Pacific Northern Gas Reports Third Quarter Earnings and Declares Fourth Quarter Dividends
November 03 2008 - 6:02PM
Marketwired Canada
Pacific Northern Gas Ltd. (TSX:PNG)(TSX:PNG.PR.A) announced today that net loss
for the three months ended September 30, 2008 was $1.6 million compared with a
net loss of $1.5 million for the corresponding period in 2007. After providing
for preferred share dividends, the loss per common share in the three months
ended September 30, 2008 was $0.44 compared with a loss per common share of
$0.40 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 slightly higher by $0.1 million in 2008
compared to 2007 due mainly to lower than anticipated deliveries to small
industrial customers due to the downturn in the forestry sector, lower net
residential additions than anticipated for this quarter and higher operating
expenses in 2008 compared to 2007. This was partially offset by lower Pacific
Trails Pipelines Limited Partnership's ("PTP") project development expenses and
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. Included in
the net losses for the three month periods ended September 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.
Net income for the nine months ended September 30, 2008 was $2.8 million,
compared to $1.7 million for the corresponding period in 2007. After providing
for preferred share dividends, earnings per common share in the nine months
ended September 30, 2008 were $0.69 compared with $0.41 for the same period in
2007. Net income for the nine months ended September 30, 2008 was higher by $1.1
million compared to 2007 due mainly to the lower expenditures incurred on the
Kitimat to Summit Lake Pipeline Looping Project (the "KSL Project") and the
higher ROE rates in 2008 compared to 2007. Included in net income for the nine
months ended September 30, 2008 and 2007 are charges, net of income taxes of
$0.4 million and $1.1 million, respectively for the Company's share of KSL
Project development expenditures.
PNG filed an application with the British Columbia Utilities Commission
("Commission") on September 25, 2008 for approval to provide LNG Partners, LLC
("LNG Partners") with an option to contract for a minimum 75 MMcf per day of
firm gas transportation service using existing capacity on PNG's Western
pipeline system. If LNG Partners exercises its option it would utilize the
transportation service to deliver natural gas to a floating natural gas
liquefaction vessel to be owned and operated by an LNG Partners' affiliate on
the Douglas Channel near Kitimat, B.C. The liquefied natural gas ("LNG") would
then be transferred to other LNG carriers for export.
Following Commission approval of the arrangement, LNG Partners will pay a $1.5
million non-refundable fee to PNG which will give LNG Partners an exclusive 6
month option to contract firm gas transportation capacity for a 3 to 5 year
primary term, with a right to renew for an additional 3 to 5 year term.
Alternatively, LNG Partners may extend the initial option period for another six
months on payment of an additional non-refundable option fee of $1.5 million.
PNG has applied for Commission approval to apply approximately two-thirds of the
initial option fee to reduce customer rates in 2009 with the remaining one-third
to compensate PNG for the reduced return it has earned since the Methanex
closure at the end of 2005. If LNG Partners exercises its option, the PNG
pipeline system would be at full capacity utilization, generating almost $15
million per year of incremental revenue for the benefit of PNG and its
customers, compared to approximately $12 million previously received annually
from Methanex. The commencement date for the transportation service is expected
to be at the beginning of 2011.
The Commission is expected to render a decision on the PNG/LNG Partners
arrangements prior to the end of 2008. The Company can give no assurances that
the Commission will approve the arrangements or that LNG Partners will proceed
with its floating natural gas liquefaction project.
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 PTP. On June 27, 2008, PTP received its Environmental Assessment
Certificate from the British Columbia Environmental Assessment Office 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 LNG export
terminal to be located approximately 15 kilometers southwest of Kitimat, the
same location as their originally proposed LNG import and regasification
terminal. Strong natural gas demand in Asia and increases in gas supply
throughout North America have led to higher natural gas prices in Asia than
North America. On this basis, Kitimat LNG Inc. has determined that the exporting
of LNG is more viable than the earlier proposal to import LNG. The KSL Project
entails the construction of approximately 463 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 planned to commence in 2010 for completion in early
2013 when the LNG export terminal is planned 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.
The Company's share of planned development expenditures for the KSL Project in
the last three months of 2008 are expected to be approximately $0.4 million
($0.3 million after income taxes) due to the deferral of expenses to date and
forecast incremental expenses 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.
Residential deliveries were lower by approximately 12 percent in the three month
period ended September 30, 2008 compared to the same period in 2007 and
unchanged in the nine month period ended September 30, 2008 compared to
deliveries over the same period in 2007. Total commercial deliveries were lower
by 2 percent and were higher by 5 percent in the three month and nine month
periods ended September 30, 2008, respectively, relative to deliveries over the
same periods in 2007. Management believes that overall weather was a minor
factor in the change in residential deliveries because, based on a degree day
analysis, it was approximately only 2 percent colder, in the three month period
ended September 30, 2008 and just 3 percent colder for the nine month period
ended September 30, 2008 compared to the same periods in 2007. The lower
residential deliveries in the third 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 consuming gas in the Northeast
system in 2008 compared to 2007.
