atmos enerrgy 120705pres

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atmos enerrgy 120705pres

  1. 1. 1
  2. 2. Forward Looking Statements The matters discussed or incorporated by reference in this presentation may contain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. All statements other than statements of historical fact included in this presentation are forward-looking statements made in good faith by the Company and are intended to qualify for the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995. When used in this presentation or in any of the Company’s other documents or oral presentations, the words “anticipate,” “believes,” “estimate,” “expect,” “forecast,” “goal,” “intends,” “objective,” “plans” “projection,” “seek,” “strategy” or similar words are intended to identify forward- looking statements. Such forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those discussed in this presentation, including the Company’s acquisition of the operations of TXU Gas, the Company’s ability to continue to access the capital markets and the other factors discussed in the Company’s SEC filings. These factors include the risks and uncertainties discussed in the Company’s Form 10-K for the fiscal year ended September 30, 2005. Although the Company believes these forward-looking statements to be reasonable, there can be no assurance that they will approximate actual experience or that the expectations derived from them will be realized. The Company undertakes no obligation to update or revise forward-looking statements, whether as a result of new information, future events or otherwise. 1
  3. 3. Management Participants Robert W. Best - Chairman, President & CEO J. Patrick Reddy - Senior VP & CFO R. Earl Fischer - Senior VP, Utility Operations JD Woodward - Senior VP, Nonutility Operations Mark H. Johnson – VP, Nonutility Operations Laurie M. Sherwood - VP, Corporate Development, and Treasurer Susan C. Kappes - VP, Investor Relations 2
  4. 4. Atmos Energy Today Robert W. Best Chairman, President & CEO 3
  5. 5. Overview Company Profile The nation’s largest pure-gas distribution company Solid financial foundation Track record of creating shareholder value • Consistent earnings growth • 22 consecutive years of increasing dividends Focused strategy over time • Maximize core natural gas utility earnings capability • Complement core utility business through select nonutility operations • Grow through prudent acquisitions 4
  6. 6. Overview Scope of Operations • Utility operates in 12 states (yellow) • Nonutility operates in 22 states (grey) 5
  7. 7. Overview Largest Pure-Play LDC Based on Customers (customers in millions) 3.5 3.16 3.0 2.30 2.5 2.00 2.0 1.68 1.5 0.99 0.96 1.0 0.63 0.60 0.46 0.31 0.5 0.0 ATO ATG OKE SWX WGL PNY LG NWN NJR SJI 6
  8. 8. Overview Return on Invested Capital (ROIC*) Remains Strong 18.0% 17.4% 16.4% 15.9% 15.8% 15.5% 16.0% 14.5% 14.0% 12.0% 10.0% 2001 2002 2003 2004 2005 5 Yr Avg *ROIC - Return on invested capital is calculated using the following GAAP financial measures: Income before interest expense and income taxes plus common stock dividends paid, divided by the average of the year’s beginning and ending long-term debt plus common equity. This measure is used to more precisely 7 evaluate operational performance and management effectiveness.
  9. 9. Overview Times Interest Earned Ratios* 3.5 3.05 3.0 2.83 2.76 2.75 2.59 2.55 2.5 2.0 1.5 2001 2002 2003 2004 2005 2006E *The times interest earned ratio measures the ability to satisfy annual interest costs 8
  10. 10. Overview Weighted Average Cost of Debt Remains Low 8.0 7.4 6.9 7.0 6.4 6.0 5.7 6.0 5.6 Percent 5.0 4.0 3.0 2.0 1.0 2001 2002 2003 2004 2005 2006E 9
  11. 11. Overview Total Return to Shareholders is Competitive Five year total return One year total return 9/30/00 – 9/30/05 9/30/04 – 9/30/05 107.9% 60% 110% 51.6% 50% 75.5% 85% 38.7% 40% 29.4% 60% 30% 31.5% 17.2% 35% 20% 12.3% 10% 10% (1.9%) (7.2%) 0% -15% 00 tils rgy ti l s ils Ut P5 0 ti l s ti l s rgy tils ne 0U sU 50 s S& ne 0U sU sE sU Ga 50 ne &P E Ga 50 mo Jo ne &P 00 S os At Jo P6 &P S w 00 tm Do P6 S w S& A Do S& 10 Source: Bloomberg
