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

Pacific Northern Gas Ltd.

July 29, 2011 17:00 ET

Pacific Northern Gas Reports Second Quarter Results and Declares Third Quarter Dividends

VANCOUVER, BRITISH COLUMBIA--(Marketwire - July 29, 2011) - Pacific Northern Gas Ltd. (TSX:PNG)(TSX:PNG.PR.A) announced today that the net loss for the three months ended June 30, 2011 was $0.7 million, compared with a net loss of $0.1 million for the corresponding period in 2010. After providing for preferred share dividends, the loss per common share for the three months ended June 30, 2011 was $0.21 compared with a loss per common share of $0.06 for the same period in 2010. The Company's natural gas distribution is very seasonal and generally earns in excess of its annual net income in the first and fourth quarters of its fiscal year and realizes losses in the second and third quarters.

Second Quarter 2011 Results

Net loss from continuing operations for the three months ending June 30, 2011 was $0.74 million compared to net income of $0.005 million for the comparable period in 2010. The decrease in earnings from continuing operations is mainly due to the recognition of the impact of the Capital Structure and Equity Risk Premium ("CAP/ROE") Application settlement which was approved on June 23, 2010 and resulted in higher equity components in both the Western and Northeast systems. This included an adjustment to reflect the January 1, 2009 effective date for the higher Western system common equity capitalization ratio which decreased the net loss in the second quarter of 2010. Excluding this amount, the loss from continuing operations for the second quarter of 2011 remained at similar levels as the prior year. The allowed weighted average ROE remains at 10.09 percent for 2011, the same as in 2010.

Net income from discontinued operations was $0.05 million in the second quarter of 2011 composed of adjustments to taxes and transaction costs recognized on the sale of the Kitimat to Summit Lake ("KSL") Project compared to a net loss of $0.15 million in the second quarter of 2010 for the Company's share of KSL Project development expenses incurred.

Residential deliveries were approximately 13 percent higher in the three months ended June 30, 2011 and 17 percent higher in the six months ended June 30, 2011. Total commercial deliveries were 2 percent higher for the three months ended June 30, 2011 and 15 percent higher for the six months ended June 30, 2011, relative to deliveries over the same periods in 2010. Management believes that weather was the key reason for higher deliveries as it was approximately 7 percent colder for the three month period ended June 30, 2011 and 15 percent colder for the six month period ended June 30, 2011 compared to the same periods in 2010. The weather was also 2 percent colder than normal for the three month period ended June 30, 2011 and 7 percent colder than normal, with "normal" based on the average of actual temperatures in the Company's service areas for the preceding 10 years.

Industrial deliveries were lower by approximately 8 percent for the three month period and six month period ended June 30, 2011 compared to the same periods in 2010. The decrease in industrial deliveries is comprised of a 34 percent decrease in large industrial customer deliveries, mainly due to the closure of the West Fraser Kitimat liner board mill, combined with a 4 percent increase in deliveries to small industrial customers. The small industrial customer deliveries were higher primarily in the Western system due to significant gas demand for coal drying at Ridley Island Terminals reflecting the impact of colder weather and higher than normal coal shipments. Deferral accounts are in place that recover or refund margin differences resulting from deliveries to large industrial customers and to some small industrial customers varying from the forecast approved for rate making purposes.

Revenue from Gas Transmission and Distribution

Revenues in the three months ended June 30, 2011 were $11.6 million compared with $14.6 million in the same period in 2010. The $3.0 million decrease reflected lower commodity costs in 2011 compared to 2010 and the lower cost of service due mainly to changes in depreciation rates and a partial offset from higher sales volumes due to colder weather. Any profit or loss realized from the sale of gas surplus to customer requirements ("off system gas sales") is deferred for future recovery from, or refund to, the Company's sales customers. The decrease in off system gas sales in the second quarter of 2011 reflects the impact of higher deliveries to on system customers due to colder temperatures. Natural gas commodity prices are passed through to the Company's sales customers without mark-up.

