Pacific Northern Gas Ltd.
TSX : PNG
TSX : PNG.PR.A

Pacific Northern Gas Ltd.

November 01, 2007 17:32 ET

Pacific Northern Gas Reports Third Quarter Earnings and Declares Fourth Quarter Dividends

VANCOUVER, BRITISH COLUMBIA--(Marketwire - Nov. 1, 2007) - Pacific Northern Gas Ltd. ("PNG") (TSX:PNG)(TSX:PNG.PR.A) announced today that the net loss for the three months ended September 30, 2007 was $1.4 million, slightly lower than the $1.5 million loss in the same period in 2006. After providing for preferred share dividends, the loss per common share in the three months ended September 30, 2007 was $0.40 compared with a loss per common share of $0.42 for the same period in 2006. 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 second and third quarters.

Included in the net losses for the three month periods ended September 30, 2007 and 2006 are charges, net of income taxes, of $0.4 million and $0.6 million, respectively for the Company's share of KSL Project development expenditures incurred by Pacific Trail Pipelines Limited Partnership ("PTP"). The KSL Project is a project to loop the mainline transmission system from Kitimat to Summit Lake to serve a LNG terminal proposed by Kitimat LNG Inc.

Net income for the nine months ended September 30, 2007 was $1.7 million, compared to $2.6 million for the corresponding period in 2006. After providing for preferred share dividends, earnings per common share in the nine months ended September 30, 2007 were $0.41 compared with $0.66 for the same period in 2006. This was mainly due to a $0.4 million reduction in earnings as a result of lower deliveries to large commercial and small industrial customers, a $0.2 million reduction due to the lower allowed return on equity on the utilities (9.02 percent in 2007 compared to 9.45 percent in 2006 for PNG-West division) and $0.1 million decrease due to the timing of the receipt of transportation services revenue from Methanex Corporation ("Methanex") in the first two months of 2006 prior to the termination of the Methanex contract on February 28, 2006. Also, included in net income for the nine months ended September 30, 2007 and 2006 are net of tax charges of $1.1 million for both years for the Company's share of KSL Project development expenditures incurred by PTP.

The Company's share of KSL Project development expenditures in the last three months of 2007 is expected to be approximately $0.5 million before income taxes ($0.09 per share, net of income taxes). 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 higher by approximately 2 percent and 9 percent in the three month and nine month periods ended September 30, 2007, respectively, relative to deliveries over the same period in 2006. Total commercial deliveries were unchanged for the three month period ended September 30th, 2007 and 3 percent higher in the nine month period ended September 30, 2007.

Deliveries to small industrial customers were higher by 2 percent and lower by 7 percent for the three month and nine month periods ended September 30, 2007 compared to the same periods in 2006. The overall decrease in small industrial customer deliveries relates primarily to customers in the forestry industry, in particular due to conversions to wood waste burning facilities and lower lumber prices affecting production levels. Variances in deliveries to small industrial customers are not subject to regulatory deferral accounts.

Deliveries to large industrial customers were higher by approximately 34 percent and 37 percent for the three month and nine month periods ended September 30, 2007, respectively, compared to the same periods in 2006. The West Fraser Mills linerboard and kraft mill in Kitimat required more gas in conjunction with the start up of a new electric turbine. It is not certain how long the West Fraser higher gas requirements will continue. A deferral account is in place to record margin differences resulting from deliveries to large industrial customers in the PNG-West system varying from the forecast deliveries approved for rate making purposes.

Operating revenues in the three months ended September 30, 2007 decreased to $12.0 million, as compared with $15.9 million in the corresponding period in 2006. The decrease was primarily due to a decrease of $3.4 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.

Operating revenues in the first nine months of 2007 decreased to $88.9 million as compared with $92.7 million in the first nine months of 2006. The decrease in operating revenues was primarily due to a decrease in gas supply costs recovered from sales customers offset by an increase in off system gas sales of $6.4 million compared with the corresponding period in 2006.

On July 24, 2007, PTP filed an application for an environmental assessment certificate for the KSL Project. After additional information was added to the application it was accepted by the EAO for formal review. The review and related assessment report is scheduled to be completed in early April 2008.

Subject to a number of conditions, construction of the KSL Project facilities by PTP will commence in the fourth quarter 2008 or in the first quarter or 2009. Conditions to construction include the securing of LNG supply by Kitimat LNG Inc., financing for the construction of the LNG terminal and the KSL Project, and regulatory approvals for the KSL Project. The regulatory requirements for the KSL Project include an environmental assessment certificate to be obtained through the Province of British Columbia's environmental assessment process, approvals under the Canadian Environmental Assessment Act, a Certificate of Public Convenience and Necessity from the Commission and other permits required 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.

In early October 2007 the Company filed its 2008 revenue requirements applications for its PNG-West division and for Pacific Northern Gas (N.E.) Ltd. ("PNG(N.E.)"), its wholly owned subsidiary. PNG(N.E.) is comprised of the Fort St. John/Dawson Creek and Tumbler Ridge divisions. The applications seek changes in residential customer delivery charges effective January 1, 2008 compared to 2007 rates as follows:

- PNG West division, increase of 2.2 percent, or $0.20 per GJ based on a projected 2008 revenue deficiency of approximately $583,000. This assumes Commission approval to credit $900,000 of deferred income taxes to the 2008 cost of service, the same level of credit approved by the Commission with respect to the 2007 cost of service.

- Fort St. John/Dawson Creek division, increase of 7.8 percent, or $0.23 per GJ based on a forecast revenue deficiency of $750,000 in 2008.

- Tumbler Ridge division, decrease of 2.1 percent, or $0.13 per GJ based on a revenue sufficiency of $23,000 projected for 2008.

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, 2008 to the shareholders of record at the close of business on December 17, 2007.

The Board of Directors also declared a quarterly dividend of 20 cents per share on the Company's common shares, payable December 20, 2007 to shareholders of record at the close of business on December 5, 2007.

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
Three Month Period Ended
September 30, 2007 ($ thousand, except for per share data)

2007 2006

Operating revenues $12,002 $15,850
Cost of sales 5,043 8,612
------- -------
Operating margin 6,959 7,238

Net loss applicable to common shares ($1,475) ($1,535)
Loss per common share - basic ($0.40) ($0.42)
Loss per common share - diluted ($0.40) ($0.42)

Operating cash flow ($1,201) ($403)
Additions to plant, property and equipment (1,358) (3,702)
Decrease (increase) in deferred charges (178) 258
Repayment of long term debt (14,570) 1,145
Issue of long term debt 14,622 -
Dividends paid (733) (728)


Third Quarter Consolidated Results
Nine Month Period Ended
September 30, 2007 ($ thousand, except for per share data)

2007 2006

Operating revenues $88,896 $92,658
Cost of sales 57,431 59,003
------- -------
Operating margin 31,465 33,655

Net income applicable to common shares $1,484 $2,379
Earnings per common share - basic $0.41 $0.66
Earnings per common share - diluted $0.40 $0.65

Operating cash flow $3,588 $6,692
Additions to plant, property and equipment (6,145) (5,660)
Decrease (increase) in deferred charges 403 (527)
Repayment of long term debt (15,860) (2,435)
Issue of long term debt 14,622 -
Decrease in bank indebtedness (5,075) (10,159)
Dividends paid (2,358) (2,347)

Contact Information

  • Pacific Northern Gas Ltd.
    Janet Kennedy
    Vice President, Finance
    (604) 691-5684
    Website: www.png.ca