  12. 12. Overview Earnings Per Share Compared to Company Guidance Reflects Management’s Commitment to Shareholders $2.00 1.72 $1.80-$1.90 $1.75 1.58 1.54 $ per share $1.65-$1.75 1.45 $1.50 $1.55-$1.60 $1.52-$1.58 $1.43-$1.60 $1.25 $1.00 $0.75 $0.50 2002 2003 2004 2005 2006E 11
  13. 13. Overview Annual Dividend for the Years 1984 – 2006E $1.26 $1.20 $1.00 $0.80 $0.60 $0.40 $0.20 $0.00 '8 '8 '8 '8 '8 '8 '9 '9 '9 '9 '9 '9 '9 '9 '9 '9 '0 '0 '0 '0 '0 '0 '0 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6E Note: Amounts are adjusted for mergers and acquisitions. For fiscal 2006, $1.26 is the indicated annual dividend. 12
  14. 14. Overview Dividend Payout Continues to Improve Payout Dividend / Share 85% $1.50 81% 79% 80% $1.40 78% 77% 75% $1.30 1.26E 72% 1.24 70% $1.20 1.22 68% E 1.20 1.18 1.16 65% $1.10 60% $1.00 2001 2002 2003 2004 2005 2006E Current Indicated Dividend Yield Approximately 4.7% 13 Average LDC Payout Ratio = 65%
  15. 15. Overview Diversified Operating Base – Geographically and Operationally Fiscal 2005 Utility Throughput by Fiscal 2005 Customer Type: 411 Bcf Operating Income: $349 MM Transportation 27.9% Mississippi: Mid-States: 5.5% 10.3% West Texas: 8.0% Louisiana: 7.1% Commercial 22.5% Kentucky: 5.4% Marketing: 11.8% Colorado- Kansas: 7.2% Industrial 7.2% Public Authority & Other 2.2% Pipeline & Irrigation 0.8% Residential 39.4% Storage: 20.2% Mid-Tex: 24.5% 14
  16. 16. Overview Regulatory Strategy Remains Key Focus Rate Design Issues Seek weather normalization in key jurisdictions • • Shift more revenue from the commodity charge to base rates • Seek mechanism to mitigate declining use per customer • Recover the gas cost portion of bad debt expense Regulatory Lag Issues Shift capital spending to jurisdictions with more timely recovery • (short-term) • Seek mechanisms in remaining jurisdictions to reduce regulatory lag on recovering capital expenditures (long-term) • File rate cases to maintain actual returns close to allowed returns 15
  17. 17. Overview Average Annual Rate Increases in the Utility Segment ($ in Millions) $25.0 15.0- 25.0 $20.0 18.6 $15.0 16.2 $10.0 6.3 $5.0 $0.0 2003 2004 2005 2006-2010E 16
  18. 18. Overview Atmos Utility Gross Profit per Meter $320 305-310 $310 299 $300 293 287 $ per meter $290 $280 271 $270 $260 $250 $240 2002 2003 2004 2005 2006E 11% 6% 4% 1% Assumes warmer warmer Normal Weather warmer colder 17
  19. 19. Overview Impressive Utility Efficiency Metrics vs. Peers Customers Served per Utility Employee 2005 Utility O&M Expense Per Customer 800 $250 730 $200 600 $209 $150 511 400 $100 $110 200 $50 0 $0 Atmos Energy Peer Group Avg. Atmos Energy Peer Group Avg. Note: Results are based on fiscal 2005 performance for Atmos and most recent information available for the peer group. Companies in the peer group include AGL Resources, KeySpan, Laclede, New Jersey Resources, Nisource, Northwest Natural Gas, Oneok, Piedmont Natural Gas, Southwest Gas and WGL Holdings. 18
  20. 20. Overview Nonutility Business Segments Complement Atmos Energy Gas Marketing Utilizes storage and transportation assets that are leased or managed to: • provide bundled city gate services (including base load sales, peaking sales, risk management and demand based storage services), to municipal, industrial, power generator, LDC and affiliate utility customers and • capture time and location price differentials (arbitrage) through various trading strategies Pipeline & Storage Owns or leases storage and pipeline assets in Texas, Kentucky and Louisiana that are utilized to provide storage and transportation services to municipal, industrial, power generator and affiliate utility customers Includes recently acquired pipeline and storage assets from TXU Gas (6,162 miles of intrastate pipelines and 5 storage facilities). Effective 10/1/04, these pipeline operations are functionally reporting under the nonutility businesses Other Nonutility Provides gas supply services to Atmos utility divisions and peaking power construction services 19
  21. 21. Overview Historical and Estimated Net Income Contribution by Segment 3% 9% 95% 21% 23% 6% 19% 5% 75% 86% 14% 17% Percent 73% Pipeline & Storage 65% 55% Natural Gas Marketing 60% Other Nonutility 35% Utility 15% (1)% -5% 2003 2004 2005 2006E 20
