Taylor NGL Limited Partnership
TSX : TAY.UN
TSX : TAY.DB

Taylor NGL Limited Partnership

October 31, 2007 16:05 ET

Taylor NGL Limited Partnership Announces Third Quarter 2007 Results and Conference Call

CALGARY, ALBERTA--(Marketwire - Oct. 31, 2007) - Taylor NGL Limited Partnership (TSX:TAY.UN) (TSX:TAY.DB) today announced its third quarter 2007 results. The following should be read in conjunction with Management's Discussion and Analysis, the consolidated financial statements and notes of Taylor NGL Limited Partnership, which have been posted on Taylor's website www.taylorngl.com and http://www.ccnmatthews.com/docs/1031TAY.pdf.

Q3 2007 HIGHLIGHTS

- Cash Available for Distribution for the quarter was a record $11.4 million, up $0.2 million from the previous record high, which was achieved in Q3 2006.

- On a per unit basis, year-to-date Cash Available for Distribution was 73.8 cents of which 56.25 cents has been distributed to Unitholders, a payout of 76 percent.

- Net Operating Income for the quarter was a record $16.7 million, up 3% from Q3 2006 and up 12% from Q2 2007.

- Net natural gas volumes processed by the Partnership averaged 437 MMscf per day in Q3, compared to 434 MMscf per day in Q3 2006.

- Net natural gas liquids (NGL) sales averaged 20,041 barrels per day in Q3, compared to 19,722 barrels per day in Q3 2006.

- The Q3 benchmark NGL margin averaged $26.97 per barrel for the quarter, the second highest quarterly margin recorded, with only Q1 1997 being greater.

The following table highlights Taylor's operational and financial results for the third quarter of 2007 and 2006:



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(in thousands of dollars except volume Three months ended September 30
and unit amounts) 2007 2006 Change
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Natural gas processed (MMscf per day) 437 434 1%
NGL sales (barrels per day) 20,041 19,722 2%
Total revenue 60,006 61,835 -3%
Feedstock costs 32,130 35,508 -10%
Net Operating Income 16,665 16,150 3%
Cash Available for Distribution 11,381 11,208 2%
Distributions paid to unitholders 7,983 7,872 1%
per unit 0.1875 0.1850 1%
Units outstanding at end of period 42,590,990 42,553,490 0%
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The following table highlights Taylor's operational and financial results
for the first nine months of 2007 and 2006:

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(in thousands of dollars except volume Nine months ended September 30
and unit amounts) 2007 2006 Change
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Natural gas processed (MMscf per day) 439 452 -3%
NGL sales (barrels per day) 19,960 20,035 0%
Total revenue 185,084 190,334 -3%
Feedstock costs 107,240 115,089 -7%
Net Operating Income 45,926 45,463 1%
Cash Available for Distribution 31,427 32,050 -2%
Distributions paid to unitholders 23,945 23,187 3%
per unit 0.5625 0.5450 3%
Units outstanding at end of period 42,590,990 42,553,490 0%
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CONFERENCE CALL

A conference call to discuss these results will be held on Thursday, November 1, 2007 at 8:30 a.m. MT / 10:30 a.m. ET. To participate in the conference call, please dial 416-695-9748 in the Toronto area and 866 852-2121 from all other areas of Canada.

A recording of the call will be available for replay until November 8 by dialing 416-695-5800 or 800-408-3053 (passcode 3236813#) or by following the links on Taylor's website, www.taylorngl.com.

DISCLOSURE AND DEFINITIONS

The following should be read in conjunction with the consolidated financial statements and notes of Taylor NGL Limited Partnership (the Partnership) for the year ended December 31, 2006. The consolidated financial statements have been prepared in accordance with Canadian generally accepted accounting principles (GAAP). Additional information relating to the Partnership is available on SEDAR at www.sedar.com.

Certain comparative figures have been reclassified to conform to the current year's presentation.

This Management's Discussion and Analysis contains certain forward-looking statements that are based on the Partnership's current expectations, estimates, projections and assumptions in light of its experience and its view of historical trends. In some cases, forward-looking statements can be identified by terminology such as "may", "will", "should", "expects", "projects", "plans", "anticipates", "targets" and similar expressions. These statements are not guarantees of future performance and are subject to a number of risks and uncertainties as detailed in the Partnership's Annual Information Form under the heading "Risk Factors". Undue reliance should not be placed on these forward-looking statements, as known and unknown risks and uncertainties may cause actual performance and financial results in future periods to differ materially from any projections of future performance or results expressed or implied by such forward-looking statements. Examples of areas of risk and uncertainty include: volume of natural gas delivered for processing at the Partnership's facilities; ability of the facilities to process the natural gas delivered; cost of operating the facilities; cost of maintaining the facilities; and volume and value, net of feedstock costs, of the Partnership's proprietary products such as natural gas liquids (NGL), frac oil and CO2. Accordingly, readers are cautioned that events or circumstances could cause results to differ materially from those predicted. Such forward-looking statements are expressly qualified by the above statements.