Revenues in the six months ended June 30, 2011 were $48.6 million compared with $54.8 million in the same period in 2010. The $6.2 million decrease mainly reflected a reduction of $4.7 million in off system gas sales revenue, lower commodity costs in 2011 compared to 2010, a lower cost of service due mainly to changes in depreciation rates and a partial offset from higher sales volumes due to colder weather.

Operating margin in the three months ended June 30, 2011 decreased to $8.3 million, as compared with $10 million in the same period in 2010. For the six months ended June 30, 2011, operating margin also decreased to $26.3 million as compared to $27.9 million in the comparable period in 2010. The decrease of $1.7 million for the quarter ended June 30, 2011 and $1.6 million for the six months ended June 30, 2011 was mainly due to the recognition in the second quarter of 2010 of the impact of the CAP/ROE Application settlement which was approved on June 23, 2010 and resulted in higher equity components in both the Western and Northeast systems. In addition, the lower 2011 operating margins reflect the lower depreciation expense recovered from customers due to the extension of the useful life of assets following a depreciation study undertaken and implemented by the Company.

Revenue from Renewable Energy

For the three months ended June 30, 2011, the McNair Creek hydro-electric facility generated revenues of $0.7 million compared to $0.6 million in the comparable period in 2010. However, the 2010 results are not directly comparable to 2011 results since the McNair Creek facility was not acquired until April 19, 2010. The Company recorded net after-tax earnings of approximately $0.1 million from renewable energy operations for the three months ended June 30, 2011 compared to a net loss of $0.1 million in the prior period. For the six months ended June 30, 2011, the McNair Creek facility generated revenues of $1.2 million and contributed approximately $0.04 million to after-tax earnings of the Company. The higher earnings contribution reflects lower development expenses incurred during 2011 compared to 2010 when after-tax transaction costs of $ 0.47 million were incurred for the McNair Creek acquisition.

Production from the McNair Creek facility is seasonal. During the first six months of 2011, the McNair Creek facility experienced slightly above average hydrologic conditions. As a result, electricity generation from the McNair Creek facility for the six months ended June 30, 2011 was slightly in excess of the long-term average that was estimated using standard industry procedures.

Option to Utilize Existing Pipeline Capacity

LNG Partners, LLC continues to have an exclusive option to December 31, 2011 to contract for 80 million cubic feet per day of existing firm gas transportation pipeline capacity on the Western system after paying the Company a $1 million option extension fee on June 30, 2011. The Company has now received a total of $5.5 million of option fees under the British Columbia Utilities Commission (the "Commission") approved transportation service agreement between the Company and LNG Partners. This option may be extended one more time to June 30, 2012 with the payment of an additional $1 million by December 31, 2011. On July 25, 2011 the National Energy Board issued an order setting out the terms of reference for a public hearing into the BC LNG Export Co-operative application for approval to export LNG from the LNG Partners proposed facility near Kitimat, BC. "The Company continues to be pleased with the progress being made by LNG Partners with their LNG export project," said Roy Dyce, President and CEO of PNG.

Negotiated Settlements of 2011 Revenue Requirements Applications

Negotiated settlements of the Company's 2011 revenue requirements applications were reached on April 27, 2011 between the Company and customer representatives in respect of all divisions. The Commission approved the negotiated settlement agreements on May 20, 2011. The Commission accepted in mid-June 2011 the gas tariff rate schedules prepared by the Company to reflect the rates agreed to under the approved settlement agreements.

The parties agreed the Company's 2012 revenue requirements applications would be reviewed through an oral or written public hearing process given the last three applications were settled under negotiated settlement processes. Further, the Company agreed to file capital structure and return on equity evidence as part of its 2013 revenue requirements applications.

Dividends

The Board of Directors declared a quarterly dividend of 30 cents per share on the Company's common shares, payable September 20, 2011 to shareholders of record at the close of business on September 7, 2011.