  22. 22. Overview Successful Acquisition History 1986 - Trans Louisiana Gas Company 1987 - Western Kentucky Gas Company 1993 - Greeley Gas Company 1997 - United Cities Gas Company 2000 - Associated Natural Gas Company (Missouri Assets) 2000 - Acquired interest in Heritage Propane Partners (sold in Fiscal 2004) 2001 - Acquisition of remaining interest in Woodward Marketing 2001 - Louisiana Gas Service and LGSN 2002 - Mississippi Valley Gas Company 2004 – TXU Gas Company 21
  23. 23. Overview Acquisition of TXU Gas Provided Scale and Scope in Texas Cash price of $1.9 billion • 26 million common shares issued @ $24.75 • $1.4 billion senior unsecured notes – initial weighted average interest rate of 4.76% LDC Operations • Mid-Tex Division serves about 1.5 million customers, 92% residential • Annual customer growth of 2% • Over 550 municipalities served Pipeline Operations • Atmos Pipeline-Texas Division • 1,800 miles of backbone intrastate pipeline West Texas Division • Integrated with LDC Mid-Tex Division • Working storage capacity of Atmos Pipeline-Texas 39 Bcf Atmos Energy Headquarters 22
  24. 24. Growth Through Acquisitions Increasing Regulated Operations – Operating Income Mix 2004 - $194 MM 17% 83% 2006E - $373 - $387 MM 15% 16% 69% 2005 - $349 MM 13% 19% 68% Regulated LDC Regulated Pipeline Non-Regulated 23
  25. 25. Overview 2005 Scorecard Meeting Our Objectives - Yes Could We: 1. Close the TXU Gas acquisition in three months? 2. Fund the acquisition without pressuring the stock price or losing our investment grade credit ratings? 3. Integrate the new business within one year? 4. Operate the new business more efficiently than the prior owner? 5. Take advantage of the pipeline opportunities? 6. Achieve better rate design on these assets? In progress 7. Reduce debt as a percent of capital in 3-5 years? In progress 8. Continue to grow earnings in the 4-6% range? In progress 24
  26. 26. Overview Fiscal 2005 Net Income and EPS Experienced Substantial Increases Net Income ($ millions) Diluted Earnings Per Share 9% 1.72 $1.80 135.8 57% $150.0 1.58 $1.60 86.2 $1.40 $100.0 $1.20 $50.0 $1.00 2004 2005 2004 2005 Net income reached a record level in 2005 24.6 million increase in weighted average outstanding shares year over year – primarily to help fund the TXU Gas transaction 25
  27. 27. Financial Outlook J. Patrick Reddy Senior VP and Chief Financial Officer 26
  28. 28. Maximizing Core Utility Earnings Atmos Energy Corporation Atmos Energy Corporation (Natural Gas Utility Divisions) Atmos Energy Holdings, Inc. (Natural Gas Utility Divisions) Atmos Energy Holdings, Inc. (Nonutility Businesses) (Nonutility Businesses) Colorado-Kansas Colorado-Kansas Atmos Energy Marketing Atmos Energy Marketing Kentucky Kentucky • • Storage (Trading) Storage (Trading) • • Transportation (Marketing) Transportation (Marketing) Louisiana Louisiana Atmos Pipeline & Storage Atmos Pipeline & Storage Mid-States Mid-States • • Atmos Pipeline-Texas Atmos Pipeline-Texas • Non-Texas Assets • Non-Texas Assets Mid-Tex ** Mid-Tex Other Nonutility Other Nonutility Mississippi Mississippi • • Atmos Energy Services Atmos Energy Services • • Atmos Power Systems Atmos Power Systems West Texas West Texas * Effective 10/1/04, includes LDC and pipeline operations of former TXU Gas. Pipeline operations have functionally reported under the nonutility businesses beginning in Fiscal 2005. 27
  29. 29. Maximizing Core Utility Earnings 2005 Regulatory Activity Drives Top Line Revenue Stream for Fiscal 2006 Favorable rate stabilization results in Mississippi effective 10/1/05 • Establishes an earnings sharing mechanism • Provides calculated ROE plus performance adjuster, currently 9.8% • Shifts $10 million in annual margins from volumetric to customer charge • Adds about 4% more heating degree days to the WNA period • Reduces regulatory lag Increased rates requested in Georgia • Filed for revenue increase of $4 million and rate design enhancements • Order was disappointing; currently reviewing options for “next steps” Productive GRIP filings in the state of Texas • 2003 expenditure filings concluded; total of $8.5 million implemented in Mid-Tex and Atmos Pipeline-Texas rates, with $6.7 million rate increase effective October 2005 • 2004 expenditure filings ongoing; expect approximately $12.5 million to be implemented in rates in first quarter of calendar 2006 Results from Grip filings made on behalf of Mid-Tex and Atmos Pipeline-Texas o Divisions, and West Texas and Lubbock jurisdictions 28