Tabular amounts are expressed in thousands of dollars except per unit amounts and numbers of Partnership units. All figures are in Canadian dollars unless otherwise stated. All volumes are net to the Partnership unless otherwise stated.

Taylor uses the industry standard term "Funds Provided by Operations", which has the same GAAP definition as "cash provided by operations before changes in non-cash working capital".

The term "Cash Available for Distribution" refers to the amount of cash that has been, or is, available for distribution to the Partnership's unitholders prior to any withholdings or reserves that the Board of Directors may make pursuant to the terms of the Partnership's Limited Partnership Agreement. Cash Available for Distribution is defined as Funds Provided by Operations plus distributions received from the Partnership's investments and adjustments for one-time items and less "Sustaining Capital" and "Reserve for Future Commitments". One-time items are specifically described when they occur. Distributions received from the Partnership's investments include its interest in the Boston Bar Limited Partnership, which owns the Boston Bar Generating Station.

Sustaining Capital is defined as capital expenditures necessary to maintain the safe and efficient operation of Taylor's facilities for the long-term. Sustaining Capital is not expensed due to the long-term nature of these investments. Reserve for Future Commitments is defined as expenditures known by the Partnership with respect to prior periods, but not deducted from net income due to guidelines established by the CICA. An example of such an expenditure is the cost of the Restricted Share Units (RSUs) awarded under the Partnership's Long-term Incentive Plan (LTIP). The number of RSUs awarded is based on the results achieved over a specific fiscal period. According to the terms of the LTIP, the awards vest in future periods. Under section 3870 of the CICA Handbook, RSUs are classified as stock appreciation rights and therefore are recorded as a compensation expense over the vesting period.

Taylor uses the term "Net Operating Income" to assist in assessing the ability of the Partnership to generate cash from normal operations. Net Operating Income is defined as natural gas liquids sales plus fee income and investment income, less feedstock costs and operating costs, plus realized gains or losses on commodity-based financial instruments.

The terms Funds Provided by Operations, Cash Available for Distribution, Sustaining Capital, Reserve for Future Commitments and Net Operating Income are not recognized under Canadian GAAP. Therefore, these terms have no standardized meaning and may not be comparable to similarly defined amounts presented by other issuers. Management uses each of these terms to measure and communicate the performance of the Partnership.

OVERVIEW OF THIRD QUARTER 2007

Production and Operations Summary

Net natural gas volumes processed at Taylor's facilities during the third quarter of 2007 averaged 437 MMscf per day compared to 434 MMscf per day for the same period in 2006. During the current quarter the Harmattan Complex processed an average 114 MMscf per day, the RET Complex averaged 48 MMscf per day while the Younger and Joffre extraction plants processed a combined average of 275 MMscf per day.

During the quarter, the Joffre Extraction Plant was down for two days of scheduled maintenance. In addition, the Enchant Plant, which is one of the facilities within the RET Complex, took a six-day outage to complete a turnaround. This plant is on a four-year turnaround cycle. The Harmattan Complex, after taking a brief outage early in the fourth quarter to complete maintenance activities and inlet piping modifications, is currently processing approximately 124 MMscf per day of natural gas. The increase in volume above the third quarter average is a result of new tie-ins.

For the third quarter, NGL sales averaged 20,041 barrels per day, an increase of 319 barrels per day from third quarter 2006. Strong sales at the Younger Extraction Plant more than offset reduced frac oil production at the Harmattan Complex. The demand for frac oil, which is used by the oil and gas service industry, has been weak in 2007 due to reduced activity in the service sector.

Taylor sets production rates at the Younger and Joffre extraction plants largely in response to prevailing NGL margins. If the NGL margin is less than the variable operating costs, then production is not economically justified. The NGL margin is defined as the difference between the sales price of NGL and the cost of the natural gas purchased for shrinkage make-up. Taylor reports an indicative margin, expressed in dollars per barrel of NGL, which is derived from Edmonton postings for propane, butane and condensate and the daily AECO natural gas price. In the third quarter, this benchmark NGL margin averaged $26.97 per barrel, compared to $26.12 per barrel in the third quarter of 2006 and $17.71 per barrel in the second quarter of 2007. The current quarter's average NGL margin was the highest achieved by Taylor since the first quarter of 1997.

