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

Pacific Northern Gas Ltd.

April 26, 2007 13:11 ET

Pacific Northern Gas Reports First Quarter Earnings and Declares Second Quarter Dividends

VANCOUVER, BRITISH COLUMBIA--(CCNMatthews - April 26, 2007) - Pacific Northern Gas Ltd. (TSX:PNG)(TSX:PNG.PR.A) announced today that net income for the three months ended March 31, 2007 was $3.9 million, compared with net income of $4.9 million for the corresponding period in 2006. After providing for preferred share dividends, the earnings per common share in the three months ended March 31, 2007 were $1.06 compared with earnings per common share of $1.33 for the same period in 2006.

Included in net income for the three months ended March 31, 2007 are charges, net of tax, of $0.3 million ($0.09 per share) relating to the Company's share of KSL Project pipeline development expenditures incurred by Pacific Trail Pipelines Limited Partnership ("PTP").

In addition, net income for the quarter was lower in 2007 compared to 2006 by approximately $0.5 million due to the receipt of transportation services revenue from Methanex Corporation ("Methanex") in the first two months of 2006 prior to the termination of Methanex's transportation services contract on February 28, 2006. Lower deliveries to large commercial and small industrial customers in the three months ended March 31, 2007 also accounted for a $0.1 million decrease in net income. Variances in deliveries to these customer classes are not subject to regulatory deferral accounts.

The Company's share of planned development expenditures for the KSL Project in the last nine months of 2007 is expected to be approximately $2.1 million before income taxes ($0.37 per share, net of income taxes) of which $1.2 million before income taxes ($0.21 per share, net of income taxes) is expected to be incurred in the second quarter of 2007. The Company's share of further KSL Project costs will continue to be expensed until suitable commercial arrangements for firm gas transportation services by PTP are in place.

Residential deliveries were approximately 5 percent higher in the three months ended March 31, 2007 and total commercial deliveries were relatively unchanged, relative to deliveries over the same period in 2006. Management believes that weather was a key factor in the increase in residential deliveries, as it was approximately 2 percent colder for the three month period ended March 31, 2007 compared to the same period in 2006. On the other hand, the weather was 2 percent warmer than normal for the three month period ended March 31, 2007, with "normal" based on the average of actual temperatures in the region for the preceding 10 years.

Industrial deliveries were higher by approximately 9 percent for the three month period ended March 31, 2007 compared to the same period in 2006. The increase in industrial deliveries is primarily attributable to a 28 percent increase in large industrial customer deliveries, offset by a 6 percent reduction in small industrial deliveries, primarily in the PNG-West system. A deferral account is in place that recovers or refunds margin differences resulting from deliveries to large industrial customers in the PNG-West system varying from the forecast approved for ratemaking purposes.

Operating revenues in the three months ended March 31, 2007 increased to $58.9 million, as compared with $56.6 million in the corresponding period in 2006. The increase in operating revenues was primarily due to an increase of $11.4 million in revenues from the sale of gas surplus to the needs of the Company's sales customers ("off system gas sales") offset by a $7.5 million reduction in gas supply costs embedded in sales customers' rates as well as a reduction in transportation services revenue from Methanex of $0.7 million, compared with the corresponding period in 2006. Natural gas commodity prices, which are passed through to the Company's sales customers without mark-up, are very volatile and result in significant variability of the Company's reported operating revenues, but do not affect net income. 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 margin in the three months ended March 31, 2007 decreased to $15.7 million, as compared with $17.3 million in the same period in 2006. The lower operating margin in the first quarter is primarily the result of transportation services revenue from Methanex being higher in 2006 by approximately $0.7 million as the Methanex contract did not terminate until February 28, 2006. In addition, an annual cost of service reduction, relative to 2006, of approximately $3 million will be reflected in lower 2007 annual operating margin, of which $1.1 million of the reduction occurred in the first quarter of 2007. The reductions in the regulated cost of service include lower amortization, property tax, insurance and maintenance expenses, as well as a $0.9 million credit deferred income tax recovery.

Included in project development expenditures and other income deductions for the three months ended March 31, 2007 are the Company's share of KSL Project development expenditures expensed by PTP amounting to $0.5 million, before income taxes ($0.3 million after income taxes).

On February 28, 2007 the British Columbia Environmental Assessment Office ("EAO") issued an order under section 11 of the Environmental Assessment Act for the KSL Project. The purpose of this order was to set out the formal scope, procedures and methods for the environmental assessment of the KSL Project. In addition, the EAO established a 30-day public comment period regarding the draft Terms of Reference for the KSL Project to begin on March 15, 2007 and end on April 16, 2007. The draft Terms of Reference identify information that PTP must include in its application for an environmental assessment certificate ("EAC"). PTP expects to file the EAC application for the KSL Project in June 2007 following EAO approval of the final Terms of Reference.

PTP anticipates commencing construction of the KSL Project facilities by the fourth quarter 2008. Commencement of construction is subject to a number of conditions including the securing of LNG supply by Kitimat LNG Inc., financing of their LNG terminal and the KSL Project, and regulatory approvals for the KSL Project. The regulatory requirements for the KSL Project include a Project Approval 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 B.C. Utilities Commission and other permits required from the B.C. Oil and Gas Commission. The Company can give no assurances that the regulatory approvals will be obtained or that construction of the KSL Project by PTP will proceed.

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 July 1, 2007 to the shareholders of record at the close of business on June 11, 2007.

The Board of Directors also declared a quarterly dividend of 20 cents per share on the Company's common shares, payable June 22, 2007 to shareholders of record at the close of business on June 5, 2007.

Pacific Northern Gas Ltd., for purposes of the Income Tax Act (Canada), and any similar provincial or territorial legislation, designates all dividends paid by Pacific Northern Gas Ltd. 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.

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.



First Quarter Consolidated Results
Three Month Period Ended
March 31, 2007 ($ thousand, except for per share data)

2007 2006

Operating revenues $58,960 $56,605
Cost of sales 43,208 39,284
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Operating margin 15,752 17,321

Net income applicable to common shares $ 3,843 $ 4,836
Earnings per common share - basic $ 1.06 $ 1.33
Earnings per common share - diluted $ 1.04 $ 1.31

Operating cash flow $4,781 $6,799
Additions to plant, property and equipment (2,527) (891)
Decrease (increase) in deferred charges 314 (701)
Repayment of long term debt (644) (645)
Decrease in bank indebtedness (3,774) (10,159)
Dividends paid (729) (725)


Contact Information

  • Pacific Northern Gas Ltd.
    Elizabeth Fletcher
    Chief Financial Officer
    (604) 691-5684
    Website: www.png.ca