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

Pacific Northern Gas Ltd.

February 21, 2008 17:34 ET

Pacific Northern Gas Reports Fourth Quarter Earnings and Declares Increased Dividends

VANCOUVER, BRITISH COLUMBIA--(Marketwire - Feb. 21, 2008) - Pacific Northern Gas Ltd. (TSX:PNG)(TSX:PNG.PR.A) announced today that its Board of Directors declared a 10 percent increase in the quarterly dividend to 22 cents per share on the Company's Common Shares. The dividend will be payable March 20, 2008 to shareholders of record at the close of business on March 6, 2008. Roy Dyce, President and CEO of the Company, stated, "The dividend increase is the first step in our strategy to reach a payout ratio in line with other publicly traded utilities."

Net income for the quarter ended December 31, 2007 was $2.6 million, compared with $2.3 million for the quarter ended December 31, 2006. After providing for preferred share dividends, earnings per common share in the fourth quarter of 2007 were $0.70, compared with $0.61 for the quarter ended December 31, 2006.

Included in the results for the fourth quarter of 2007 are charges, net of income taxes, totalling $0.3 million or $0.07 per share relating to the Company's share of KSL Project 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. The corresponding amount in the fourth quarter of 2006 was $0.6 million or $0.15 per share.

Net income for 2007 was $4.4 million, compared with $5.0 million for 2006. After providing for preferred share dividends, earnings per common share for 2007 were $1.11 compared with $1.27 for 2006. Included in net income for 2007 are after-tax charges of $1.4 million, or $0.38 per share, compared to after-tax charges of $1.7 million, or $0.46 per share for 2006 relating to the Company's share of KSL Project expenditures. Net income available to common shareholders decreased by $0.6 million due to fewer net customer additions and lower deliveries to large commercial and small industrial customers (mainly in the forest industry) than that used for rate setting purposes. The lower allowed weighted average return on common equity which decreased from 9.40 percent in 2006 to 8.97 percent in 2007 also resulted in a reduction in net income. These factors were partially offset by lower KSL Project expenditures incurred in 2007 compared to 2006.

Operating revenues in 2007 decreased to $129.5 million compared with $138.8 million in 2006. There was a decrease of $14.0 million in gas sales and transportation services largely due to the lower commodity costs in 2007 compared to 2006. Natural gas commodity prices, which are passed through to the Company's sales customers without mark-up, can be volatile and result in significant variability of the Company's reported operating revenues. Gas sales also decreased as a result of lower than anticipated core market customer additions and lower than anticipated deliveries to some large commercial and small industrial customers. The decrease in operating revenues was offset by an increase in off-system sales of $3.4 million which pertains to the sale of gas surplus to the Company's customer needs.

Operating revenues in the fourth quarter of 2007 decreased to $40.6 million as compared with $46.2 million in the same period in 2006. The decrease in operating revenues in the fourth quarter is mainly due to $3.0 million lower off system sales in the fourth quarter of 2007 compared to the fourth quarter of 2006 and lower deliveries to our customers. Operating revenues from gas sales and transportation services decreased by $2.6 million due mainly to lower deliveries to core market customers during the fourth quarter of 2007 due to weather that was 4 percent warmer in 2007 compared to the corresponding period in 2006 and lower deliveries to large commercial and small industrial customers. In addition, the lower operating revenues in 2007 reflect the lower commodity cost of gas embedded in rates.

Deliveries to residential and commercial customers in 2007 were higher by 190 terajoules, or 3 percent, compared to deliveries in 2006. Weather in 2007 was approximately 5 percent colder than in 2006, accounting for most of the increased deliveries. This was offset by continuing conservation efforts that the Company believes are primarily due to higher delivered gas prices for its Western system. Deliveries to residential and small commercial customers in 2007 were lower by 40 terajoules, or 0.8 percent, compared to the volumes used to set customer rates for 2007. This reduction in deliveries compared to forecast did not significantly impact net income due to the existence of a deferral account that captured the after-tax value of the revenue variance, amounting to $72,000 ($1.3 million in 2006), arising from differences between actual and forecast volumes for residential and small commercial customers.

