Pacific Northern Gas Ltd. (TSX:PNG)(TSX:PNG.PR.A) announced today that its Board
of Directors declared a 7 percent increase in the quarterly dividend to 30 cents
per share on the Company's common shares. The dividend will be payable December
21, 2010 to shareholders of record at the close of business on December 7, 2010.
Third Quarter 2010 Consolidated Results
The net loss for the three months ended September 30, 2010 was $2.2 million
compared with a net loss of $1.7 million for the corresponding period in 2009.
After providing for preferred share dividends, the basic loss per common share
in the three months ended September 30, 2010 was $0.64 compared with a loss per
common share of $0.49 for the same period in 2009. On a year to date basis, net
income was $3.1 million, the same as the corresponding period in 2009. 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. Production from the newly acquired McNair facility is also seasonal,
with only 10% of annual production normally expected in the third quarter and
results in operating losses in the third quarter.
The reduction in earnings for the quarter is mainly attributed to the
recognition of the amortization of the Methanex termination payment of $1.6
million in the third quarter for 2009. For the year 2010, this amount is being
recovered over customer rates throughout the year but a timing difference on the
impact on earnings results due to the lower volumes sold during the summer
months. Other contributing factors to the lower earnings are transaction costs
for the McNair acquisition and reorganization, inclusion of operating losses
from the McNair operations due to the seasonality of the business in this past
quarter, lower volumes than forecast for large commercial and small industrial
customers and a lower number of core market customers than forecast resulting in
lower margins. This decrease is offset by (i) the higher weighted average return
on equity ("ROE") earned in the third quarter of 2010 of 10.09% compared to
9.07% in the third quarter of 2009; (ii) the impact of the CAP/ROE Application
settlement which resulted in a 5% higher common equity component (increased to
45%) for the Company's Western system effective January 1, 2009 (recorded in the
second quarter of 2010); and (iii) a 4% higher common equity component
(increased to 40%) for the Company's Northeast system effective January 1, 2010.
The majority of the KSL Project development expenditures incurred in the third
quarter of 2010 were capitalized in recognition of the commencement of the
detailed design phase of the project.
The McNair acquisition and reorganization costs have been expensed as a result
of the Company's decision to early adopt the new accounting standard for
business combinations. The new standard requires the expensing of related
acquisition costs rather than their deferral and inclusion as part of the cost
of the business acquisition. Net earnings before acquisition and reorganization
costs per common share for the three months ended September 30, 2010 would have
been a loss of $0.60 per common share instead of a loss per common share of
$0.64.
Net income for the nine months ended September 30, 2010 was $3.1 million, the
same as the corresponding period in 2009. After providing for preferred share
dividends, basic earnings per common share in the nine months ended September
30, 2010 and 2009 were $0.79. There were offsetting factors that resulted in no
change to net income for the period. Earnings in 2010 increased by $1.1 million
due to the impact of the CAP/ROE Application settlement and the inclusion of
McNair operating results to date, offset by $0.6 million or $0.17 per share for
acquisition and reorganization costs incurred on the McNair acquisition and
higher KSL Project development expenditures. Included in net income for the nine
months ended September 30, 2010 and 2009 are after-tax charges for the Company's
portion of KSL Project development expenditures of $0.4 million and $0.1
million, respectively. Excluding the McNair transaction costs of $0.6 million,
earnings per share before acquisition and reorganization costs for the nine
months ended September 3 0, 2010 would have been $0.96 per common share instead
of $0.79 per common share.
Residential deliveries were approximately 2% lower in the three months ended
September 30, 2010 and lower by 15% in the nine months ended September 30, 2010
relative to deliveries over the same periods in 2009. Total commercial
deliveries were approximately 7% higher in the three months ended September 30,
2010 and lower by 16% in the nine months ended September 30, 2010 relative to
deliveries over the same periods in 2009. The lower residential deliveries were
mainly due to a lower number of customers and declining use per customer in the
Western system offset by higher deliveries to residential customers in the
Northeast region due to colder weather experienced during the three month period
ending September 30, 2010 compared to the same period in 2009. For the nine
month period ended September 30, 2010, weather was 10% warmer compared to the
same period in 2009, with resulting lower deliveries in 2010 compared to 2009.
