*Adjusted to give retroactive effect to 5% stock dividends in May 1996 and May 1995.

Other News

On October 2, 1996, the Company announced "Option Plus", the first program of its kind in Michigan that allows a limited number of natural gas customers, including residential users, to purchase gas supplies from sources other than their local gas utility. The program will be offered beginning April 1, 1997, to customers of Battle Creek Gas Company -- a wholly-owned subsidiary of the Company. "Unbundling" is a move to offer separate complementary services (gas purchasing, transmission, storage, distribution, meter reading, billing and other services) associated with natural gas use to customers based on their needs and wants. Other pilot programs will be proposed for implementation in 1998.

On October 24, 1996 Bill Johnson announced the implementation of automated meter reading (AMR) systems for 70,000 gas meters in two of the Company's three utility subsidiaries. The systems will be expanded to cover 228,000 customers by the year 1999. The AMR systems will reduce operating costs while dramatically improving customer service.
SOURCE Southeastern Michigan Gas Enterprises, Inc.
CONTACT: Robert F. Caldwell, Executive Vice President and CFO of Southeastern Michigan Gas Enterprises, 810-987-2200

"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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