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.

Forward-looking statements

This news release includes forward-looking statements. Forward-looking statements relate to, among other things, anticipated financial performance, business prospects, strategies, regulatory developments, new services, market forces, commitments and technological developments. Many of these statements can be identified by words such as "believe", "expects", "expected", "will", "intends", "projects", "anticipates", "estimates", "continues" or similar words. PNG believes the expectations reflected in such statements are reasonable but no assurance is given that such expectations will be correct. All forward-looking statements are based on management's beliefs and assumptions based on information available at the time the assumption was made and on its experience and perception of historical trends, current conditions and expected further developments as well as other factors deemed appropriate in the circumstances.

By its nature, such forward-looking information is subject to various risks and uncertainties that are known and unknown, including those material risks discussed in PNG's 2011 Annual Information Form under "Risk Factors" which could cause PNG's actual results and experience to differ materially from the anticipated results or other expectations expressed. Such risks and uncertainties include but are not limited to: general economic conditions and markets; gas supply and availability; gas commodity price volatility; competition; decisions by regulators; seasonal weather patterns; federal and provincial climate change initiatives; financing of investments as well as the value of such investments; the cost and availability of capital; the impact on PNG's liquidity if it were to go offside of the covenants in its debt facilities; successful execution of strategic initiatives; the ability of PNG to attract and retain quality employees and the impact of accounting changes including the transition to new accounting standards. Readers are cautioned not to place undue reliance on this forward-looking information, which is given as of the date it is expressed in this news release or otherwise, and PNG undertakes no obligation to update publicly or revise any forward-looking information, whether as a result of new information, future events or otherwise, except as required by applicable securities laws.

About Pacific Northern Gas

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 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.

Second Quarter Consolidated Results
Three Month Period Ended
June 30 ($ thousands, except for per share data)
2011 2010
Operating revenues $12,271 $15,166
Cost of gas 3,256 4,630
9,015 10,536
Net loss applicable to common shares $(783) $(231)
Loss per common share
– basic $(0.21) $(0.06)
– diluted $(0.21) $(0.06)
Dividends per share $3.30 $0.28
Net income (loss) from continuing operations $(738) $5
Loss per common share from continuing operations
– basic $(0.22) $(0.02)
– diluted $(0.22) $(0.02)
Net cash from continuing operations operating activities before changes in operating assets and liabilities
$1,054

$4,046
Continuing operations changes in operating assets and liabilities
6,941

3,202
Additions to plant, property and equipment (1,922) (1,646)
Repayment of bank indebtedness (2,461)
Employee stock option exercise proceeds 864 207
Dividends paid (12,649) (1,176)
Second Quarter Consolidated Results
Six Month Period Ended
June 30 ($ thousands, except for per share data)
2011 2010
Operating revenues $49,750 $55,401
Cost of gas 22,328 26,968
27,422 28,433
Net earnings applicable to common shares $25,924 $5,173

Earnings per commons share
– basic $7.00 $1.44
– diluted $6.84 $1.41

Dividends per share
$6.60 $0.56
Net income from continuing operations $5,232 $5,692
Earnings per common share from continuing operations
– basic $1.36 $1.54
– diluted $1.33 $1.51
Net cash from continuing operations operating activities before changes in operating assets and liabilities
$8,104

$12,884
Continuing operations changes in operating assets and liabilities
6,338

(4,327)
Additions to plant, property and equipment (2,596) (2,561)
Repayment of bank indebtedness (4,836) (2,579)
Employee stock option exercise proceeds 2,682 639
Dividends paid (24,981) (2,181)
Second Quarter Consolidated Results
As at June 30 December 31
($ in thousands, except for per share data) 2011 2010
Cash and cash equivalents $11,651 $1,301
Common shareholders' equity 92,905 89,043
Book value per common share $24.55 $24.63

Contact Information

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