Taylor NGL Limited Partnership
TSX : TAY.UN
TSX : TAY.DB

Taylor NGL Limited Partnership

May 02, 2007 16:16 ET

Taylor NGL Limited Partnership Announces First Quarter 2007 Results

CALGARY, ALBERTA --(CCNMatthews - May 2, 2007) - Taylor NGL Limited Partnership (TSX:TAY.UN)(TSX:TAY.DB) today announced its first quarter 2007 results. The following should be read in conjunction with Management's Discussion and Analysis, the consolidated financial statements and notes of Taylor NGL Limited Partnership, which have been posted on Taylor's website www.taylorngl.com and at the following link: http://www.ccnmatthews.com/docs/tayq1502.pdf.

Q1 2007 HIGHLIGHTS

- Q1 Cash Available for Distribution was $10.2 million.

- On a per unit basis, Q1 Cash Available for Distribution was 23.9 cents of which 18.75 cents was distributed to Unitholders, a payout ratio of 79 percent.

- Net natural gas volumes processed by the Partnership averaged 437 MMscf per day in Q1, compared to 452 MMscf per day in Q4 of last year. The decrease from the previous quarter was largely due to maintenance activities at the Younger Extraction Plant.

- Net natural gas liquids (NGL) sales averaged 19,327 barrels per day in Q1, compared to 19,763 barrels per day in Q1 of last year. The decrease from the previous quarter was a result of reduced ethane sales from the Younger Extraction Plant and reduced frac oil sales from the Harmattan Complex.

- Taylor's Harmattan Co-stream Project continues to progress through the regulatory review process. The Alberta Energy and Utilities Board has provided notice that the decision process will formally commence May 23, 2007, culminating in a hearing beginning July 9, 2007.

The following table highlights Taylor's operational and financial results for the first quarter of 2007 and 2006:



----------------------------------------------------------------------------
----------------------------------------------------------------------------
(in thousands of dollars except volume Three months ended March 31
and unit amounts) 2007 2006 Change
----------------------------------------------------------------------------

Natural gas processed (MMscf per day) 437 461 -5%
NGL sales (barrels per day) 19,327 19,763 -2%
Total revenue 61,588 66,113 -7%
Feedstock cost 36,562 42,156 -13%
Net income 5,987 6,047 -1%
Basic per unit 0.14 0.14 0%
Net Operating Income 14,350 14,408 0%
Cash Available for Distribution 10,169 10,970 -7%
Distributions paid to unitholders 7,980 7,657 4%
per unit 0.1875 0.1800 4%
Units outstanding at end of period 42,563,740 42,541,740 0%
----------------------------------------------------------------------------
----------------------------------------------------------------------------


CONFERENCE CALL

A conference call to discuss these results will be held on Thursday, May 3, 2007 at 8:30 a.m. MT / 10:30 a.m. ET. To participate in the conference call, please dial 416-695-9712 in the Toronto area and 1-877-667-7774 from all other areas of Canada.

A recording of the call will be available for replay until May 10, 2007 by dialing 416-695-5275 or 1-888-509-0081 (passcode 643170) or by following the links on Taylor's website, www.taylorngl.com.

DISCLOSURE AND DEFINITIONS

The consolidated financial statements have been prepared in accordance with Canadian generally accepted accounting principles (GAAP). Additional information relating to the Partnership is available on SEDAR at www.sedar.com.

Volumetric information for each of the Partnership's facilities is available at www.taylorngl.com under Investor Info: Facts & Figures: Production.

Certain comparative figures have been reclassified to conform to the current year's presentation.

The following contains certain forward-looking statements that are based on the Partnership's current expectations, estimates, projections and assumptions in light of its experience and its view of historical trends. In some cases, forward-looking statements can be identified by terminology such as "may", "will", "should", "expects", "projects", "plans", "anticipates", "targets" and similar expressions. These statements are not guarantees of future performance and are subject to a number of risks and uncertainties as detaileed in the Partnership's Annua Information Form under the heading "Risk Factors". Undue reliance should not be placed on these forward-looking statements, as known and unknown risks and uncertainties may cause actual performance and financial results in future periods to differ materially from any projections of future performance or results expressed or implied by such forward-looking statements. Examples of areas of risk and uncertainty include: volume of natural gas delivered for processing at the Partnership's facilities; ability of the facilities to process the natural gas delivered; cost of operating the facilities; cost of maintaining the facilities; and volume and value, net of feedstock costs of the Partnership's proprietary products such as NGL, frac oil and CO2. Accordingly, readers are cautioned that events or circumstances could cause results to differ materially from those predicted. Such forward-looking statements are expressly qualified by the above statements.

Tabular amounts are expressed in thousands of dollars except per unit amounts and numbers of Partnership units. All figures are in Canadian dollars unless otherwise stated. All volumes are net to the Partnership unless otherwise stated.