  30. 30. Maximizing Core Utility Earnings Earnings Grow Despite Warmer Weather Degree Days* EPS 4,124 4,000 $1.90 $1.72 $1.75 3,473 3,368 3,500 $1.58 $1.60 $1.54 $1.47 3,271 $1.45 3,000 $1.45 $1.30 2,500 2,587 $1.15 $1.00 2,000 2001 2002 2003 2004 2005 * Adjusted for WNA 29
  31. 31. Maximizing Core Utility Earnings Warmer Than Normal Weather is the Biggest Regulatory Challenge d ate es a ky as id t at an x S ol tuc ex is i - Te /K S ns - T n u d d W. MS Mi Mi CO Ke Co Lo 0 Fiscal 2005 Impact: % Warmer than Normal (5) 11 percent warmer than normal on a consolidated basis (10) Cost 29 cents per diluted share in 11% fiscal 2005 (15) Largest exposure is 14% in Mid-Tex Division (20) 20% 22% (25) Actual / Normal Adjusted for WNA 30
  32. 32. Maximizing Core Utility Earnings Utility Margin Sensitivity Increased with TXU Gas Acquisition 2004–2006E 2003–2004 Heating Seasons Heating Season 35% 36% 48% 51% 13% 17% Weather Weather- Nonweather- Normalized Sensitive Margin Sensitive Margin 31
  33. 33. Maximizing Core Utility Earnings Mid-Tex Division Earnings Impact of Warmer Than Normal Weather Percent Warmer than Normal 5% 10% 15% 20% $0.00 ($0.02) ($0.04) EPS Impact ($.05) ($0.06) ($0.08) ($.09) ($0.10) ($0.12) ($.12) ($0.14) ($0.16) ($.16) 32
  34. 34. Maximizing Core Utility Earnings Hurricane Katrina Rate Relief Ongoing discussions with the Louisiana Commission and staff for recovery of incremental O&M, lost gas and lost margins Total property damage and expenses estimated between $13 million and $15 million • Property Related: o $10.6 million damage to distribution systems o $ 0.5 million damage to 3 buildings and equipment • $ 1.8 million of lost gas (144,000 Mcf) • $ 1.5 million of incremental O&M related costs, included in fiscal 2005 results Property Insurance Coverage • Self-insured for $1 million, included in fiscal 2005 results • Damage from $1.0 to $5.0 million - coverage with third-party provider • Damage greater than $5.0 million – coverage through OIL Fiscal 2006 Guidance assumes lost margin between $10 million and $12 million • Approximately 230,000 Louisiana customers affected by Hurricane Katrina • Estimate 40,000 customers semi-permanently lost (> 9 mos. to restore service, if at all) We fully expect recovery for these losses. However, we are unsure of the timing and therefore, have conservatively assumed no recovery in our fiscal 2006 guidance. 33
  35. 35. Maximizing Core Utility Earnings Gas Supply Hedging for Winter 2005-2006 Hedging gas supply reduces effect of Storage high gas prices 22% Customers pay a blended rate for gas 47.6 Bcf Market Provides some 54% protection to Atmos’ customer 116.8 Bcf receivables and working capital Hedged requirements 24% 53.7 Bcf 34
  36. 36. Maximizing Core Utility Earnings Gas Supply Hedging for Winter 2005-2006 35.0 Billion Cubic Feet (Bcf) 30.0 25.0 Storage 20.0 Futures 15.0 Fixed Forwards 10.0 5.0 0.0 6 5 5 6 6 n-0 v -0 c -0 b- 0 r-0 Ma Ja No De Fe $10.74 Weighted Average Cost of Futures and Fixed Forwards $ 7.17 Weighted Average Cost of Storage $ 9.11 Weighted Average Blended Cost of Gas Hedges Plus Storage = Approximately 46% of Winter Requirements 35
  37. 37. Maximizing Core Utility Earnings Utility Bad Debt Expense as a % of Revenues Well Below Industry Average 2.0 1.86 2006 estimated bad 1.5 debt expense is $20 Percent million Reserve of $10 million was 1.0 0.83 established as of September 30, 2005, 0.64 0.58 with accruals 0.5 throughout fiscal 0.29 2006 0.0 0.0 2001 2002 2003 2004 2005 2006E 36
  38. 38. Maximizing Core Utility Earnings Managing Pension, Post-Retirement & Other Benefits Expense (in millions) $54.4 Other $60.0 Medical & Dental $44.3 $50.0 8.9 Post-retirement Pension $40.0 10.0 22.2 $30.0 16.8 $20.0 2006 Assumptions 13.8 8.50% return on plan assets 12.8 5.00% discount rate $10.0 4.00% wage increase 9.5 4.7 $0.0 2005 2006E 37
