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

Pacific Northern Gas Ltd.

October 26, 2006 17:44 ET

Pacific Northern Gas Reports Third Quarter Earnings and Declares Fourth Quarter Dividends

VANCOUVER, BRITISH COLUMBIA--(CCNMatthews - Oct. 26, 2006) - Pacific Northern Gas Ltd. (TSX:PNG)(TSX:PNG.PR.A) announced today that net loss for the three months ended September 30, 2006 was $1.5 million, compared with a net loss of $0.8 million for the corresponding period in 2005. After providing for preferred share dividends, the loss per common share in the three months ended September 30, 2006 was $0.42 compared with a loss per common share of $0.24 for the same period in 2005. Included in net loss for the three months ended September 30, 2006 are charges, net of tax, of $0.6 million relating to the Company's share of pipeline development expenditures incurred by Pacific Trail Pipelines Limited Partnership. In addition, net loss for the third quarter was negatively impacted by $0.4 million due to a shift in the timing of the recovery of operating margin, since deliveries to residential and commercial customers are temperature sensitive and make up a higher proportion of annual deliveries in 2006 compared to 2005. These impacts were offset by reductions in operating expenses arising due to lower volumes of gas delivered, compared to 2005.

In 2005 the Company commenced preliminary study and investigation of a project to loop its main line transmission system from Kitimat to Summit Lake (the "KSL Project"). On July 17, 2006, the Company announced the formation of Pacific Trail Pipelines Limited Partnership ("PTP"), a 50/50 partnership between the Company and Galveston LNG Inc., the parent company of Kitimat LNG Inc., for the purpose of developing the KSL Project.

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. If anticipated development expenditures for the fourth quarter of 2006 are expensed, earnings will be further reduced by an estimated $1.0 million, or $0.28 cents per share.

Net income for the nine months ended September 30, 2006 was $2.6 million, compared to $3.3 million in the corresponding period in 2005. After providing for preferred share dividends, earnings per common share in the nine months ended September 30, 2006 were $0.66 compared with $0.86 for the same period in 2005. Included in net income for the nine months ended September 30, 2006 are charges, net of tax, of $1.1 million, or $0.31 cents per share, relating to the Company's share of KSL Project development expenditures. Offsetting these charges are reductions in operating expenses, compared to 2005, due to lower volumes of gas delivered in 2006.

Operating revenues in the three months ended September 30, 2006 decreased to $15.9 million, as compared with $32.2 million in the corresponding period in 2005. The decrease in operating revenues was primarily due to a reduction of $14.6 million in revenues from the sale of gas surplus to the needs of the Company's sales customers ("off system gas sales") as well as a reduction of $1.4 million in transportation services revenue from Methanex, compared with the corresponding period in 2005. 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. Off system gas sales volumes have declined as the Company has reduced its base load gas purchases during the summer months to more closely align gas purchases with customers' gas demand.

Operating revenues in the first nine months of 2006 decreased to $92.7 million as compared with $110.3 million in the first nine months of 2005. The decrease in operating revenues was primarily due to a reduction of $22.7 million in off system gas sales combined with a reduction of $3.3 million in transportation services revenue from Methanex, offset by an increase of $8.0 million in gas supply costs embedded in customers rates, compared with the corresponding period in 2005.

Residential deliveries were 9 percent lower in the three months ended September 30, 2006, and were 10 percent lower in the nine months ended September 30, 2006, relative to deliveries over the same periods in 2005. Commercial deliveries were 6 percent lower in the three months ended September 30, 2006 and were 2 percent lower in the nine months ended September 30, 2006, compared to the same periods in 2005. Management believes that a key factor in the reduction in deliveries was warmer weather, as it was warmer by approximately 32 percent and 5 percent for the three month and nine month periods ended September 30, 2006, respectively, compared to the same periods in 2005. The weather was 33 percent and 12 percent warmer than normal for the three month and nine month periods ended September 30, 2006, respectively. In addition, the reductions in deliveries to residential customers in the first three quarters of 2006 are likely due in part to increased rates encouraging customer conservation measures.

Industrial deliveries were lower by 82 percent and 80 percent for the three month and nine month periods ended September 30, 2006, respectively, compared to the same periods in 2005. The reduction in industrial deliveries is primarily attributable to the closure of Methanex's Kitimat facility in the fourth quarter of 2005. Excluding the effect of the closure of Methanex's Kitimat facility, deliveries to large industrial customers in the three month and nine month periods ended September 30, 2006 were lower by 1 percent and 3 percent, respectively, compared with deliveries to the same customers in the corresponding periods in 2005. A deferral account is in place that recovers or refunds margin differences resulting from large industrial customers' demand varying from the forecast approved for ratemaking purposes.

Operating margin in the three months ended September 30, 2006 decreased to $7.2 million, as compared with $8.5 million in the same period in 2005. The lower operating margin in the third quarter is primarily the result of deliveries to residential and commercial customers making up a higher proportion of annual deliveries compared to 2005, when Methanex was operating its methanol/ammonia facility in Kitimat. Deliveries to residential and commercial customers tend to be more temperature sensitive, with deliveries in the first and fourth quarters accounting for more than 75 percent of annual deliveries. As a consequence, the Company's operating margin is approximately $0.6 million lower in the third quarter of 2006 than in the same period in 2005.

Operating margin in the first nine months of 2006 also decreased to $33.7 million, as compared with $34.4 million in the first nine months of 2005. In addition to the closure of the Methanex facility, lower budgeted operating expenses, depreciation and amortization in 2006 resulted in lower requirements for recovery in customer rates.

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 January 1, 2007 to the shareholders of record at the close of business on December 11, 2006.

The Board of Directors also declared a quarterly dividend of 20 cents per share on the Company's Common Shares, payable December 21, 2006 to shareholders of record at the close of business on December 5, 2006.

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 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.



Third Quarter Consolidated Results
Three Month Period Ended
September 30, 2006 ($ thousand, except for per share data)

2006 2005

Operating revenues $15,850 $ 32,238
Cost of sales 8,612 23,740
---------- ----------
Operating margin 7,238 8,498

Net income (loss) applicable to common shares ($1,535) ($856)
Earnings (loss) per common share - basic ($0.42) ($0.24)
Earnings (loss) per common share - diluted ($0.42) ($0.24)

Operating cash flow ($345) $1,616
Additions to plant, property and equipment (3,702) (1,558)
Decrease (increase) in deferred charges 258 (390)
Repayment of long term debt (1,145) (1,145)
Decrease in bank indebtedness - (3,217)
Dividends paid (728) (725)

Third Quarter Consolidated Results
Nine Month Period Ended
September 30, 2006 ($ thousand, except for per share data)

2006 2005

Operating revenues $92,658 $110,329
Cost of sales 59,003 75,925
---------- ----------
Operating margin 33,655 34,404

Net income applicable to common shares $2,379 $3,096
Earnings per common share - basic $0.66 $0.86
Earnings per common share - diluted $0.65 $0.84

Operating cash flow $6,820 $10,355
Additions to plant, property and equipment (5,660) (3,759)
Increase in deferred charges (527) (860)
Methanex Termination Payment deferral,
net of tax 15,372 -
Repayment of long term debt (2,435) (2,435)
Decrease in bank indebtedness (10,159) (5,837)
Dividends paid (2,347) (2,341)


Contact Information

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