SOURCE: Northwest Natural Gas Company

Northwest Natural Gas Company

August 05, 2014 06:30 ET

NW Natural Reports Results for the Three and Six Months Ended June 30, 2014

PORTLAND, OR--(Marketwired - Aug 5, 2014) - Northwest Natural Gas Company, dba NW Natural (NYSE: NWN)

  • Consolidated net income was $1.1 million for the second quarter of 2014, or $0.04 per share, compared to $2.1 million, or $0.08 per share, for the second quarter of 2013.
  • Utility margin and net income increased $5.0 million and $1.5 million, respectively, during the second quarter of 2014 compared to last year, while gas storage operating revenues and net income decreased $2.7 million and $2.6 million, respectively, compared to last year.
  • Customer growth increased to 1.4% at June 30, 2014, compared to 1.0% at June 30, 2013.
  • Utility announces plans to invest between $8 and $16 million in new gas reserves during the second half of 2014.

Northwest Natural Gas Company, dba NW Natural (NYSE: NWN), reported consolidated net income of $1.1 million for the second quarter of 2014, or $0.04 per share, compared to net income of $2.1 million, or $0.08 per share, for the second quarter of 2013. Consolidated net income was $39.0 million, or $1.43 per share, for the first six months of 2014, compared to net income of $39.8 million, or $1.47 per share, for the first six months of 2013. The Company's earnings are typically lower during the second and third quarters due to the impact of decreased heating requirements affecting utility results.

"Our second quarter results continued to reflect positive customer growth trends and progress on several key growth initiatives, but were offset by headwinds in the gas storage market," said Gregg Kantor, President and Chief Executive Officer. "Also in the quarter, we began investing in gas reserves under the amended agreement, and we signed a new union labor contract, which we expect to benefit customers, employees, and the Company for years to come."

Consolidated Results
Results for the quarter and year-to-date periods included higher earnings from the utility segment, but losses from the gas storage segment. Gas storage results reflected lower revenues and higher operating expenses, while the utility benefited from customer growth and added rate-base returns on certain investments.

Utility Results
For the three months ended June 30, 2014 and 2013, the utility contributed net income of $2.2 million and $0.7 million, respectively. The $1.5 million increase was driven by higher margins from customer growth and added rate-base return on certain investments, including gas reserves, partially offset by a decrease in other income due to lower interest on regulatory deferred accounts.

For the six months ended June 30, 2014, utility net income was $38.2 million, compared to $36.7 million last year. Results reflected an increase in utility margin from customer growth and rate-base returns on certain investments.

Customer growth. NW Natural's customer growth rate for the trailing 12-month period ended June 30, 2014 was 1.4%, with the Company serving approximately 697,000 customers, compared to a growth rate of 1.0% for the same period in 2013. The Company added about 9,400 new customers during the last 12 months, compared to 7,100 customers added a year ago.

Utility Volumes and Margin.

                   
                   
    Three Months Ended   Six Months Ended          
    June 30,   June 30,   Change   % Change  
Dollars and therms in thousands   2014   2013   2014   2013   QTD     YTD   QTD     YTD  
Gas sales & transportation deliveries     208,253     212,097     614,470     612,287     (3,844 )     2,183   (1.8 )%   0.4 %
Utility margin   $ 69,795   $ 64,801   $ 200,089   $ 192,101   $ 4,994     $ 7,988   7.7 %   4.2 %
                                                   
                                                   

For the quarter, total gas sales and transportation deliveries decreased 3.8 million therms, or 2%, compared to the same period last year due to warmer weather. Heating degree days were 10% lower than 2013 and 23% lower than average. However, utility margin for the quarter increased $5.0 million over last year, reflecting a combination of customer growth and added rate-base returns on gas reserve and other investments.

For the six month period, total gas sales and transportation deliveries increased 2.2 million therms, or 0.4%, mainly due to customer growth and higher volumes during the February cold weather event, partially offset by weather that was 3% warmer than last year and 5% warmer than average. Utility margin for the first six months increased 4%, or $8.0 million, compared to last year primarily due to a $9.5 million increase from customer growth and the added rate-base returns on our gas reserve and other investments, partially offset by $2.4 million of losses from the impact of higher gas costs on our incentive sharing mechanism.

Environmental Insurance Settlements. In February 2014, NW Natural settled with defendant insurance companies in the Company's environmental insurance litigation, which sought recovery for past and future environmental remediation expenses. The Company received settlement proceeds totaling $102 million in the first six months of 2014, and approximately $150 million cumulatively.