  39. 39. Maximizing Core Utility Earnings Managing Capital Expenditures at the Utility ($ in millions) $250 $250 $200 $200 $183-189 Depreciation Expense $52 Capital Expenditures $174 $150 $150 $90-94 $100 $100 $50 $50 $0 $0 2001 2002 2003 2004 2005 2006E Non-Growth Growth Depreciation 38
  40. 40. Nonutility Operations Atmos Energy Corporation Atmos Energy Corporation (Natural Gas Utility Divisions) Atmos Energy Holdings, Inc. (Natural Gas Utility Divisions) Atmos Energy Holdings, Inc. (Nonutility Businesses) (Nonutility Businesses) Colorado-Kansas Colorado-Kansas Atmos Energy Marketing Atmos Energy Marketing Kentucky Kentucky • • Storage (Trading) Storage (Trading) • • Transportation (Marketing) Transportation (Marketing) Louisiana Louisiana Atmos Pipeline & Storage Atmos Pipeline & Storage Mid-States Mid-States • • Atmos Pipeline-Texas Atmos Pipeline-Texas • Non-Texas Assets • Non-Texas Assets Mid-Tex ** Mid-Tex Other Nonutility Other Nonutility Mississippi Mississippi • • Atmos Energy Services Atmos Energy Services • • Atmos Power Systems Atmos Power Systems West Texas West Texas * Effective 10/1/04, includes LDC and pipeline operations of former TXU Gas. Pipeline operations have functionally reported under the nonutility businesses beginning in Fiscal 2005. 39
  41. 41. Atmos Energy Marketing Business Model The portfolio of assets that AEM manages is either acquired, leased or results from various asset management transactions with 3rd parties. Also, transportation and storage assets are contracted for (proprietary). These assets are utilized to capture value and create commercial opportunities. Storage Assets Transportation Assets • Support Customer Marketing • Optimize Value (trading to capture (optimize value of capacity) time and location price differentials) Proprietary Proprietary Asset Management Asset Management • No customer obligation • No customer obligation • Customer obligation • Customer obligation • 100% optionality • 100% optionality • Partial optionality • Partial optionality Customer Sales Customer Sales • Full Requirements • Base-load • Billable Plan • Peaking • Other • Balancing 40
  42. 42. Atmos Energy Marketing Trading Arbitrage Opportunities (Storage and Transportation) Example: Cash Market to prompt (arbitrage opportunity) Storage Cash Market = $8.00 / dth Prompt futures = $8.40 / dth Capture arbitrage spreads with storage AEM buys physical at $8.00 and injects in storage Cash market vs. prompt futures AEM sells prompt futures at $8.40 / dth Prompt futures vs. forward futures Spread captured $ 0.40 / dth Balance of month cash vs. prompt month Less: Injection & Storage fees (0.20) / dt futures Unit Margin $ 0.20 / dth Trading Parameters Transportation Transportation Run flat book Capture arbitrage spreads on pipeline grid Capture arbitrage spreads on pipeline grid No speculative trading Excess transport capacity Excess transport capacity Pipeline segmentation Pipeline segmentation 41
  43. 43. Atmos Energy Marketing Margin Composition 2006E Impacted by customer volume demand Marketing Sales prices are: Marketing • Cost plus profit margin $40- $42 Million (Bundled gas deliveries & • Cost plus demand charges (Bundled gas deliveries & peaking sales) peaking sales) Margins: More predictable Impacted by gas price spread values in the market (arbitrage opportunity) Trading Trading $12 - $26 Million Physical storage capabilities Available storage and transport (Storage & transportation (Storage & transportation capacity management) management) Margins: More variable = Total margins reflect: Stability from marketing margins $52 - $68 Million Upside from trading around storage Total AEM Total AEM and transportation assets to capture Margins Margins arbitrage value Margins: Stable with potential upside 42
