Duke Energy Income Fund
TSX : DET.UN

Duke Energy Income Fund

August 01, 2006 15:22 ET

Duke Energy Income Fund to Acquire Gas Processing Plants for $145 Million

Monthly unitholder distributions to increase 4.5 percent

CALGARY, ALBERTA--(CCNMatthews - Aug. 1, 2006) - Duke Energy Income Fund (TSX:DET.UN) ("the Fund") today announced it has entered into an agreement to acquire the interests in four raw gas processing plants and related gas gathering systems (the "WGSI Facilities") owned by Westcoast Gas Services Inc. ("WGSI") located primarily in northeastern British Columbia for approximately $145 million. The acquisition will be accomplished by the purchase of all the issued and outstanding shares of WGSI from Westcoast Energy Inc. ("WEI"), a subsidiary of Duke Energy Corporation and the sponsor of the Fund.

Closing of the acquisition is conditional upon the approval of the Fund's unitholders, other than WEI and its affiliates, and is expected to occur by September 30, 2006.

The Fund also announced its intention, contingent on the closing of the acquisition, to increase its monthly cash distributions to $0.07 per unit from $0.067 per unit, or $0.84 per unit on an annualized basis. Unitholders of record on October 31, 2006 will be entitled to the initial expected increased distribution, payable in November, 2006.

"We view this acquisition as a very attractive growth opportunity for the Fund," said Doug Haughey, President and Chief Executive Officer of the Fund's manager.

"With their location in a prospective region of the Western Canadian Sedimentary Basin ("WCSB") and risk profile consistent with the Fund's existing assets, these facilities represent an excellent strategic fit for the Fund and will serve to strengthen our platform for further growth. In addition, the transaction will be immediately accretive to unitholder distributions".

Acquisition Rationale

- Excellent Strategic Fit

Consistent with most of the Fund's existing assets, the WGSI Facilities are high quality assets located in prospective regions of the WCSB. The WGSI Facilities and the Fund's existing facilities are already under common management, facilitating the integration of WGSI operations into the Fund.

- Consistent Risk Profile

In line with the Fund's existing business, the WGSI Facilities have no direct exposure to the price of natural gas and other commodities. WGSI's business arrangements are structured on a fee-for-service basis and include a high proportion of firm take-or-pay contracts with high quality customers. The Fund has been advised on a preliminary basis that Dominion Bond Rating Service will affirm its stability rating at "STA-3 (middle)".

- Value-Added Transaction

The acquisition is expected to be accretive to distributable cash flow. The issuance of additional units to fund the acquisition, as discussed below, is also expected to increase the market capitalization of the Fund to approximately $560 million, facilitating greater market liquidity for the units and enhanced access to capital for the Fund.

- Enhanced Facility and Geographic Diversification

The acquisition will provide the Fund with additional geographic and facility diversification. The Fund will now have an interest in 13 facilities, up from the current nine. In addition, throughput capacity will increase by 47 percent to more than 904 mmcf/d.

- Strong Balance Sheet Maintained

Following the acquisition, the Fund will continue to maintain a strong balance sheet with key financial ratios similar to pre-transaction levels providing the Fund with financial flexibility for future growth.

Overview of WGSI

WGSI owns interests in four raw gas processing plants and associated natural gas gathering systems located primarily in the Fort St. John area of northeastern British Columbia. The WGSI Facilities, three of which process sour gas, have an aggregate net raw gas processing capacity of 288 mmcf/d. Three of the four WGSI Facilities are operated by WGSI. Along with the processing facilities, WGSI owns interests in more than 230 km of raw gas gathering pipelines that deliver raw gas to the plants for processing.



Key operating data for each of the gas processing plants is presented
below:

---------------------------------------------------------------------
2005
Average
Daily
Ownership License Through-
Interest WGSI Plant Capacity(1) put(2) Utilization
Plant (%) Operated Status (mmcf/d) (mmcf/d) Rate (%)
Jedney 1 100 Yes Sour 78 54 69
Jedney 2 100 Yes Sour 80 64 80
Highway 100 Yes Sweet 100 83 83

Boundary Sour/
Lake 50 No Sweet 30 11 37
---------------------------------
Total 288 212 74(3)
---------------------------------------------------------------------

(1) Information in this table is presented as at August 1, 2006 and
with respect to WGSI's net interest
(2) WGSI's net interest average throughputs
(3) Weighted average of the utilization rates of the gas plants


Financing

In connection with the acquisition, the Fund has entered into an agreement to sell, to a syndicate of Canadian underwriters, 8,951,000 subscription receipts at a price of $12.15 per subscription receipt to raise gross proceeds of $108.8 million on a bought deal basis. The subscription receipts will be exchangeable into units of the Fund on a one-for-one basis upon the closing of the acquisition, when the proceeds will be released from escrow. After giving effect to the acquisition and the issuance of units under the financing, Duke Energy Corporation will indirectly hold a 46.2 percent interest in the Fund.