Industrial deliveries were lower by 16 percent and 13 percent for the three
month and nine month periods ended September 30, 2008 compared to the same
periods in 2007. Deliveries to small industrial customers were lower by 9
percent and by 8 percent for the three and nine month periods ended September
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 23 percent and
by 17 percent for the three and nine month periods ended September 30, 2008
compared to the same periods in 2007, mainly due to lower deliveries to the pulp
mill owned by West Fraser Mills Ltd. in Kitimat. Deferral accounts are in place
that recover or refund margin differences resulting from deliveries to large
industrial customers and to some small industrial customers for variances from
the forecast approved for ratemaking purposes.
Operating revenues in the three months ended September 30, 2008 increased to
$13.8 million, as compared with $12.0 million in the corresponding period in
2007. The increase in operating revenues was primarily due to an increase in
residential, commercial, and small industrial sales revenue of $1.4 million due
mainly to a higher cost of service in 2008 and higher gas cost recoveries from
sales customers and an increase of $0.4 million in revenues from the sale of gas
surplus to the needs of the Company's sales customers ("off system gas sales").
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 revenue in the third quarter of 2008 reflects the impact of
higher gas prices in 2008 compared to 2007 and lower deliveries in 2008 to sales
customers resulting in a higher volume of surplus gas in the third quarter of
2008 compared to the corresponding period in 2007. 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 nine months ended September 30, 2008 increased to
$91.7 million as compared with $88.9 million in the first nine months of 2007.
The increase in operating revenues was primarily due to an increase in
residential gas sales of $1.9 million, an increase of $1.6 million in commercial
gas sales and transportation revenues, and an increase in off system gas sales
of $0.2 million offset by a reduction of $1.1 million from industrial gas sales
and transportation revenues, 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 and higher gas cost recoveries
in the second and third quarters of 2008 to reflect higher forecast gas prices
embedded in rates. 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 September 30, 2008 increased slightly
to $7.1 million compared to $7.0 million in the same period in 2007. The higher
operating margin in the third quarter is primarily the result of the higher cost
of service in 2008 compared to 2007 offset by lower than anticipated deliveries
to all the customer classes during the third quarter.
Operating margin in the nine months ended September 30, 2008 increased slightly
to $32.4 million, as compared with $31.5 million in the same period in 2007. The
higher operating margin during the nine months ended September 30, 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 for the nine month period,
offset by lower than anticipated deliveries to small industrial customers in the
forestry industry.
The Board of Directors declared a semi-annual dividend of 84.375 cents per share
on the Company's 6-3/4 percent cumulative, redeemable, preferred shares, payable
January 1, 2009 to the shareholders of record at the close of business on
December 15, 2008.
The Board of Directors declared a quarterly dividend of 22 cents per share on
the Company's Common Shares, payable December 23, 2008 to shareholders of record
at the close of business on December 8, 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.
Third Quarter Consolidated Results
For the Three Month Period Ended
September 30, 2008 ($ thousand, except for per share data)
2008 2007
Operating revenues $13,834 $12,002
Cost of sales 7,136 5,043
----- -----
Operating margin 7,136 6,959
Net loss applicable to common shares ($ 1,612) ($ 1,475)
Loss per common share - basic ($ 0.44) ($ 0.40)
Loss per common share - diluted ($ 0.44) ($ 0.40)
Operating cash flow ($ 833) ($ 1,201)
Additions to plant, property and equipment (3,299) (1,358)
Increase in deferred charges (143) (178)
Repayment of long term debt (500) (14,570)
Issue of long term debt, net of transaction costs - 14,622
Increase in bank indebtedness 2,992 -
Dividends paid (806) (733)
Third Quarter Consolidated Results
For the Nine Month Period Ended
September 30, 2008 ($ thousand, except for per share data)
2008 2007
Operating revenues $91,695 $88,896
Cost of sales 59,265 57,431
------ ------
Operating margin 32,430 31,465
Net income applicable to common shares $ 2,525 $ 1,484
Earnings per common share - basic $ 0.69 $ 0.41
Earnings per common share - diluted $ 0.68 $ 0.40
Operating cash flow $ 4,785 $ 3,588
Additions to plant, property and equipment (7,765) (6,145)
Decrease in deferred charges 594 403
Repayment of long term debt (500) (15,860)
Issue of long term debt, net of transaction costs - 14,622
Decrease in bank indebtedness (4,478) (5,075)
Dividends paid (2,587) (2,358)
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