  44. 44. Nonutility Operations Atmos Energy Corporation Atmos Energy Corporation (Natural Gas Utility Divisions) Atmos Energy Holdings, Inc. (Natural Gas Utility Divisions) Atmos Energy Holdings, Inc. (Nonutility Businesses) (Nonutility Businesses) Colorado-Kansas Colorado-Kansas Atmos Energy Marketing Atmos Energy Marketing Kentucky Kentucky • • Storage (Trading) Storage (Trading) • • Transportation (Marketing) Transportation (Marketing) Louisiana Louisiana Atmos Pipeline & Storage Atmos Pipeline & Storage Mid-States Mid-States • • Atmos Pipeline-Texas Atmos Pipeline-Texas • Non-Texas Assets • Non-Texas Assets Mid-Tex ** Mid-Tex Other Nonutility Other Nonutility Mississippi Mississippi • • Atmos Energy Services Atmos Energy Services • • Atmos Power Systems Atmos Power Systems West Texas West Texas * Effective 10/1/04, includes LDC and pipeline operations of former TXU Gas. Pipeline operations have functionally reported under the nonutility businesses beginning in Fiscal 2005. 43
  45. 45. Atmos Pipeline & Storage Ownership of Strategic Asset Base Provides Revenue Growth & Stability Atmos Pipeline & Storage Storage Assets Pipeline Assets East Diamond Reservoir 2.2 bcf of storage in KY Atmos Pipeline –Texas 6,162 miles of intrastate pipe Barnsley Reservoir in Texas 1.3 Bcf of storage in KY Trans LA Gas Pipeline 25 % interest in Napoleonville 21 miles of 24” pipe in Louisiana 0.4 Bcf of Salt storage in LA 5 Storage Fields in Texas 39 Bcf of storage Upstream pipeline services and storage-type services provided to Atmos Energy’s Mid-Tex Division, affiliates & third parties 44
  46. 46. Atmos Pipeline - Texas Asset Description Pipeline transports and stores gas, as well as provides other pipeline services for distribution, industrial, electric generation, cross haul and other shippers Approximately 6,162 miles of intrastate pipeline • Total projected transportation volume is approximately 591 Bcf o Current average volume of approximately 1.6 Bcf/d. o Demonstrated peak day deliveries of 3.5 Bcf/d o The Dallas / Fort Worth Metroplex comprises approximately 75% • of on-system distribution demand Five Storage facilities (One salt cavern; four depleted reservoirs) Working Gas Capacity: 39 Bcf • Maximum withdrawal: 1.2 Bcf/d • Maximum Injection: 270 MMcf/d • 45
  47. 47. Atmos Pipeline - Texas Project Update CAPEX GRIP Filings * Actual Estimated Project 2005 2006 2005 2006 Northside Loop JV with Energy $1.6 million $43.4 million $13.0 million $32.0 million Transfer Enbridge --- Line/Corridor $4.0 million $16.0 million $20.0 million Compression Devon Line/ Corridor ---- ---- ---- ---- Compression Katy Capacity ---- Expansion/ $1.3 million $13.7 million $15.0 million Compression Total: $6.9 million $73.1 million $13.0 million $67.0 million Estimated total annual revenues are $15.0 million; of which $6.7 million are expected to occur in fiscal 2006. * Capital expenditures on a calendar year basis are Included in GRIP filings when the asset is operational 46
  48. 48. Financial Outlook - Nonutility Operations Net Income by Nonutility Segment 2005 2006E $55 million $51 - $58 million $31-$32 $31 $1-$2 $23 $19-$24 $1 AEM AP&S Other AEM AP&S Other 47
  49. 49. Financial Outlook – Consolidated Earnings Guidance – 2006 Fiscal Year Atmos Energy expects earnings to be in the range of $1.80 - $1.90 per fully diluted share for the 2006 fiscal year Base assumptions include: • Normal weather conditions in non-WNA jurisdictions • Continued execution of rate strategy and collections efforts • Irrigation volumes of 4.0 Bcf • Not less than $11.7 million of storage margin contribution • No material acquisitions • Average short-term interest rate @ 4.5 % • Bad debt expense of no more than $20 million • Adverse impact of Hurricane Katrina on margin between $10 million and $12 million 48
  50. 50. Financial Outlook - Consolidated Selected Income Statement Components ($ in millions) 1200 2006E Consolidated 1000 ($ millions) 443-450 O&M $443 - $450 800 D&A $192 - $198 428 Interest $137 - $138 Income Tax $90 - $95 600 Net Income $148 - $156 192-198 178 215 400 205 158 137-138 133 140 97 87 200 82 90-95 82 68 65 64 59 47 52 42 148-156 35 33 136 86 72 60 56 0 01 02 03 04 05 6E 00 20 20 20 20 20 49 2
  51. 51. Financial Outlook - Consolidated Net Income by Segment ($ millions, except EPS) 2006E 2004 2003 2005 $ 63 $ 62 $ 81 $ 97 - 98 Utility 17 (1) 23 19 - 24 Natural Gas Marketing 3 7 31 31 - 32 Pipeline & Storage 3 4 1 1-2 Other 86 72 136 148 - 156 Total 54.4 46.5 79.0 82.0 Avg. Diluted Shares $ 1.58 $ 1.54 $ 1.72 $1.80 - $1.90 Earnings Per Share 50
