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

Pacific Northern Gas Ltd.

November 04, 2011 17:00 ET

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

VANCOUVER, BRITISH COLUMBIA--(Marketwire - Nov. 4, 2011) - Pacific Northern Gas Ltd. (TSX:PNG)(TSX:PNG.PR.A) announced today that due to the seasonality of the business, the net loss for the three months ended September 30, 2011 was $2.2 million, the same as for the corresponding period in 2010. After providing for preferred share dividends, the loss per common share for the three months ended September 30, 2011 was $0.61 compared with a loss per common share of $0.64 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.

Third Quarter 2011 Results

Net loss from continuing operations for the three months ending September 30, 2011 was $2.2 million, essentially the same as the corresponding period in 2010. The allowed weighted average ROE remains at 10.09 percent for 2011, the same as in 2010.

The three month period ending September 30, 2010 includes a net loss from discontinued operations of $39,000 for the Company's share of KSL project development expenses incurred.

Net income from continuing operations for the nine months ending September 30, 2011 was $3.0 million compared to $3.5 million in the comparable period in 2010. This is mainly due to the $1.1 million 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 was recorded in the second quarter of 2010. Offsetting this increase during 2010 were $0.6 million of costs incurred for the McNair acquisition and reorganization during 2010.

As previously disclosed, the Company recognized net income from discontinued operations of $20.9 million during 2011 composed of the net after tax gain of $21.6 million recognized on the sale of the KSL project and $0.7 million of the Company's share of KSL project expenses incurred prior to its sale compared to a net loss of $0.4 million in the nine months ended September 30, 2010.

For the three months ended September 30, 2011, residential deliveries were approximately 2 percent lower and total commercial deliveries were 6 percent lower relative to deliveries over the same periods in 2010. During the 2011 period, weather was approximately 30 percent colder in the Western region and approximately 20 percent warmer in the Northeastern region compared to the same period in 2010 and resulted in overall lower net core customer deliveries as variations in weather during the summer months have less of an impact on deliveries due to the lower levels of consumption during this period.

For the nine months ended September 30, 2011, residential deliveries were approximately 14 percent higher and total commercial deliveries were 12 percent higher relative to deliveries for the same periods in 2010. Management believes that weather was the main reason for the higher deliveries in the past nine months as it was approximately 14 percent colder during this period in 2011 compared to the same period in 2010.

Industrial deliveries were lower by approximately 5 percent for the three month period and by 7 percent for the nine month period ended September 30, 2011 compared to the same periods in 2010. The decrease in industrial deliveries is comprised of a 35 percent decrease in large industrial customer deliveries, mainly due to the closure of the West Fraser Kitimat linerboard mill, combined with a 5 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, and increased deliveries to customers in the forest industry. 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.

Gas Transmission and Distribution

Revenues in the three months ended September 30, 2011 were $8.4 million compared with $9.5 million in the same period in 2010. The $1.1 million decrease reflected mainly lower commodity costs in 2011 compared to 2010 and the lower cost of service due mainly to changes in depreciation. Natural gas commodity prices are passed through to the Company's sales customers without mark-up.

Revenues in the nine months ended September 30, 2011 were $57.0 million compared with $64.3 million in the same period in 2010. The $7.3 million decrease mainly reflected a reduction of $4.8 million in off system gas sales, lower commodity costs in 2011 compared to 2010, a lower cost of service primarily due to changes in depreciation rates and a partial offset from higher sales volumes due to colder weather. Any profit or loss realized on 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 nine month period of 2011 reflects the impact of higher deliveries to on system customers due to colder temperatures.

Operating margin in the three months ended September 30, 2011 decreased slightly to $6.3 million, as compared with $6.4 million in the same period in 2010. For the nine months ended September 30, 2011, operating margin also decreased, to $32.5 million as compared to $34.2 million in the comparable period in 2010. The decrease of $1.7 million for the nine months ended September 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 effective January 1, 2011.

Renewable Energy

For the three months ended September 30, 2011, the McNair hydro-electric facility generated revenues and contributed net income of $0.5 and $0.1 million respectively, compared to revenues of $0.2 million and a loss of $0.2 million in the comparable period in 2010. Due to project development expenditures the Company's renewable energy segment recorded net loss of approximately $10,000 for the three months ended September 30, 2011. In the comparable period in 2010, the renewable energy segment recorded a net loss of $0.4 million due mainly to after-tax transaction costs of $0.1 million. Gross project development expenditures incurred in this segment were $0.1 million in this past quarter, the same as in the comparable period in 2010.

