Rising Natural Gas Prices Result in Reported Losses on Hedges Used by
Wholesale Services to Lock in Margins; Earnings Will Be Realized When
Natural Gas Inventory is Withdrawn from Storage
ATLANTA, July 10 /CNW/ -- AGL Resources Inc. (NYSE: ATG) today announced,
and reminded the investment community, that its reported earnings are subject
to volatility due to changes in natural gas prices. The company's Wholesale
Services operating segment utilizes derivative instruments, generally in the
form of natural gas futures contracts, to hedge natural gas storage inventory.
These instruments are recorded at fair value, with unrealized gains and
losses from the change in value reflected in earnings, while the related
storage inventory is generally recorded at historical cost. The hedged value
of the storage transactions is ultimately realized when the gas is withdrawn
from inventory and delivered to customers. In addition, the widening of future
basis spreads can result in losses on futures contracts used to hedge the
value of pipeline transportation capacity.
Consequently, due to the continued increase in forward NYMEX (New York
Mercantile Exchange) natural gas prices during the second quarter of 2008
relative to the prior-year quarter, and the widening of transportation basis
spreads, both marked as of June 30, 2008, the company expects its
second-quarter 2008 reported earnings results to be significantly impacted by
pre-tax hedge losses in the range of $53 to $57 million ($33 to $36 million
after-tax), or an approximate $0.43 to $0.47 reduction to diluted earnings per
A significant portion of the reported hedge losses is expected to be
recovered in the third and fourth quarters of 2008 as the natural gas
inventory is withdrawn from storage and delivered to customers and the hedging
instruments are settled, assuming all factors remain the same. This
expectation could change if Wholesale Services adjusts its daily injection and
withdrawal plans in response to changes in market conditions in future months.
During the second quarter of 2007, a decrease in forward NYMEX prices for
natural gas and the narrowing of basis spreads resulted in reported gains of
$19 million, or $0.15 per diluted share, on Wholesale Services' storage and
transportation hedges, as detailed in the 2007 second quarter Form 10-Q filed
with the Securities and Exchange Commission.
"Our Wholesale Services business remains on track to generate economic
value for the full year that is consistent with our expectations and with the
guidance we provided our investors," said John W. Somerhalder II, chairman,
president and chief executive officer of AGL Resources. "However, the
dramatic increase we have seen in natural gas prices clearly has had a
significant impact on our accounting results that we expect to report for the
second quarter. We wanted to provide some early transparency around those
results, given last year's reported second-quarter results and current
FirstCall expectations. Our corporate guidance for the full year remains
$2.75 to $2.85 per share."
AGL Resources does not provide or publish forecasts of quarterly earnings
or other quarterly results, and this announcement is not intended to change
that policy. AGL Resources will report its second-quarter and year-to-date
earnings results on Thursday, July 31, 2008, prior to the market opening,
followed by a conference call with the investor community at 9 a.m. ET. The
company will discuss second-quarter and year-to-date 2008 earnings results in
more detail at that time.
The conference call will be webcast, and can be accessed via the investor
relations section of the company's Web site (www.aglresources.com), or by
dialing 800/291-5365 in the United States or 617/614-3922 outside the United
States. The confirmation code is 23322361. A replay of the conference call
will be available by dialing 888/286-8010 in the United States or 617/801-6888
outside the United States, with a confirmation code of 78764000. A replay of
the call also will be available on the investor relations section of the
company's Web site for seven days following the call.
About AGL Resources
AGL Resources (NYSE: ATG), an Atlanta-based energy services company,
serves approximately 2.3 million customers in six states. The company also
owns Houston-based Sequent Energy Management, an asset manager serving natural
gas wholesale customers throughout North America. As a 70 percent owner in
the SouthStar partnership, AGL Resources markets natural gas to consumers in
Georgia under the Georgia Natural Gas brand. The company also owns and
operates Jefferson Island Storage & Hub, a high-deliverability natural gas
storage facility near the Henry Hub in Louisiana. For more information, visit
Certain expectations and projections regarding our future performance
referenced in this press release are forward-looking statements. Forward-
looking statements involve matters that are not historical facts and because
these statements involve anticipated events or conditions, forward-looking
statements often include words such as "anticipate," "assume," "believe,"
"can," "could," "estimate," "expect," "forecast," "future," "goal,"
"indicate," "intend," "may," "outlook," "plan," "predict," "project," "seek,"
"should," "target," "will," "would," or similar expressions. Our expectations
are not guarantees and are based on currently available competitive, financial
and economic data along with our operating plans. While we believe our
expectations are reasonable in view of the currently available information,
our expectations are subject to future events, risks and uncertainties, and
there are several factors -- many beyond our control -- that could cause
results to differ significantly from our expectations.
Such events, risks and uncertainties include, but are not limited to,
changes in price, supply and demand for natural gas and related products; the
impact of changes in state and federal legislation and regulation; actions
taken by government agencies on rates and other matters; concentration of
credit risk; utility and energy industry consolidation; impact of acquisitions
and divestitures; direct or indirect effects on AGL Resources' business,
financial condition or liquidity resulting from a change in our credit ratings
or the credit ratings of our counterparties or competitors; interest rate
fluctuations; financial market conditions and general economic conditions;
uncertainties about environmental issues and the related impact of such
issues; the impact of changes in weather upon the temperature-sensitive
portions of the business; impacts of natural disasters such as hurricanes upon
the supply and price of natural gas; acts of war or terrorism; and other
factors which are provided in detail in our filings with the Securities and
Exchange Commission, which we incorporate by reference in this press release.
Forward-looking statements are only as of the date they are made, and we do
not undertake to update these statements to reflect subsequent changes.
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