The rate stabilization adjustment mechanism approved by the British Columbia
Utilities Commission (the "Commission") continues to contribute to the stability
of the Company's earnings. This mechanism allows the Company to record the
after-tax revenue variances arising from differences between actual and forecast
sales volumes for residential and small commercial customers in a deferral
account for collection or refund in future rates. As a result of the warm
weather experienced to date, the Company recorded an after-tax revenue variance
of $2.2 million for the nine month period ended September 30, 2010 in this
deferral account for recovery in future rates. For the three month period ended
September 30, 2010, the Company recorded an after-tax variance of $0.2 million
in this deferral account.
Industrial deliveries were lower by approximately 32% for both the three month
and nine month periods ended September 30, 2010 compared to the same periods in
2009. The decrease in industrial deliveries is comprised of a 54% decrease in
large industrial customer deliveries, mainly due to the closure of the West
Fraser Kitimat linerboard mill, combined with a 13% decrease in small industrial
deliveries. The decrease in small industrial customer deliveries relates
primarily to the Northeast system. 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 rate making purposes.
Operating revenues in the three months ended September 30, 2010 were $9.7
million compared with $10.5 million in the corresponding period in 2009. The
decrease was mainly due to the Methanex amortization payment no longer being
amortized into income in 2010. For 2010, this amount is being recovered through
customer rates and the lower volumes in the summer months results in a timing
difference in its recognition in revenues. Another contributing factor to the
lower revenues is the lower commodity cost of gas embedded in rates as a result
of declining gas market prices. These decreases have been partially offset by
the recognition of the impact of the CAP/ROE Application settlement in the third
quarter of 2010 and the impact of the McNair acquisition.
Operating revenues in the nine months ended September 30, 2010 were $65.1
million compared with $73.0 million in the corresponding period in 2009. The
decrease was primarily due to the lower commodity cost of gas embedded in rates
as a result of declining gas prices, offset by the recognition of the impact of
the CAP/ROE Application and the impact of the McNair acquisition.
Operating margin in the three months ended September 30, 2010 was $6.6 million,
as compared with $7.1 million in the same period in 2009, mainly due to the
impact of the timing difference resulting from the amortization of the Methanex
termination payment recorded in 2009 and the recovery in customer rates during
the year 2010, offset by the higher ROE and common equity components in the
third quarter of 2010 compared to the corresponding quarter of 2009 and the
recognition of operating results from the McNair acquisition.
Operating margin in the nine months ended September 30, 2010 increased to $35.0
million, as compared with $33.0 million in the same period in 2009, mainly due
to the impacts of the higher ROE and higher common equity components and the
inclusion of the operating results from the McNair acquisition since April 2010.
KSL Project
The Company continues to pursue the KSL Project to loop its mainline
transmission system from Kitimat to Summit Lake through its 50% ownership of
Pacific Trail Pipelines Limited Partnership ("PTP"). The KSL Project would
provide gas transportation services for up to 1.0 billion cubic feet per day,
primarily for the proposed LNG export terminal ("Terminal") to be located
approximately 15 kilometers southwest of Kitimat. The projected cost of
constructing approximately 470 kilometers of up to 36 inch diameter pipeline and
associated compression facilities, is $1.2 billion based on estimates made in
2006.
On January 13, 2010 Apache Corporation's subsidiary Apache Canada Ltd.
("Apache") acquired 51% of the Terminal. Apache also acquired a 25.5% interest
in PTP from Galveston LNG Inc., the parent company of Kitimat LNG Inc., the
original owner of the Terminal.
On May 18, 2010 EOG Resources Inc.'s Canadian subsidiary EOG Resources Canada
Inc. ("EOG") agreed to acquire the shares of Galveston LNG Inc. Through the
acquisition, EOG will acquire 49% of the Terminal and a 24.5% interest in PTP.
Subject to a number of conditions, construction of the KSL Project by PTP is
planned to commence in 2012 for completion in 2014 when the 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 such as a
Certificate of Public Convenience and Necessity ("CPCN") from the Commission and
other permits from the B.C. Oil and Gas Commission. The Company will continue
working to finalize transportation reservation agreements for the KSL Project
with the expectation of filing an application with the Commission for a CPCN
following successful negotiation of these agreements. The Company can give no
assurances that such agreements will be signed or other conditions will be
satisfied or that construction of the KSL Project by PTP will proceed.