During the third quarter, the Younger Extraction Plant processed an average 215 MMscf per day of natural gas to produce 12,107 barrels per day of NGL, while the Joffre Extraction Plant processed an average 60 MMscf per day of natural gas to produce 3,225 barrels per day of NGL.

Financial Summary

Taylor's third quarter 2007 Net Operating Income was a record $16.7 million, an increase of over $0.5 million from the prior year's quarter.



Net Operating Income
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Three months ended Nine months ended
September 30 September 30
(in thousands of dollars) 2007 2006 2007 2006
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Natural gas liquids sales $ 45,035 $ 47,951 $ 140,606 $ 148,079
Fee income 14,930 13,842 44,372 42,132
Investment income 128 - 128 -
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60,093 61,793 185,106 190,211
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Feedstock costs 32,130 35,508 107,240 115,089
Operating costs 11,004 10,270 31,647 29,711
Realized losses (gains) on
commodity-based financial
instruments 294 (135) 293 (52)
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43,428 45,643 139,180 144,748
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Net Operating Income $ 16,665 $ 16,150 $ 45,926 $ 45,463
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The revenue component of Net Operating Income was $60.1 million for the three months ended September 30, 2007, a 2.8 percent decrease from the same quarter in 2006.

The Younger Extraction Plant Marketing Pool, which is the profit-share component of the sales price received by Taylor for the NGL sold under the NGL Purchase Agreement, generated $4.7 million during the third quarter of 2007 compared to $3.5 million in the same quarter of 2006.

Fee income during the third quarter of 2007 was $14.9 million compared to $13.8 million from the same quarter in 2006. Fee income is largely a function of natural gas volumes processed, which increased over the prior year quarter, and the fee per unit charged for the service provided.

The expense component of Net Operating Income was $43.4 million for the three months ended September 30, 2007, a 4.9 percent decrease from the same quarter in 2006. The decrease is mainly attributable to the decreased cost for feedstock or shrinkage gas, which averaged $4.94 per GJ during the quarter compared to $5.39 per GJ in the same quarter last year. Shrinkage gas is initially paid by Taylor and then recovered from customers through the sale of NGL. Operating costs were higher by $0.7 million in the quarter compared to the prior year quarter. The increase was largely a result of the timing of maintenance activities at the Joffre Extraction Plant and the scheduled turnaround of the Enchant Gas Plant. The Enchant Gas Plant, which is one of the facilities within the RET Complex, has a turnaround every four years.

During the quarter, Taylor acquired the remaining common shares of Highwater Power Corporation. Highwater has a 25 percent interest in the class A and B partnership units of Boston Bar Limited Partnership. Boston Bar Limited Partnership owns the seven megawatt Boston Bar Generating Station located on Scuzzy Creek, British Columbia.

The Boston Bar Generating Station performed as expected in the third quarter producing 6,805 MWh. Typical of the hydrology in the area, third quarter flow rates were initially strong but declined through the period. Rates are expected to increase during the fourth quarter as wetter weather usually prevails.

The Partnership records its interest in Boston Bar Limited Partnership using the equity method of accounting since Taylor does not exercise control over the partnership. For the third quarter of 2007, Taylor has included within earnings its proportionate share of the earnings of Boston Bar Limited Partnership, which are considered to be non-cash. This $0.1 million has been titled "Investment Income" and is a reduction of current period expenses. Distributions received from Boston Bar Limited Partnership are recorded as a reduction in the equity investment and the distributions recorded as funds provided by investing activities. For the third quarter of 2007, Taylor has recorded an estimated $0.1 million of distributions from the Boston Bar Limited Partnership and has added these funds to Cash Available for Distribution, as reconciled in the following section.

Cash Distributions

The Partnership's Cash Available for Distribution is derived from cash distributions made by the Operating Partnerships to the Partnership as defined in note 1 of the Partnership's 2006 audited consolidated financial statements. Cash Available for Distribution also includes distributions received from investments, specifically Taylor's partnership interest in Boston Bar Limited Partnership.

Cash distributions declared for each period are derived by adding back non-cash items to net income while deducting Sustaining Capital, Reserves for Future Commitments and discretionary working capital amounts, which the Board of Directors deems necessary. For the nine months ended September 30, 2007, Taylor has retained $7.5 million to fund growth initiatives, support future distributions and repay debt.