Gas Reserves. During the second quarter of 2014, the Company was notified by its new partner, Jonah Energy LLC, of investment opportunities under the Company's amended gas reserve agreement. At this time, the Company has agreed to participate in selected wells to be drilled in 2014 and may have the opportunity to participate in additional wells in future years. The Company currently expects to invest an additional $8 million to $16 million in the second half of 2014 under the amended agreement, bringing the total investment, including amounts invested under the original agreement, to between $27 million and $35 million for 2014. The Company is seeking regulatory approval from the OPUC. Our investment balance under the original agreement earns a rate of return for our shareholders and provides long-term gas price protection for our utility customers.

New Labor Agreement. The Company ratified a new labor agreement with its union employees during the second quarter, which was effective June 1, 2014. Average compensation increases for the first year are roughly 4%, with an additional annual 3% increase effective December 1, 2015 and each year thereafter.

Gas Storage Results
The gas storage segment incurred a $1.2 million net loss for the second quarter of 2014, compared to a contribution of $1.5 million net income for the same period in 2013. The loss included a $2.7 million decrease in operating revenues from re-contracting some expiring storage capacity for the 2014-15 gas storage year, which began April 1, 2014, at substantially lower market prices than in previous years, and a $1.3 million increase in power and repair costs at our Gill Ranch facility. The power cost increase reflected higher injections into storage during the second quarter to replenish low storage levels following higher withdrawals this past winter. The repair cost increase reflected work at our Gill Ranch facility, which has now been in operation for three annual cycles. The Company intends to continue developing repair and maintenance plans for the future as well as evaluating potential capital improvements that may be needed to enhance the facility.

For the first six months of 2014, gas storage operating revenues and net income decreased $3.0 million and $2.6 million, respectively, compared to the same period in 2013 primarily due to the same factors described for the quarter.

Consolidated Operations and Maintenance Expense
Operations and maintenance expense for the second quarter of 2014 increased $1.5 million over 2013 primarily due to a $1.3 million increase in power and repair costs at our Gill Ranch facility. Utility expenses were consistent period over period, but reflected offsetting variances from higher utility safety program costs and lower incentive compensation accruals.

Operations and maintenance expense for the first six months of 2014 increased $3.1 million, or 5%, compared to the same period for 2013 due to a $1.8 million increase in power and repair costs at our Gill Ranch facility, and a $1.2 million increase in bad debt expense at the utility reflecting an adjustment to the uncollectible provision account balance taken in the first quarter of 2013. The utility bad debt expense as a percent of revenues was 0.18% for the trailing 12 months ended June 30, 2014. The six month period also reflected similar offsetting variances as described for the quarter with higher utility safety program costs and lower incentive compensation accruals.

Cash Flows
Cash provided by operations for the first six months of 2014 was $233 million, compared to $160 million for the same period in 2013. The variance reflects the receipt of environmental insurance proceeds, which was $102 million before tax, as well as other positive working capital changes.

Earnings Guidance for 2014
The Company reaffirmed earnings guidance for 2014 in the range of $2.15 to $2.35 per share. The Company's 2014 earnings guidance assumes a continued economic recovery, customer growth from the utility segment, average weather conditions, no significant changes in prevailing legislative and regulatory policies or outcomes, and resolution of the environmental cost recovery mechanism during 2014.

Dividend Declaration
The board of directors of NW Natural declared a quarterly dividend of 46.0 cents a share on the Company's common stock. The dividends will be payable on Aug. 15, 2014 to shareholders of record on July 31, 2014. Currently, the Company's indicated annual dividend rate is $1.84 per share.

Presentation of Results
In addition to presenting results of operations and earnings amounts in accordance with generally accepted accounting principles (GAAP), NW Natural has expressed certain measures in this press release on an equivalent cents-per-share basis, which are non-GAAP financial measures. These amounts reflect factors that directly impact the Company's earnings. In calculating these financial disclosures, we allocate income tax expense based on the effective tax rate, where applicable. These non-GAAP financial measures should not be used to the exclusion of GAAP financial measures. NW Natural believes that these non-GAAP financial measures provide useful information to the reader by removing the effects of variances in GAAP reported results of operations that we believe are not indicative of fundamental changes in our financial condition or results of operations.

Conference Call Arrangements
As previously reported, NW Natural will conduct a conference call and webcast starting at 8 a.m. Pacific Time (11 a.m. Eastern Time) on Aug. 5, 2014 to review the Company's financial and operating results for the three and six months ended June 30, 2014.

