Columbia Gas Facing Loss of $1 Billion

PHILADELPHIA — Columbia Gas System Inc., one of the largest natural gas providers in the nation, said Wednesday that it might be forced into bankruptcy proceedings because falling gas prices have created potential contract losses exceeding $1 billion.

The news stunned Wall Street. Columbia’s stock plummeted $13.75 to close at $20.75 a share, a drop of 40%, on the New York Stock Exchange, where it was the most heavily traded issue.

The company, which provides natural gas to 15 Middle Atlantic states, said it is facing a severe profit squeeze because it signed long-term contracts to buy natural gas at prices that are now far above the market level.

While average gas prices at the wellhead have fallen to a 15-year low of about $1.20 per 1,000 cubic feet, Columbia has paid as much as $6.70 per 1,000 cubic feet under contracts written in the 1980s.

“The . . . losses associated with the pipeline subsidiary’s above-market-priced gas purchase contracts could exceed $1 billion,” the company said in a statement.

The Wilmington, Del.-based company said it may file for Chapter 11 bankruptcy protection or put its pipeline subsidiary in bankruptcy if it cannot arrange fresh credit lines from its banks or renegotiate the supply contracts.

Under Chapter 11 of the U.S. Bankruptcy Code, a company wins protection from its creditors while it tries to work out a plan to pay its debts.

As one solution, the company said it is thinking of offering gas producers up to $600 million in IOUs to compensate them for renegotiating the contracts.

The company believes that suppliers will view a deal as preferable to bankruptcy, where they would be unsecured creditors and stand in line behind the banks when their debts are worked out.

Columbia Chairman John Croom said talks with banks began Wednesday and were encouraging. Talks were also being set with gas producers.

“All reports coming back at this point are certainly encouraging,” Croom said. “We are talking and getting . . . set up to present more detailed information.”

One industry source said most producers “are likely to give in a bit” to Columbia’s restructuring proposal. “There is going to be a lot of arm-twisting” by Columbia, the source said.

The company moved swiftly to retain earnings, suspending its common stock dividend that had been $2.32 a share annually.

Columbia owns an 18,000-mile network of pipelines that stretches from the Gulf Coast through Virginia and as far as Rhode Island.

Columbia’s Falling Stock Price per share of daily close Wednesday close: $20.75, down $13. 75 Source: Knight-Ridder Tradcenter