Cash distributions are not guaranteed and will fluctuate with the Partnership's performance. Distributions will depend on cash flow and other factors beyond the control of the Partnership including new taxes that may apply to the Partnership. The Partnership has the discretion to fund capital expenditures, to borrow to fund such expenditures and to establish cash reserves. Funding of capital expenditures or adding to cash reserves will reduce the amount of Cash Available for Distribution. Based on the Partnership's distribution philosophy and current level of operations, Taylor is expected to meet its financial commitments and debt covenants for the foreseeable future.

Taylor's Cash Available for Distribution for the three months ended September 30, 2007, was a record $11.4 million, surpassing the previous record high of $11.2 million set in the same quarter of 2006. On a weighted-average-unit basis, Cash Available for Distribution was $0.267 per unit during the quarter. During the quarter, the Partnership invested $0.4 million in projects to sustain assets and retained $1.4 million to fund a portion of the expected 2007 LTIP award.

During the nine months ended September 30, 2007, Taylor generated $31.4 million of Cash Available for Distribution, which was slightly lower than the $32.0 million generated in the first nine months of 2006.



Cash Available for Distribution
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Three months ended Nine months ended
(in thousands of dollars except per September 30 September 30
unit amounts) 2007 2006 2007 2006
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Cash provided by operations $ 7,169 $ 10,108 $ 33,076 $ 29,991
Add (deduct) change in non-cash
working capital 5,221 2,621 544 5,460
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Funds Provided by Operations (1) 12,390 12,729 33,620 35,451
Investment distributions (2) 133 - 133 -
Reserve for Future Commitments (3) (761) (1,083) (1,083) (2,603)
Sustaining Capital (4) (381) (438) (1,243) (798)
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Cash Available for Distribution $ 11,381 $ 11,208 $ 31,427 $ 32,050
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Cash Available for Distribution
per unit $ 0.267 $ 0.263 $ 0.738 $ 0.753
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Cash Distributed
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Three months ended Nine months ended
(in thousands of dollars except per September 30 September 30
unit amounts) 2007 2006 2007 2006
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Cash Available for Distribution $ 11,381 $ 11,208 $ 31,427 $ 32,050
Working capital withheld (3,398) (3,336) (7,482) (8,863)
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Cash distributed $ 7,983 $ 7,872 $ 23,945 $ 23,187
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Cash distributions paid per unit $ 0.1875 $ 0.1850 $ 0.5625 $ 0.5450
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(1) Non-GAAP measure described as "cash provided by operations prior to
changes in non-cash working capital" as provided in the Consolidated
Statements of Cash Flow.

(2) Distribution from Partnership Investment accounts for Taylor's share
of cash distributions from Boston Bar Limited Partnership.

(3) Reserve for Future Commitments accounts for the timing difference
between the period in which the RSUs, awarded under the LTIP, were
earned and the GAAP treatment of the award. Reserve for Future
Commitments burdens the cost of RSUs against the period in which they
are earned, while GAAP applies the cost over the vesting period. The
change in the balance of the Reserve for Future Commitments as at
September 30, 2007 is as follows:


Reserve for Future Commitments
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(in thousands of dollars)
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Balance, December 31, 2006 $ 4,095
Release of 2005 LTIP reserve (286)
Release of 2006 LTIP reserve (1,631)
Reserve for the 2007 LTIP award 3,000
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Balance at September 30, 2007 $ 5,178
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No funds or separate banking arrangements have been established for this
reserve.

(4) Sustaining Capital is defined as capital expenditures necessary to
maintain the safe and efficient operation of Taylor's facilities for
the long term. Sustaining Capital is not expensed due to the long-term
nature of these investments. The amounts expended on Sustaining Capital
each year fluctuate, but management's expectation is that the current
spending level is indicative of future spending patterns.


Taylor's cash distributions regularly exceed reported net income. The primary factors that cause this situation are non-cash expenses, including depreciation and future income taxes. Depreciation expense is not an accurate measure of the amount of capital reinvestment required to stabilize the cash generation capability of Taylor's assets. Cash flows from operating activities for each facility are driven by many factors, as disclosed in Taylor's Annual Information Form. Future income taxes for accounting purposes does not reflect the actual cash tax liability of the Partnership, which will not begin until 2011 based on the current legislation.

OUTLOOK

The Partnership's assets have commercial lives that are measured in decades. Long-life assets are the foundation that supports sustainable revenues, cash flows and distributions. Taylor's management continues to focus on growth through projects and acquisitions designed to diversify the Partnership's asset base and increase Net Operating Income and Cash Available for Distribution.

The Harmattan Complex and the RET Complex are the dominant service providers in their capture areas. Taylor's NGL extraction business is founded on regional natural gas supply and demand. The Younger Extraction Plant is supplied from the robust natural gas producing region of northeast British Columbia, while the Joffre Extraction Plant depends on the fuel gas demands of central Alberta's petrochemical industry. The Partnership's NGL pipelines are critical components of the infrastructure that supports the petrochemical sector.