To hear the conference call live, please dial 1-888-317-6016 within the United States and 1-855-669-9657 from Canada. International callers can dial 1-412-317-6016. To access the conference replay, please call 1-877-344-7529 and enter the conference identification pass code (10049150). To hear the replay from international locations, please dial 1-412-317-0088.

To hear the conference by webcast, log on to NW Natural's corporate website at www.nwnatural.com.

Forward-Looking Statements
This report, and other presentations made by NW Natural from time to time, may contain forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements can be identified by words such as "anticipates," "intends," "plans," "seeks," "believes," "estimates," "expects," and similar references to future periods. Examples of forward-looking statements include, but are not limited to, statements regarding the following: plans, objectives, goals, strategies, future events, economic recovery, investments, hedge efficacy, gas reserve investments and their financial value and benefit, customer growth, weather, commodity and other costs, customer rates or rate recovery, effects of the new labor contract, financial positions, revenues and earnings, dividends, performance, operations and maintenance and capital expenses, facility enhancements, timing or effects of future regulatory proceedings or future regulatory approvals, effects of regulatory mechanisms, including, but not limited to, the environmental cost recovery mechanism and gas reserve investments, contracting levels or pricing, and other statements that are other than statements of historical facts.

Forward-looking statements are based on our current expectations and assumptions regarding our business, the economy and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict. Our actual results may differ materially from those contemplated by the forward-looking statements. We caution you therefore against relying on any of these forward-looking statements. They are neither statements of historical fact nor guarantees or assurances of future performance. Important factors that could cause actual results to differ materially from those in the forward-looking statements are discussed by reference to the factors described in Part I, Item 1A "Risk Factors", and Part II, Item 7 and Item 7A "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Quantitative and Qualitative Disclosure about Market Risk" in the Company's most recent Annual Report on Form 10-K and in Part I, Items 2 and 3 "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Quantitative and Qualitative Disclosures About Market Risk", and Part II, Item 1A, "Risk Factors", in the Company's quarterly reports filed thereafter.

All forward-looking statements made in this report and all subsequent forward-looking statements, whether written or oral and whether made by or on behalf of the Company, are expressly qualified by these cautionary statements. Any forward-looking statement speaks only as of the date on which such statement is made, and we undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future developments or otherwise, except as may be required by law. New factors emerge from time to time and it is not possible for the Company to predict all such factors, nor can it assess the impact of each such factor or the extent to which any factor, or combination of factors, may cause results to differ materially from those contained in any forward-looking statements.

About NW Natural
NW Natural (NYSE: NWN) is headquartered in Portland, Ore., and provides natural gas service to about 697,000 residential, commercial, and industrial customers through 14,000 miles of mains and service lines in western Oregon and southwestern Washington. It is the largest independent natural gas utility in the Pacific Northwest with $2.8 billion in total assets. NW Natural and its subsidiaries currently own and operate underground gas storage facilities with storage capacity of approximately 31 Bcf in Oregon and California. Additional information is available at www.nwnatural.com.

   
   
NORTHWEST NATURAL GAS COMPANY  
Comparative Income Statements  
(Consolidated - Unaudited)  
                     
                     
    Three Months Ended  
In thousands, except per share amounts   06/30/14   06/30/13   Change     % Change  
Income from operations   $ 13,266   $ 13,083   $ 183     1 %
Net Income     1,071     2,126     (1,055 )   (50 )
                           
Diluted average shares of common stock outstanding     27,182     26,999     183     1  
Diluted earnings per share of common stock     0.04     0.08     (0.04 )   (50 )
                           
    Six Months Ended  
In thousands, except per share amounts   06/30/14   06/30/13   Change     % Change  
Income from operations   $ 88,294   $ 87,289   $ 1,005     1 %
Net income     38,955     39,765     (810 )   (2 )
                           
Diluted average shares of common stock outstanding     27,158     26,991     167     1  
Diluted earnings per share of common stock     1.43     1.47     (0.04 )   (3 )
                           
    Twelve Months Ended  
In thousands, except per share amounts   06/30/14   06/30/13   Change     % Change  
Income from operations   $ 143,751   $ 138,964   $ 4,787     3 %
Net income     59,728     57,033     2,695     5  
                           
Diluted average shares of common stock outstanding     27,096     26,948     148     1  
Diluted earnings per share of common stock     2.20     2.12     0.08     4  
                           
                           
             
