1998 Capital Expenditures — $59 million

Cost reductions and efficiency efforts helped Texas Gas achieve a slight increase in operating profit in 1997.

Key Points
*Capacity was completely sold out during 1997, with minimal discounting. We also have recontracted almost all capacity that is up for renewal in the 1998-99 winter heating season.

*Expanding our Sharon-Carthage supply lateral in North Louisiana will alleviate capacity constraints on our system, increase supply diversity and provide new market access for East Texas producers. The $6 million expansion, which involves an additional compressor engine at our Bossier Parish, La., station, is expected to be in service by November 1998, pending FERC approval. Anchoring the expansion is a contract with a producer for capacity of 90 MMcfd in the summer and 105 MMcfd in the winter from East Texas to the end of our mainline system at Lebanon, Ohio.

*We gained new access to Gulf of Mexico supplies through a connection with Nautilus Pipeline, a joint project of three producers. The connection, which began flowing gas in December, provides up to 450 MMcfd from a processing plant in Terrebonne Parish, La.

*We filed a $71 million general rate case to recover costs related to an increased rate base and related return on investment, higher operating expenses and revised system rate design quantities. We anticipate settling the case in 1998.

*Upon suspension of the recovery of gas supply realignment costs from our firm-transportation customers, our rates decreased approximately 5 percent.

*Our reputation for customer service remains among the highest in the industry, with 86 percent of customers in 1997 rating our service better or much better than that of our competitors.

Outlook
*We expect 1998 operating profit to approximate 1997 results.

*Capital expenditures in 1998 are expected to be $59 million, including the Sharon-Carthage lateral project, station automation, other efficiency projects and mandatory projects.

*In the region known as “pipeline alley,” several competitors continue to challenge aggressively for a share of our business, as well as for part of the Ohio and Mississippi River valleys’ approximate 2 percent annual market growth. We are meeting this competition head on, while pursuing business development projects that improve our long-term revenue prospects. Even with the effects of our 1997 rate case, Texas Gas anticipates remaining the low-cost transporter of gas in its major markets.