For the nine months ended September 30, 2011, the McNair facility generated revenues and contributed net income of $1.7 and $0.3 million respectively, compared to $0.8 and $0.1 million in the nine months ended September 30, 2010. Due to project development expenditures the Company's renewable energy segment incurred a net loss of $46,000 for the nine months ended September 30, 2011. The comparable period in 2010 for the renewable energy segment was a net loss of $0.8 million mainly due to $0.6 million in after-tax transaction costs incurred for the McNair acquisition in the 2010 period. Further, the 2010 results are not directly comparable to 2011 results since the McNair facility was not acquired until April 19, 2010.

Production from the McNair facility is seasonal. McNair experienced significantly above average hydrological conditions in the three months ended September 30, 2011 which has resulted in above average hydrologic conditions for the nine months ended September 30, 2011. Electricity generation from the McNair facility for the nine months ended September 30, 2011 was over 25 percent greater than the expected long-term average estimated using standard industry procedures.

Pending Disposition of the Company

On October 30, 2011, the Company entered into a definitive agreement under which AltaGas Ltd. ("AltaGas") has agreed to acquire all of the issued and outstanding common shares of the Company for $36.75 per share in cash. The proposed transaction is valued at $230 million, including assumed debt and preferred shares.

The proposed transaction will proceed by way of a court-approved statutory plan of arrangement, the implementation of which is subject to approval by 66 2/3% of the votes cast by shareholders at a special meeting to be held on or about December 12, 2011, and by a majority of the 'minority' shareholders voting at the meeting. The proposed transaction is also subject to a number of other customary closing conditions, including regulatory approval by the Commission. If approved, the transaction is expected to close on or about December 13, 2011.

The Company's Board of Directors unanimously recommends that shareholders vote in favour of the proposed transaction.

Dividends

The Board of Directors declared a quarterly dividend of 30 cents per share on the Company's common shares, payable December 1, 2011 to shareholders of record at the close of business on November 17, 2011.

The Board of Directors also 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, 2012 to the shareholders of record at the close of business on December 16, 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.

Third Quarter Consolidated Results
Three Month Period Ended September 30
($ thousands, except for per share data)
2011 2010
Operating revenues $8,931 $9,682
Cost of gas 2,185 3,088
6,746 6,594
Net loss applicable to common shares $(2,221) $(2,238)
Loss per common share
– basic $(0.61) $(0.64)
– diluted $(0.61) $(0.64)
Dividends per share $0.30 $0.28
Net loss from continuing operations $(2,218) $(2,208)
Loss per common share from continuing operations
– basic $(0.61) $(0.63)
– diluted $(0.61) $(0.63)
Net cash used in continuing operations operating activities before changes in operating assets and liabilities $(486) $(164)
Continuing operations changes in operating assets and liabilities (834) (3,680)
Additions to plant, property and equipment (3,592) (2,210)
Increase of bank indebtedness 2,308 4,223
Repayment of long-term debt (6,899) (692)
Employee stock option exercise proceeds 30 137
Dividends paid (1,137) (1,013)
Third Quarter Consolidated Results
Nine Month Period Ended September 30
($ thousands, except for per share data)
2011 2010
Operating revenues $58,681 $65,083
Cost of gas 24,513 30,056
34,168 35,027
Net earnings applicable to common shares $23,872 $3,104
Earnings per commons share
– basic $6.33 $0.79
– diluted $6.21 $0.77
Dividends per share $6.90 $0.84
Net income from continuing operations $3,014 $3,484
Earnings per common share from continuing operations
– basic $0.74 $0.90
– diluted $0.72 $0.88
Net cash from continuing operations operating activities before changes in operating assets and liabilities
$7,618

$12,720
Continuing operations changes in operating assets and liabilities 5,504 (8,007)
Additions to plant, property and equipment (6,188) (4,771)
Increase (repayment) of bank indebtedness (2,528) 1,644
Repayment of long-term debt (7,691) (752)
Employee stock option exercise proceeds 2,712 776
Dividends paid (26,118) (3,194)
Third Quarter Consolidated Results
($ in thousands, except for per share data)
As at
September 30
2011
As at
December 31
2010
Cash and cash equivalents $1,051 $1,301
Common shareholders' equity 89,593 89,043
Book value per common share $23.66 $24.63

Contact Information

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