NORTHWEST NATURAL GAS COMPANY            
Consolidated Balance Sheets (Unaudited)   June 30,     June 30,  
In thousands   2014     2013  
Assets:                
Current assets:                
  Cash and cash equivalents   $ 17,240     $ 12,214  
  Accounts receivable     38,621       39,061  
  Accrued unbilled revenue     14,592       14,692  
  Allowance for uncollectible accounts     (1,404 )     (1,189 )
  Regulatory assets     38,265       25,952  
  Derivative instruments     11,191       623  
  Inventories     60,808       62,412  
  Gas reserves     20,373       15,324  
  Income taxes receivable     --       1,297  
  Deferred tax assets     4,915       --  
  Other current taxes     14,518       8,781  
    Total current assets     219,119       179,167  
Non-current assets:                
  Property, plant, and equipment     2,965,226       2,833,083  
  Less: Accumulated depreciation     879,296       833,851  
    Total property, plant, and equipment, net     2,085,930       1,999,232  
  Gas reserves     130,280       113,762  
  Regulatory assets     267,248       393,652  
  Derivative instruments     1,202       1,054  
  Other investments     67,689       67,410  
  Restricted cash     3,000       4,000  
  Other non-current assets     12,646       14,312  
    Total non-current assets     2,567,995       2,593,422  
    Total assets   $ 2,787,114     $ 2,772,589  
Liabilities and equity:                
Current liabilities:                
  Short-term debt   $ 74,200     $ 136,000  
  Current maturities of long-term debt     100,000       --  
  Accounts payable     68,973       63,466  
  Taxes accrued     15,769       6,798  
  Interest accrued     7,053       6,404  
  Regulatory liabilities     26,742       16,644  
  Derivative instruments     1,490       9,392  
  Other current liabilities     34,507       34,446  
    Total current liabilities     328,734       273,150  
Long-term debt     621,700       691,700  
  Deferred credits and other non-current liabilities:                
  Deferred tax liabilities     489,892       469,964  
  Regulatory liabilities     309,327       294,202  
  Pension and other postretirement benefit liabilities     145,861       214,125  
  Derivative instruments     191       1,754  
  Other non-current liabilities     120,423       79,145  
    Total deferred credits and other non-current liabilities     1,065,694       1,059,190  
Equity:                
  Common stock     369,315       359,772  
  Retained earnings     407,698       397,603  
  Accumulated other comprehensive loss     (6,027 )     (8,826 )
    Total equity     770,986       748,549  
    Total liabilities and equity   $ 2,787,114     $ 2,772,589  
                 
                 
       
NORTHWEST NATURAL GAS COMPANY   Six Months Ended  
Consolidated Statements of Cash Flows (Unaudited)   June 30,  
In thousands   2014     2013  
Operating activities:                
  Net income   $ 38,955     $ 39,765  
  Adjustments to reconcile net income to cash provided by operations:                
    Depreciation and amortization     39,298       37,737  
    Regulatory amortization of gas reserves     8,680       4,970  
    Deferred tax liabilities, net     989       28,401  
    Non-cash expenses related to qualified defined benefit pension plans     2,540       2,773  
    Contributions to qualified defined benefit pension plans     (6,000 )     (4,200 )
    Deferred environmental recoveries, net of (expenditures)     92,104       (2,989 )
    Other     1,010       (1,567 )
    Changes in assets and liabilities:                
      Receivables     89,951       63,102  
      Inventories     (139 )     5,190  
      Taxes accrued     8,447       (1,535 )
      Accounts payable     (24,472 )     (22,155 )
      Interest accrued     (50 )     451  
      Deferred gas costs     (18,812 )     (648 )
      Other, net     744       10,847  
  Cash provided by operating activities     233,245       160,142  
Investing activities:                
  Capital expenditures     (52,489 )     (55,055 )
  Utility gas reserves     (18,632 )     (34,397 )
  Proceeds from sale of assets     --       6,580  
  Restricted cash     1,000       --  
  Other     (1,043 )     1,743  
    Cash used in investing activities     (71,164 )     (81,129 )
Financing activities:                
  Common stock issued, net     3,733       2,355  
  Long-term debt retired     (20,000 )     --  
  Change in short-term debt     (114,000 )     (54,250 )
  Cash dividend payments on common stock     (24,938 )     (24,509 )
  Other     893       682  
    Cash used in financing activities     (154,312 )     (75,722 )
Increase (decrease) in cash and cash equivalents     7,769       3,291  
Cash and cash equivalents, beginning of period     9,471       8,923  
Cash and cash equivalents, end of period   $ 17,240     $ 12,214  
                 