  52. 52. Financial Outlook - Consolidated Capital Expenditures – 2006 Fiscal Year Utility CAPEX Pipeline & Storage CAPEX (in millions) (in millions) $301 $127-$132 $273-$283 $350 $140 $300 $120 37-39 $250 $100 211 183-189 $200 $80 $150 $32 $60 90-93 $100 $40 $50 90 90-94 25 $20 7 $0 $0 2005 2006E 2005 2006E Maintenance Growth Consolidated fiscal 2006 CAPEX projection is $400-$415 million 51
  53. 53. Financial Outlook - Consolidated Cash Flow ($ millions) 2003 2004 2005 2006E $ 49 $ 271 $ 387 $ 393 - 403 Cash flows from operations (110) (126) (243) (220 - 228) Maintenance/Non-growth capital (55) (67) (99) (103) Dividend $ 45 $ 70 - 72 $ (116) Cash available for debt reduction $ 78 and growth projects Note: The company issued approximately $2.0 billion in debt and equity in 2004. Net cash proceeds exceeded the TXU Gas purchase price by approximately $56 million (after $43 million related to Treasury lock obligations) in anticipation of funding significant and attractive growth projects. 52
  54. 54. Financial Outlook - Consolidated Net Liquidity Position Is Solid With Existing Credit Lines* $1,200 1,034 $1,000 786 661 $800 505 $ millions 214 $600 416 156 529 $400 149 505 574 267 $200 $0 2003 2004 2005 2006E Atm os Energy Corp. Atm os Energy Holdings * Subject to internal borrowing strategy and collateral limitations primarily at AEH 53
  55. 55. Financing Activities Investment Grade Credit Ratings Moody’s Rating Senior Unsecured Debt: Baa3 Commercial Paper: P-3 Outlook: stable Standard & Poor’s Senior Unsecured Debt: BBB Commercial Paper: A-2 Outlook: stable Fitch Senior Unsecured Debt: BBB+ Commercial Paper: F-2 Outlook: negative 54
  56. 56. Summary Compelling Valuation Forward P/E Estimates 5 Year Growth Estimates 12.4 20.0 12.0 18.1 14.9 16.0 9.0 13.8 5.9 6.0 12.0 4.7 3.0 8.0 Peer Group Atmos S&P 500 S&P 500 Peer Group Atmos Avg. Energy Avg. Energy Source: Bloomberg Companies in the peer group include AGL Resources, KeySpan, Laclede, New Jersey Resources, Nisource, Northwest Natural Gas, Oneok, Piedmont Natural Gas, Southwest Gas and WGL Holdings. 55
  57. 57. Summary Company Profile The nation’s largest pure-gas distribution company Solid financial foundation Track record of creating shareholder value • Consistent earnings growth • 22 consecutive years of increasing dividends Focused strategy over time • Maximize core natural gas utility earnings capability • Complement core utility business through select nonutility operations • Grow through prudent acquisitions 56
  58. 58. Appendix 57
  59. 59. Authorized Regulatory Returns Authorized Regulatory Return on Equity (ROE) by Division * 13.0 12.2 12.0 12.0 11.6 11.3 11.3 11.0 11.0 10.5 10.5- 10.1 10.0 11.5 9.8 10.0 9.5- Percent 10.5 9.0 8.0 7.0 6.0 5.0 L ck lo X LA GA IL IA VA X/P MS aril CO MO .T bo T W d- b Am Lu Mi Consolidated GAAP Average ROE at 9/30/05 was 9.0% 58 * ROE not stated in state commission’s decision in Kansas, Kentucky and Tennessee
  60. 60. Atmos Energy Marketing - Storage Storage Trading Margin - Economic Value vs. GAAP Reported Results Economic Value* Reported GAAP Reported GAAP (Commercial Value) Value Value (Embedded Value) - -Physical and Financial Physical and Financial - Physical and Financial Positions Positions Positions ($14.8 MM) ($14.8 MM) $13.1 MM Storage Trading Margin Embedded margin difference * Realizing Economic Value $27.9 MM is dependent on ability to execute – deliver physical gas & close financial hedges At September 30, 2005 59
  61. 61. Atmos Energy Marketing - Storage Trading Margin Description We commercially manage our storage assets by capturing arbitrage value through optimization strategies that create embedded (forward) value in the portfolio. We financially report the transactions for external reporting purposes in accordance with GAAP. GAAP Reported Value is the period to period net change in fair value of the portfolio reported in the income statement that results from the process of marking to market the physical storage volumes and corresponding financial instruments in an interim period. Economic Value is the period to period forward margin of our storage portfolio that results from the process of calculating our weighted average cost of inventory (WACOG), and our weighted average sales price of our forward