The underwriting syndicate is co-led by CIBC World Markets Inc. and BMO Capital Markets and includes Scotia Capital Inc., TD Securities Inc., Clarus Securities Inc. and HSBC Securities (Canada) Inc.

Approvals

A special committee consisting of the independent members of the Board of Trustees has determined that the acquisition is in the best interests of the unitholders of the Fund other than WEI and its affiliates. The board of trustees has approved the acquisition based on the unanimous recommendation of the special committee. The special committee obtained independent financial advice, including an oral opinion that the consideration to be paid for the WGSI shares is fair from a financial point of view to the Fund. The special committee also received independent legal advice and independent technical advice respecting the acquisition. A special meeting of the unitholders of the Fund will be held in September 2006 to obtain approval of the acquisition.

The securities to be offered have not been registered under the U.S. Securities Act of 1933, as amended, and may not be offered or sold in the United States absent registration or an applicable exemption from the registration requirements. This news release shall not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of the securities in any State in which such offer, solicitation or sale would be unlawful.

Conference Call and Webcast

A conference call and live audio webcast will be hosted by Doug Haughey, President and CEO of the Fund's manager at 4:30 p.m. ET on Tuesday, August 1, 2006. There will be a question and answer session following Mr. Haughey's remarks. To participate in the conference call, please dial 416-644-3416 or 1-866-250-4910. The webcast and a presentation file will be available at www.dukeenergyincomefund.com.

A replay of the conference call will be available after 6:30 p.m. ET the same day until midnight on August 8.

To access the replay, dial 416-640-1917 or 1-877-289-8525 followed by the passcode 21198605#.

Forward Looking Statements

This news release includes statements that do not directly or exclusively relate to historical facts, referred to as "forward-looking statements". You can typically identify forward-looking statements by the use of forward-looking words, such as "may," "will," "could," "should," "project," "believe," "anticipate," "expect," "estimate," "continue," "potential," "plan," "forecast" and other similar words. The forward-looking statements reflect management's current intentions, plans, expectations, beliefs and assumptions about future events, including the outlook for general economic trends, industry trends, commodity prices, capital markets, and the governmental, legal and regulatory environment. Forward-looking statements relate to, among other things, anticipated financial performance, business prospects, strategies, regulatory developments, new services, market forces, commitments and technological developments. These statements are subject to various known and unknown risks and uncertainties that are outside our control and could cause actual results to differ materially from the results expressed or implied by the forward-looking statements. Those risks and uncertainties include market and general economic conditions, future costs, treatment under government regulatory, tax and environmental regimes and the other material risks discussed in the Fund's Annual Information Form dated March 31, 2006, under "Risk Factors" and in the management's discussion and analysis of the Fund and Duke Energy Facilities LP under the headings "Risk Profile" contained in the Fund's annual report for the year ended December 31, 2005. Undue reliance should not be placed on this forward-looking information, which is given as of the date of this release, and the Fund undertakes no obligation to update publicly or revise any forward-looking information, whether as a result of new information, future events or otherwise.

About Duke Energy Income Fund

Duke Energy Income Fund is an unincorporated open-ended trust established under the laws of the Province of Alberta and owns a 42.41 percent interest in Duke Energy Midstream. Duke Energy Midstream is one of the largest independent midstream operators in the Western Canadian Sedimentary Basin (WCSB) with interests in nine natural gas processing plants with a net processing capacity of 616 mmcf/d and over 1,400 kilometres of natural gas gathering pipelines located throughout natural gas prone areas in the western extent of the WCSB. More information on Duke Energy Income Fund can be found at: http://www.dukeenergyincomefund.com.

Duke Energy Gas Transmission (DEGT) is a North American leader in the long-haul transportation and storage of natural gas. For more than a half-century, DEGT and its predecessor companies have developed the critically important pipelines and related energy infrastructure that connect natural gas supply sources to premium markets. Based in Houston, Texas, the company's assets include more than 18,500 miles of transmission pipeline and more than 250 billion cubic feet of storage capacity in the U.S. and Canada. DEGT also has natural gas gathering, processing and distribution assets and natural gas liquids operations that are among the largest in Canada. More information can be found at: http://www.degt.duke-energy.com.

Duke Energy is a diversified energy company with a portfolio of natural gas and electric businesses, both regulated and unregulated, and an affiliated real estate company. Duke Energy supplies, delivers and processes energy for customers in the Americas. Headquartered in Charlotte, N.C., Duke Energy is a Fortune 500 company traded on the New York Stock Exchange under the symbol DUK. More information about the company is available on the Internet at: http://www.duke-energy.com.

Contact Information

  • Duke Energy Income Fund
    Bob Bissett
    (403) 705-2008
    24-Hour: (704) 382-8333