Pacific Northern Gas Reports Second Quarter Results and Declares Third Quarter Dividends
July 31 2008 - 8:02PM
Marketwired Canada
Pacific Northern Gas Ltd. (TSX:PNG)(TSX:PNG.PR.A) announced today that the net
loss for the three months ended June 30, 2008 was $0.2 million compared with a
net loss of $0.8 million for the corresponding period in 2007. After providing
for preferred share dividends, the loss per common share in the three months
ended June 30, 2008 was $0.08 compared with a loss per common share of $0.24 for
the same period in 2007. The Company's natural gas distribution business is very
seasonal, with higher sales in the colder winter months and lower sales in
warmer months. Given that a substantial portion of its gas sales are used for
space heating purposes, the Company earns in excess of its annual net income in
the first and fourth quarters of its fiscal year and generally realizes losses
in the other two quarters.
The net loss for the quarter was lower in 2008 compared to 2007 by approximately
$0.6 million due mainly to the higher allowed return on equity ("ROE") rate of
9.27% in 2008 compared to 9.02% in 2007 in the Western system and the Tumbler
Ridge division of the Northeast system and the higher ROE of 9.02% in 2008
compared to 8.77% in 2007 in the Fort St. John/Dawson Creek division of the
Northeast system. In addition, the Company had higher than projected net
residential customer additions and large commercial transportation volumes,
primarily in the Northeast system, compared to the 2008 forecast additions and
volumes used for ratemaking purposes.
The Company continues to pursue a project to loop its mainline transmission
system from Kitimat to Summit Lake (the "KSL Project") through its 50 percent
ownership of Pacific Trail Pipelines Limited Partnership ("PTP"). On June 27,
2008, PTP received its Environmental Assessment Certificate from the B.C.
Environmental Assessment Office ("BCEAO") for the KSL Project. Approvals from
the Canadian Environmental Assessment Agency ("CEAA") are expected to be granted
before the end of 2008.
The KSL Project would provide gas transportation services for up to 1.0 billion
cubic feet per day, primarily for Kitimat LNG Inc.'s proposed liquefied natural
gas ("LNG") facility to be located approximately 15 kilometers southwest of
Kitimat. The Project entails the construction of approximately 470 kilometers of
a 36 inch diameter pipeline and associated compression facilities, at a cost of
$1.2 billion based on estimates made in 2006. Subject to a number of conditions,
construction of the KSL Project by PTP is expected to commence in 2010 for
completion in early 2013 when the LNG facility is expected to begin operation.
Conditions to construction include the securing of contracts for use of PTP's
transportation capacity, financing for construction of the KSL Project, and
additional regulatory approvals for the KSL Project, including approvals under
the Canadian Environmental Assessment Act, a Certificate of Public Convenience
and Necessity from the Commission and other permits from the B.C. Oil and Gas
Commission. The Company can give no assurances that these conditions will be
satisfied or that construction of the KSL Project by PTP will proceed.
Included in the net loss for the three month periods ended June 30, 2008 and
2007 are charges, net of income taxes, of $0.1 million and $0.4 million,
respectively for the Company's share of KSL Project development expenditures
incurred by PTP.
The Company's share of planned development expenditures for the KSL Project in
the last six months of 2008 have increased to approximately $0.5 million before
income taxes ($0.09 per share, net of income taxes) due to the delay of
expenditures to date and forecast incremental expenditures to complete the CEAA
review process. The Company's share of further KSL Project development
expenditures will continue to be expensed until suitable commercial arrangements
for firm gas transportation services by PTP are in place.
Net income for the six months ended June 30, 2008 was $4.3 million, compared to
$3.1 million for the corresponding period in 2007. After providing for preferred
share dividends, earnings per common share in the six months ended June 30, 2008
were $1.13 compared to $0.81 for the same period in 2007. Net income for the six
months ended June 30, 2008 was higher by $1.2 million compared to 2007 due
mainly to lower KSL Project development expenditures incurred by PTP in 2008 and
the higher ROE rates in 2008 compared to 2007. Included in net income for the
six months ended June 30, 2008 and 2007 are charges, net of income taxes of $0.3
million and $0.7 million, respectively for the Company's share of KSL Project
development expenditures. In addition, the Company had reduced the net income in
the second quarter of 2007 by $0.2 million to reflect the Commission's decision
to disallow the recovery of certain income trust hearing costs.
Residential deliveries were lower by approximately 8 percent in the three month
period ended June 30, 2008 compared to the same period in 2007 and higher by 2
percent in the six month period ended June 30, 2008 compared to deliveries over
the same period in 2007. Total commercial deliveries were higher by 7 percent
and 6 percent in the three month and six month periods ended June 30, 2008,
respectively, relative to deliveries over the same period in 2007. Management
believes that weather was a minor factor in the change in residential deliveries
as there was virtually no change in degree days in the three month period ended
June 30, 2008 and weather was approximately 4 percent colder for the six month
periods ended June 30, 2008, respectively, compared to the same periods in 2007.
The lower residential deliveries in the second quarter were mainly due to a
reduced customer use per account in all service areas and a lower number of
customers in the Western system, offset by a higher number of customers in the
Northeast system in 2008 compared to 2007. Commercial deliveries were higher
primarily due to a greater number of commercial customers in the Northeast
system, in 2008 compared to 2007.