financials (WASP), then multiplying the difference times inventory volumes. This margin will be realized in cash when the hedged transaction is executed or when financials are settled and then reset to stay hedged against physical volumes. Economic Value represents the “forward” economic margin of the transactions, while GAAP reported results reflect that portion of our “forward” margin that has been recorded in the income statement. Volatility in earnings includes the impact of the accounting treatment of our storage portfolio and is reflective of relatively high price volatility of the prompt month, and the relatively low volatility of the offsetting forward months. 60
  62. 62. Atmos Energy Marketing - Storage Storage Margin Volatility (Potential Impact of Change in GAAP Reported Spread Values) $16.0 $14.0 $12.0 $10.0 ($ in Millions) $8.0 $6.0 $4.0 $2.0 $0.0 5 4 4 5 5 n-0 p-0 c-0 p-0 r-0 Ma De Ju Se Se $.25 Price Move $.50 Price Move $1 Price Move Sep-04 Dec-04 Mar-05 Jun-05 Sep-05 Storage Volumes: BCF 5.5 6.4 12.5 14.7 6.9 61
  63. 63. Atmos Energy Marketing Year Ended September 30 Natural Gas Marketing Segment 2005 2004 Change (In thousands, except storage balances) Storage Activities Realized margin $28,008 ($1,900) $29,908 Unrealized margin (14,007) 357 (14,364) Total Storage Activities 14,001 (1,543) 15,544 Marketing Activities Realized margin 59,971 51,347 8,624 Unrealized margin (11,999) (3,173) (8,826) Total Marketing Activities 47,972 48,174 (202) GROSS PROFIT $61,973 $46,631 $15,342 Ending storage balance (Bcf) 6.9 5.5 1.4 62
  64. 64. Atmos Pipeline - Texas 63
  65. 65. Atmos Pipeline - Texas Project Update Northside Loop Agreement – Energy Transfer Joint Venture with Energy Transfer Fuel to construct and operate approximately 45 miles of 30quot; pipeline extending from Justin to Frisco, in the northern part of the DFW Metroplex, creating incremental capacity of 225 MMcf/d. Initial investment approximately $45 million, contributed over a two-year period with final Atmos contribution made in April 2006 Justin to Line F segment expected in-service by end of December 2005, remaining segment by February 2006 Compression is ordered and anticipated to be in-service by March 2006 CAPEX: approximately $1.6 million in fiscal 2005; $43.4 million in fiscal 2006 Enbridge - Line (Corridor Compression Project) Executed agreement in May 2005 to install compression to enhance re-injection capabilities at Bethel and to transport up to 100 MMcf/d into Enbridge’s new 36” Carthage pipeline at Bethel. Start date anticipated early-2006 CAPEX: approximately $4 million in fiscal 2005; $16 million in fiscal 2006. GRIP eligible in calendar 2006 filing when the line becomes operational Devon – Line (Corridor Compression Project) Executed agreement in July 2005 to transport up to 50 MMcf/d into Enbridge. Start date anticipated early-2006 Katy Capacity Expansion (Compression Project) Signed agreements in July 2005 with 3 shippers to transport an additional 50 MMcf/d of capacity to the Katy area. Project is expected to come online in June 2006 64 CAPEX: approximately $1.3 million in fiscal 2005 and $13.7 million fiscal 2006.
  66. 66. Atmos Pipeline-Texas Project Map North Side Loop Enbridge Compression 65
  67. 67. Trans Louisiana Gas Pipeline h ris rish Pa s Storage is held on upstream pipelines Orleans Pa rl e ha h .C ris St Jefferson Pa • Bridgeline • Acadian • Gulf South Entergy Louisiana Entergy Louisiana (TLGP Sales) (TLGP Sales) S5,T13S,R20E Gulf South Pipeline S5,T13S,R20E Gulf South Pipeline S48,T13S,R21E S48,T13S,R21E Atmos Energy Louisiana Atmos Energy Louisiana S5,T13S,R23E S5,T13S,R23E Acadian Gas Pipeline Acadian Gas Pipeline S48,T13S,R21E S48,T13S,R21E AEL 18” TLGP 24” Bridgeline Gas Bridgeline Gas (Paradis) (Paradis) TLGP 16” S39,T14S,R20E S39,T14S,R20E Future Interconnect Future Interconnect Columbia Gulf Columbia Gulf S24,T13S,R23E TLGP Pipeline TLGP Pipeline B’line 14” October 26, 2001 N Metropolitan New Orleans Area Metropolitan New Orleans Area 21 Miles of 24” TLGP Pipe W E .95 Miles of 12” TLGP Pipe TLGP Transmission // TLGP Sales Points TLGP Transmission TLGP Sales Points 66 S

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