In the third quarter of 2010, the Company commenced the detailed design phase of
the KSL Project and commenced capitalization of these expenditures. These
expenditures involve more detailed engineering work to provide detailed
information into the design and construction plan of the project and meet the
criteria for capitalization. The Company has also secured contingent financial
support from prospective shippers for this phase of the project. The Company's
share of expenditures incurred and capitalized in the third quarter relating to
engineering and technical studies was $360,000. The Company's share of total
2010 expenditures to September 30 was $916,000 ($655,000 after income taxes) of
which $360,000 has been capitalized. The Company expects its 50 percent share of
the project development costs in the last quarter of 2010 will be approximately
$1.9 million, the majority of which will be capitalized.
Dividends
In addition to the declaration of the common share dividends, 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, 2011 to the shareholders of record at the close of business on
December 16, 2010.
The Company, for purposes of the Income Tax Act (Canada), and any similar
provincial or territorial legislation, designates all dividends paid 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.
Forward-looking statements
This news release includes forward-looking statements. Forward-looking
statements relate to, among other things, anticipated financial performance,
business prospects, strategies, regulatory developments, new services, market
forces, commitments and technological developments. Many of these statements can
be identified by words such as "believe", "expects", "expected", "will",
"intends", "projects", "anticipates", "estimates", "continues" or similar words.
PNG believes the expectations reflected in such statements are reasonable but no
assurance is given that such expectations will be correct. All forward-looking
statements are based on management's beliefs and assumptions based on
information available at the time the assumption was made and on its experience
and perception of historical trends, current conditions and expected further
developments as well as other factors deemed appropriate in the circumstances.
By its nature, such forward-looking information is subject to various risks and
uncertainties that are known and unknown, including those material risks
discussed in PNG's 2009 Annual Information Form under "Risk Factors" which could
cause PNG's actual results and experience to differ materially from the
anticipated results or other expectations expressed. Such risks and
uncertainties include but are not limited to: general economic conditions and
markets; gas supply and availability; gas commodity price volatility;
competition; decisions by regulators; seasonal weather patterns; federal and
provincial climate change initiatives; financing of investments as well as the
value of such investments; the cost and availability of capital; the impact on
PNG's liquidity if it were to go offside of the covenants in its debt
facilities; successful execution of strategic initiatives; the ability of PNG to
attract and retain quality employees and the impact of accounting changes
including the transition to International Financial Reporting Standards. Readers
are cautioned not to place undue reliance on this forward-looking information,
which is given as of the date it is expressed in this news release or otherwise,
and PNG undertakes no obligation to update publicly or revise any
forward-looking information, whether as a result of new information, future
events or otherwise, except as required by applicable securities laws.
About Pacific Northern Gas
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 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
Three Month Period Ended September 30
($ thousand, except for per share data)
2010 2009
---------------------
Operating revenues $9,682 $10,500
Cost of gas 3,088 3,392
---------------------
Operating margin 6,594 7,108
Net loss attributable to common shares ($2,322) ($1,744)
Loss per common share - basic ($0.64) ($0.49)
Loss per common share - diluted ($0.64) ($0.49)
Net cash used in operating activities ($3,801) ($1,370)
Additions to plant, property and equipment (2,284) (2,094)
Acquisitions, net of cash acquired (328) -
Issuance of long term debt 4,000 -
Repayment of long term debt (692) (500)
Increase in bank indebtedness 4,223 -
Dividends paid (1,013) (892)
Third Quarter Consolidated Results
Nine Month Period Ended September 30
($ thousand, except for per share data)
2010 2009
---------------------
Operating revenues $65,083 $72,959
Cost of gas 30,056 39,983
---------------------
Operating margin 35,027 32,976
Net income attributable to common shares $2,851 $2,843
Earnings per common share - basic $0.79 $0.79
Earnings per common share - diluted $0.77 $0.78
Net cash provided from operating activities $4,378 $16,801
Additions to plant, property and equipment (4,845) (5,246)
Acquisitions, net of cash acquired (7,657) -
Issuance of long term debt 10,000 3,000
Repayment of long term debt (752) (3,500)
Increase (decrease) in bank indebtedness 1,644 (2,998)
Dividends paid (3,194) (2,731)
Third Quarter Consolidated Results
($ thousand, except for per share data)
As at As at
September 30 December 31
2010 2009
------------------------------------------
Cash, cash equivalents and
short term investments $1,978 $1,511
Common Shareholders' Equity 86,201 85,436
Book Value per Common Share $23.88 $24.03
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