Supplemental disclosure of cash flow information:                
  Interest paid   $ 23,270     $ 21,746  
  Income taxes paid     14,945       --  
                 
 
 
NORTHWEST NATURAL GAS COMPANY
Financial Highlights (Unaudited)
Second Quarter - 2014
 
                                                 
                               
In thousands, except per share amounts, customer, and degree day data   Three Months Ended
June 30,
        Six Months Ended
June 30,
        Twelve Months Ended
June 30,
     
2014     2013     Change   2014     2013     Change   2014     2013     Change
Operating revenues   $ 133,169     $ 131,714     1%   $ 426,555     $ 409,575     4%   $ 775,498     $ 726,552     7%
                                                             
Operating expenses:                                                            
  Cost of gas     58,280       59,142     (1)     213,481       201,501     6     385,278       352,583     9
  Operations and maintenance     34,731       33,217     5     70,117       66,974     5     139,756       129,881     8
  General taxes     7,183       7,342     (2)     15,365       16,074     (4)     29,247       30,419     (4)
  Depreciation and amortization     19,709       18,930     4     39,298       37,737     4     77,466       74,705     4
  Total operating expenses     119,903       118,631     1     338,261       322,286     5     631,747       587,588     8
Income from operations     13,266       13,083     1     88,294       87,289     1     143,751       138,964     3
Other income and expense, net     262       1,450     (82)     1,645       1,970     (16)     4,344       4,037     8
Interest expense, net     11,677       11,069     5     23,219       22,196     5     46,195       43,698     6
Income before income taxes     1,851       3,464     (47)     66,720       67,063     (1)     101,900       99,303     3
Income tax expense     780       1,338     (42)     27,765       27,298     2     42,172       42,270     --
Net income   $ 1,071     $ 2,126     (50)   $ 38,955     $ 39,765     (2)   $ 59,728     $ 57,033     5
                                                             
Common shares outstanding:                                                            
  Average diluted for period     27,182       26,999           27,158       26,991           27,096       26,948      
  End of period     27,147       26,972           27,147       26,972           27,147       26,972      
                                                             
Per share information:                                                            
  Diluted earnings per share   $ 0.04     $ 0.08           1.43       1.47         $ 2.20     $ 2.12      
  Dividends declared per share of common stock     0.460       0.455           0.920       0.910           1.84       1.79      
  Book value per share, end of period     28.40       27.75           28.40       27.75           28.40       27.75      
  Market closing price, end of period     47.15       42.48           47.15       42.48           47.15       42.48      
                                                             
Capital Structure, end of period:                                                            
  Common stock equity     49.2 %     47.5 %         49.2 %     47.5 %         49.2 %     47.5 %    
  Long-term debt     39.7       43.9           39.7       43.9           39.7       43.9      
  Short-term debt (including amounts due in one year)     11.1       8.6           11.1       8.6           11.1       8.6      
  Total     100.0 %     100.0 %         100.0 %     100.0 %         100.0 %     100.0 %    
                                                             
Utility operating statistics:                                                            
Customers, end of period     697,422       688,067     1.4%     697,422       688,067     1.4%     697,422       688,067     1.4%
Utility volumes (therms):                                                            
  Residential and commercial sales     96,533       103,313           370,689       371,977           670,618       625,932      
  Industrial sales and transportation     111,720       108,784           243,781       240,310           477,996       470,948      
Total utility volumes sold and delivered     208,253       212,097           614,470       612,287           1,148,614       1,096,880      
Utility operating revenues:                                                            
  Residential and commercial sales   $ 113,186     $ 110,155         $ 383,188     $ 366,521         $ 689,917     $ 638,138      
  Industrial sales and transportation     16,855       15,723           38,367       34,748           72,499       69,225      
  Other revenues     1,166       1,242           2,643       2,771           3,926       5,693      
  Less: Revenue taxes     3,132       3,177           10,628       10,438           19,192       18,435      
Total utility operating revenues     128,075       123,943           413,570       393,602           747,150       694,621      
  Less: Cost of gas     58,280       59,142           213,481       201,501           385,278       352,583      
Utility margin   $ 69,795     $ 64,801         $ 200,089     $ 192,101         $ 361,872     $ 342,038      
                                                             
Degree days:                                                            
  Average (25-year average)     691       691           2,546       2,546           4,240       4,256      
  Actual     530       591     (10)%     2,420       2,495     (3)%     4,304       3,988     8%
Percent colder (warmer) than average weather     (23 )%     (14 )%         (5 )%     (2 )%         2 %     (6 )%    
                                                             

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