Operating margin in 2007 decreased to $45.0 million, as compared with $47.7 million in 2006. The decrease of $2.7 million was due to lower cost of service in 2007 mainly as a result of the approval by the B.C. Utilities Commission ("Commission") to allow the $900,000 drawdown of deferred income taxes and the lower weighted average allowed return on equity of 8.97 percent in 2007 compared to 9.40 percent in 2006, and due to lower deliveries to large commercial and small industrial customers in 2007, in particular to sawmills. There is no deferral account treatment for these customers.

Operating margin in the fourth quarter of 2007 decreased to $13.6 million, compared to $14.1 million in the corresponding period in 2006, due to the lower than anticipated deliveries and the lower cost of service for 2007 as a result of the deferred income tax drawdown and the lower allowed return on equity.

PTP continues to pursue its Environmental Assessment Certificate application for the KSL Project which is currently under review and the 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 is expected to commence in 2009 for completion in 2011. Upon completion of the KSL Project, and subject to regulatory and shareholder approvals, the Company's existing mainline transmission system will be transferred to PTP and integrated with the KSL Project facilities. The Company will continue to own and operate its existing gas distribution systems, including its Customer Care Centre in Terrace.

Conditions to construction of the KSL Project 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. In addition to the Environmental Assessment Certificate to be obtained from the Province of British Columbia and the approvals required under the Canadian Environmental Assessment Act, the regulatory requirements for the KSL Project include 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.

The Company's share of planned development expenditures for the KSL Project in 2008 is expected to be approximately $600,000 ($400,000 after income taxes). Following environmental certification, expenditures on the KSL Project will be minimized until suitable commercial arrangements for firm gas transportation services by PTP are in place at which point development costs would be capitalized.

The 2008 revenue requirements applications for the Western system and the two Northeast divisions were filed with the Commission in early October 2007. The Company and its customers negotiated a settlement of the 2008 revenue requirements applications and the settlements were approved by the Commission in late December 2007 and new permanent rates were set effective January 1, 2008.

In November 2007, the Commission confirmed that the formula for setting the allowed rate of return on common equity resulted in an 8.62 percent rate of return for a low risk benchmark utility in 2008 resulting in an allowable rate of return on common equity of 9.27 percent for the Western system and the Tumbler Ridge division in 2008, and 9.02 percent for the Fort St. John/Dawson Creek division in 2008.

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.



Fourth Quarter Consolidated Results
Three Month Period Ended
December 31, 2007 ($ thousannd, except for per share data)

2007 2006

Operating revenues $ 40,568 $ 46,190
Cost of sales 27,015 32,115
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Operating margin 13,553 14,075

Net income applicable to common shares $ 2,552 $ 2,235
Earnings per common share - basic $ 0.70 $ 0.61
Earnings per common share - diluted $ 0.69 $ 0.60

Operating cash flow $ 3,345 $ 3,711
Additions to plant, property and equipment (3,030) (2,433)
Decrease (increase) in deferred charges 777 258

Issue of long term debt 2,000 -
Repayment of long term debt (1,800) (2,446)
Increase in bank indebtedness 8,947 5,075
Dividends paid (902) (897)

Fourth Quarter Consolidated Results
Twelve Months Ended
December 31, 2007 ($ thousand, except for per share data)

2007 2006

Operating revenues $ 129,464 $ 138,848
Cost of sales 84,446 91,118
--------- ---------
Operating margin 45,018 47,730

Net income applicable to common shares $ 4,036 $ 4,614
Earnings per common share - basic $ 1.11 $ 1.27
Earnings per common share - diluted $ 1.10 $ 1.26

Operating cash flow $ 6.933 $ 10,403
Additions to plant, property and equipment (9,175) (8,093)
Increase (decrease) in deferred charges 1,180 (269)
Methanex Termination Payment deferral, net of tax - 15,372

Issue of long term debt 16,622 -
Repayment of long term debt (17,660) (4,881)
Increase (decrease) in bank indebtedness 3,872 (5,084)
Dividends paid (3,260) (3,244)

Contact Information

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