On October 3, a modification to the natural gas transmission system around the Joffre Extraction Plant was completed that routed lean, coal bed methane sourced natural gas out of the stream processed by the plant. By operating the natural gas transmission system in this manner, recoveries of NGL at the Joffre Extraction Plant is maximized.

The profitability of the Partnership's extraction plants is strongly influenced by NGL margin. NGL margins remain above historical levels; propane, butane and condensate prices, which are influenced by oil price, remain high while natural gas prices continue to be low relative to oil price.

Taylor has under development two, ten megawatt run-of-river hydroelectric projects. These projects are located on Kookipi Creek and Log Creek, which are near Hope, British Columbia. Both of the projects are supported by 40-year electricity purchase agreements with B.C. Hydro. Development efforts have been focused on the acquisition of all the required regulatory permits as well as the completion of detailed engineering. Taylor expects commercial operations at both sites to commence in 2010.

On June 4, 2007, the Alberta Energy and Utilities Board (EUB) announced an inquiry (the Inquiry) into natural gas liquids extraction matters. The Inquiry will examine existing NGL Extraction Conventions against other alternatives. As a significant participant in NGL extraction, Taylor has been, and will continue to be, actively involved in the Inquiry. Currently, evidence is being submitted to support a hearing that will be held through February 2008.

The EUB has advised that, as a result of overlapping issues raised by the Inquiry, Taylor's Harmattan Co-stream Project application has been adjourned until the Inquiry is complete. The Harmattan Co-stream Project would bring rich, sweet natural gas from TransCanada's Alberta system to the Harmattan Complex for processing to recover ethane, propane, butane and condensate. Upon approval, construction will commence, requiring approximately 12 months to complete. The project, as currently envisioned, would cost in the range of $70 million to $90 million.

On March 8, 2007, the Alberta Government introduced legislation to reduce greenhouse gas emissions. The "Climate Change and Emissions Management Amendment Act", along with its accompanying "Specified Gas Emitters Regulation", state that facilities that emit more than 100,000 tonnes of greenhouse gases a year must reduce their emissions intensity by 12 percent per annum starting July 1, 2007. Taylor's Harmattan Complex falls within the scope of the legislation as its greenhouse emissions are slightly above 100,000 tonnes per year. Management's initial calculations for emission intensity for 2007 indicate that the emissions from the Harmattan Complex are below its target intensity and therefore will not be subject to any penalty.

On April 26, 2007, the Canadian federal government released the Regulatory Framework for Air Emissions that establishes greenhouse gas and air pollutant emission reduction targets for various industrial sectors, including the energy infrastructure industry. The federal government has requested input into the proposed framework that will form draft regulations within the area of climate change. Details of the proposed federal regulations are not yet finalized and therefore the impact to Taylor is yet to be determined.

On October 25, 2007, the Alberta Government announced a new royalty framework for Alberta. Taylor, although not directly affected by changes to royalty rates as it does not pay royalties on its NGL production, could be impacted to the extent that modifications to the royalty system cause natural gas producers to change their production or exploration strategy. Management will continue to monitor and react to changes to the royalty framework.

CORPORATE INFORMATION

Taylor NGL Limited Partnership develops and invests in energy infrastructure opportunities in the areas of power generation, natural gas processing, and natural gas liquids production, processing, terminalling and pipelining.

Taylor currently owns and operates the Harmattan Complex, the RET Complex and the Joffre Extraction Plant, all in Alberta, and the Younger Extraction Plant in British Columbia. The Joffre and Younger plants are natural gas liquids extraction facilities that produce ethane, propane, butane and condensate. The Harmattan Complex and the RET Complex are natural gas processing facilities that provide services to oil and natural gas producers. The Partnership also owns two NGL pipelines - the Ethylene Delivery System and the Joffre Feedstock Pipeline, both of which move products between Joffre, Alberta and Fort Saskatchewan, Alberta. In addition, the Partnership has an interest in a run-of-river power generation facility located in British Columbia.

Taylor NGL Limited Partnership units and convertible debentures trade on the Toronto Stock Exchange (TSX) under the symbol TAY.UN and TAY.DB, respectively.

The Partnership is organized in accordance with the terms and conditions of a limited partnership agreement which provides that no Partnership units may be transferred to, among other things, a person who is a "non-resident" of Canada or a partnership which is not a "Canadian partnership" for purposes of the Income Tax Act (Canada).

Contact Information