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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED) AUGUST 28, 1998
MCN ENERGY GROUP INC
(Exact name of registrant as specified in its charter)
MICHIGAN 1-10070 38-2820658
State of Incorporation (Commission File (I.R.S. Employer
Number) Identification No.)
500 GRISWOLD STREET, DETROIT, MICHIGAN 48226
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(313) 256-5500
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Item 5. OTHER EVENTS
On August 28, 1998 MCN Energy Group Inc. issued the following press release:
MCN ENERGY GROUP ISSUES ALERT ON EARNINGS,
OPERATIONS AND INVESTMENT ISSUES
DETROIT, Aug. 28, 1998 -- MCN Energy Group Inc. (NYSE: MCN) today
announced that 1998 and 1999 earnings are not likely to meet analysts'
current expectations due to a confluence of factors, including the impact of
continued weak energy prices on its natural gas and oil exploration and
production (E&P) unit and delays in achieving commercial production volumes
from its coal fines project. In addition, due to continued earnings
disappointments, the company said it is reviewing its strategic options and
considering sales of E&P assets, as well as significantly reducing capital
investments and operating costs within its non-regulated businesses.
"The energy price issue remains an industry-wide phenomenon," MCN
Chairman, President and CEO Alfred R. Glancy III said. "Full-cost-accounting
E&P companies such as ours are being hit particularly hard because our oil
and gas reserves must be valued at current or contract prices at the end of
each quarter. This 'ceiling test' sets an artificially low value on the
reserves based on temporary drops in energy prices, rather than reflecting
the actual anticipated long-term value of those reserves. Based on recent
gas and oil prices and basis differentials, we expect to incur a ceiling
test write-down of approximately $50 million, after tax, for the third
quarter. Any such write-down would be non-cash.
"More importantly, our ongoing review of the E&P business and how it
fits into MCN's overall portfolio has led us to conclude that more value
might be realized by selling these assets and redeploying the capital
elsewhere. Although sales in today's industry environment are uncertain, a
complete exit from the E&P business is possible," Glancy said. "In the
meantime, we will significantly reduce drilling and acquisition activities.
These actions will reduce anticipated production levels. Clearly, lower
production combined with lower prices equates to reduced earnings
expectations from this business."
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Glancy also said delays in achieving anticipated production from the
company's coal fines briquetting project would have a negative impact on
earnings. The coal fines project recovers particles of coal that have been a
wasted by-product of the mining process. The plants chemically process these
fines, creating briquettes for sale into existing coal markets. This project
is made viable by synthetic fuel tax credits ranging from $20 to $25 per ton
of production. The plants had to be placed in service before June 30, 1998
to qualify for the tax credits.
"As a result of operating delays, we no longer expect to begin
briquette sales during the third quarter. We are working toward achieving
sales in the fourth quarter," Glancy said. "While delays could increase the
possibility of these credits being challenged, we intend to claim credits as
we sell production from the plants and will vigorously defend our position,
if need be, that we met tax rule requirements to have the plants in service
by June 30."
Glancy said a legislative effort currently is being advanced by Senator
Kent Conrad (D-ND) and Senator Orrin Hatch (R-UT), intended to extend the
in-service deadline for synthetic-fuel projects such as MCN's. This
legislation could help remove uncertainty regarding the coal fines project's
eligibility for tax credits.
"The Senators recognize that, without the tax credits, millions of
dollars of investments and the local tax and employment benefits they create
could be lost," Glancy said. "The proposed legislation would reduce
uncertainty regarding our project's qualification for tax credits."
Glancy acknowledged that today's announcements add to recent setbacks
for the company, but offered assurance that management and the Board of
Directors are working diligently to improve MCN's performance.
"We are not content to say that our problems are largely caused by
outside forces that are beyond our control," he said. "We are evaluating
ways to minimize the impact of such external forces on our company. In June,
we began taking action in the E&P business, proceeding with the disposition
of exploratory projects in the Midcontinent/Gulf Coast region. Now, we are
evaluating and implementing strategic alternatives to best realize the value
of our investment in the E&P unit, including potentially selling all or
pieces of the business."
Furthermore, the company is reviewing its overall investment plans. "We
will follow through with existing commitments," Glancy said. "However, due
to rising risks and reduced anticipated returns, we expect future new
commitments to international projects to be limited. As a result, capital
spending in the foreseeable future will probably be well below the recent
expectations of approximately $1 billion a year."
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Glancy concluded: "Although our E&P unit has had a difficult year, our
other non-regulated businesses are performing well and provide a sound base
for future growth. Furthermore, the regulated gas distribution segment is
performing very well and has better growth opportunities today than we have
seen in many years. Fundamentally, MCN remains sound, and we are determined
to achieve solid financial performance."
MCN Energy Group Inc. is a diversified energy holding company with more than
$4 billion of assets, and with markets and investments throughout North
America and in Asia. The company operates through two major business groups:
Diversified Energy, operating through MCN Investment Corporation, is
involved in oil and gas exploration and production, natural gas gathering,
transmission, processing and storage, energy marketing, electric power
generation and distribution, and other energy-related businesses; Gas
Distribution consists principally of Michigan Consolidated Gas Company, a
natural gas distribution and transmission company serving 1.2 million
customers in more than 500 communities throughout Michigan. Information
about MCN Energy Group is available on the World Wide Web at
http://www.mcnenergy.com.
Statements included in this news release that are not historical in
nature are forward-looking within the meaning of the Private Securities
Litigation Reform Act of 1995. These statements involve certain risks and
uncertainties that may cause actual future results to differ materially from
those contemplated, projected, estimated or budgeted in such forward-looking
statements. A discussion of these risks and uncertainties is included in the
company's periodic reports filed with the Securities and Exchange
Commission.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
MCN ENERGY GROUP INC.
By /s/ Sebastian Coppola
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Sebastian Coppola
Senior Vice President and Treasurer
Date: August 31, 1998
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