Industrial deliveries were lower by 19 percent and 11 percent for the three
month and six month periods ended June 30, 2008 compared to the same periods in
2007. Deliveries to small industrial customers were lower by 3 percent and by 7
percent for the three and six month period ended June 30, 2008 compared to the
same periods in 2007. The reductions in small industrial customer deliveries
relate primarily to customers in the forest industry. Deliveries to large
industrial customers were lower by 30 percent and by 14 percent for the three
and six month period ended June 30, 2008 compared to the same period in 2007,
mainly due to lower deliveries to West Fraser Mills Ltd. Deferral accounts are
in place that recover or refund margin differences resulting from deliveries to
large industrial customers and to some small industrial customers varying from
the forecast approved for ratemaking purposes.
Operating revenues in the three months ended June 30, 2008 increased to $20.3
million, as compared with $17.9 million in the corresponding period in 2007. The
increase in operating revenues was primarily due to an increase of $1.6 million
in revenues from the sale of gas surplus to the needs of the Company's sales
customers ("off system gas sales"), an increase in residential and commercial
sales revenue of $1.0 million due mainly to a higher cost of service in 2008 and
higher gas cost recoveries from sales customers, offset by lower revenues from
industrial customers compared with the corresponding period in 2007. Any profit
or loss realized on off system gas sales is deferred for future recovery from,
or refund to, the Company's sales customers. The increase in off system gas
sales in the second quarter of 2008 reflects the impact of an increase in the
quantity of gas supply purchased on a committed basis in 2008 compared to 2007
as well as lower deliveries to sales customers during the period. Natural gas
commodity prices, which are passed through to the Company's sales customers
without mark-up, are very volatile and result in significant variability of the
Company's reported operating revenues, but do not affect net income.
Operating revenues in the first six months of 2008 increased to $77.9 million as
compared with $76.9 million in the first six months of 2007. The increase in
operating revenues was primarily due to an increase in residential gas sales of
$1.4 million and an increase of $1.4 million in commercial gas sales and
transportation revenues, offset by a reduction of $1.5 million from industrial
gas sales and transportation revenues and a reduction in off system gas sales of
$0.2 million, compared with the corresponding period in 2007. The higher gas
sales revenues from residential and commercial customers reflect the higher cost
of service in 2008 compared to 2007, the higher gas cost recoveries in the
second quarter of 2008 as well as the higher number of customers. The reduction
in revenues from industrial customers is due to the lower than anticipated
deliveries to customers in the forestry industry.
Operating margin in the three months ended June 30, 2008 increased slightly to
$8.9 million compared to $8.8 million in the same period in 2007. The higher
operating margin in the second quarter is primarily the result of higher
deliveries to commercial customers, offset by lower deliveries to small
industrial customers.
Operating margin in the six months ended June 30, 2008 increased to $25.3
million, as compared with $24.5 million in the same period in 2007. The higher
operating margin in the first six months of 2008 is primarily the result of the
increase in the regulated cost of service mainly due to the higher ROEs in 2008
compared to 2007 and higher than anticipated deliveries to commercial
transportation customers, offset by lower than anticipated deliveries to small
industrial customers in the forestry industry.
The Board of Directors declared a quarterly dividend of 22 cents per share on
the Company's Common Shares, payable September 22, 2008 to shareholders of
record at the close of business on September 5, 2008.
Pacific Northern Gas Ltd., for purposes of the Income Tax Act (Canada), and any
similar provincial or territorial legislation, designates all dividends paid by
Pacific Northern Gas Ltd. after December 31, 2005 to be "eligible dividends"
unless otherwise notified by the Company. An eligible dividend paid to a
Canadian resident is entitled to the enhanced dividend tax credit.
Headquartered in Vancouver, British Columbia, Pacific Northern Gas Ltd.
(TSX:PNG)(TSX:PNG.PR.A) owns and operates natural gas transmission and
distribution systems. The Company's western transmission line extends from the
Spectra Energy (formerly Duke Energy) gas transmission system north of Prince
George to tidewater at Kitimat and Prince Rupert, and provides service to 12
communities and a number of industrial facilities. In the northeast, Pacific
Northern's subsidiary Pacific Northern Gas (N.E.) Ltd. provides gas distribution
service in the Dawson Creek, Fort St. John and Tumbler Ridge areas. Further
information is available on the Company's website at: www.png.ca.
Second Quarter Consolidated Results
Three Month Period Ended June 30
($ thousand, except for per share data)
2008 2007
Operating revenues $20,332 $17,934
Cost of sales 11,394 9,180
------ -----
Operating margin 8,938 8,754
Net loss applicable to common shares ($ 289) ($ 884)
Loss per common share - basic ($ 0.08) ($ 0.24)
Loss per common share - diluted ($ 0.08) ($ 0.24)
Operating cash flow $ 413 ($ 1,499)
Additions to plant, property and equipment (2,413) (2,260)
Decrease (increase) in deferred charges 178 267
Repayment of long term debt - (646)
Decrease in bank indebtedness (5,670) (1,301)
Dividends paid (975) (896)
Second Quarter Consolidated Results
Six Month Period Ended June 30
($ thousand, except for per share data)
2008 2007
Operating revenues $77,861 $76,894
Cost of sales 52,567 52,388
------ ------
Operating margin 25,294 24,506
Net income applicable to common shares $ 4,137 $ 2,959
Earnings per common share - basic $ 1.13 $ 0.81
Earnings per common share - diluted $ 1.12 $ 0.80
Operating cash flow $ 5,618 $ 3,282
Additions to plant, property and equipment (4,466) (4,787)
Decrease (increase) in deferred charges 737 581
Repayment of long term debt - (1,290)
Decrease in bank indebtedness (7,470) (5,075)
Dividends paid (1,781) (1,625)
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