Taylor uses the industry standard term "Funds Provided by Operations", which has the same GAAP definition as "cash provided by operations before changes in non-cash working capital".

The term "Cash Available for Distribution" refers to the amount of cash that has been, or is, available for distribution to the Partnership's unitholders prior to any withholdings or reserves that the Board of Directors may make pursuant to the terms of the Partnership's Limited Partnership Agreement. Cash Available for Distribution is defined as Funds Provided by Operations plus adjustments for one-time items and less "Sustaining Capital" and "Reserve for Future Commitments". One-time items are specifically described when they occur.

Sustaining Capital is defined as capital expenditures necessary to maintain the safe and efficient operation of Taylor's facilities for the long term. Sustaining Capital items are not expensed due to the long-term nature of these investments.

Reserve for Future Commitments is defined as expenditures known by the Partnership with respect to prior periods, but not deducted from net income due to guidelines established by the Canadian Institute of Chartered Accountants (CICA). An example of such expenditure is the cost of the Restricted Share Units (RSUs) awarded under the Partnership's Long-term Incentive Plan (LTIP). The number of RSUs awarded is based on the results achieved over a specific fiscal period. According to the terms of the LTIP, the awards vest in future periods. Under section 3870 of the CICA Handbook, RSUs are classified as stock appreciation rights and therefore are recorded as a compensation expense over the vesting period.

Taylor uses the term "Net Operating Income" to assist in assessing the ability of the Partnership to generate cash from normal operations. Net Operating Income is defined as natural gas liquids sales plus fee income, less feedstock costs and operating costs, plus realized gains or losses on commodity-based financial instruments.

The terms Funds Provided by Operations, Cash Available for Distribution, Sustaining Capital, Reserve for Future Commitments and Net Operating Income are not recognized under Canadian GAAP. Therefore, these terms have no standardized meaning and may not be comparable to similarly defined amounts presented by other issuers. Management uses each of these terms to measure and communicate the performance of the Partnership.

OVERVIEW OF FIRST QUARTER 2007

Production and Operations Summary

Net natural gas volumes processed at Taylor's facilities during the first quarter of 2007 averaged 437 MMscf per day. The Harmattan Complex processed an average 118 MMscf per day, the RET Complex averaged 49 MMscf per day while the Younger and Joffre extraction plants processed a combined average of 270 MMscf per day.

The decrease from the comparable quarter of 2006 was primarily a result of scheduled maintenance activities at the Younger Extraction Plant that required curtailment of natural gas volume processed for seven days.

In March, natural gas deliveries to the Harmattan Complex from a new third party owned gathering system commenced. This gathering system extends the capture area of the Harmattan Complex to the southeast. Over the next several months, incremental natural gas volumes from this area will be brought into the plant for processing.

In addition to the previously highlighted maintenance activities at the Younger Extraction Plant, two scheduled compressor overhauls were completed at the Harmattan Complex. The expense of these activities is included in the operating cost for the quarter. There are no major turnarounds scheduled for 2007 at Taylor facilities.

For the first quarter, NGL sales averaged 19,327 barrels per day, down 436 barrels per day from first quarter 2006 sales. The decrease was mainly a result of reduced ethane sales from the Younger Extraction Plant, attributable to the previously mentioned throughput curtailment. In addition, frac oil sales from the Harmattan Complex were significantly lower than historical levels due to reduced demand for this product from the oil and gas service industry.

Taylor sets production rates at the Younger and Joffre extraction plants largely in response to prevailing NGL margins. If the NGL margin is less than the variable operating costs, then production is not economically justified. The NGL margin is defined as the difference between the sales price of NGL and the cost of the natural gas purchased for shrinkage make-up. Taylor reports an indicative margin, expressed in dollars per barrel of NGL, which is derived from Edmonton postings for propane, butane and condensate and the daily AECO natural gas price. In the first quarter, this benchmark NGL margin averaged $11.95 per barrel, compared to $14.09 per barrel in the first quarter of 2006 and $13.44 per barrel in the fourth quarter of 2006.

During the first quarter, the Younger Extraction Plant processed an average 210 MMscf per day to produce 11,182 barrels per day of NGL, while the Joffre Extraction Plant processed an average 60 MMscf per day to produce 3,408 barrels per day of NGL.

Effective March 14, 2007, the Retlaw Plant, one of the plants in the RET Complex, began operating in compression mode with the natural gas processing function formerly provided by this facility transferred to the Turin Plant, the largest of the RET Complex facilities. This operational change will reduce total RET Complex operating costs while having no impact on the volume of natural gas processed or the level of service provided to customers. Since the Turin Plant has acid gas injection capability, the emissions associated with the gas processing function at the Retlaw Plant have been significantly reduced. Taylor anticipates no changes to reclamation obligations at the Retlaw Plant site as a result of this change in service.

Financial Summary

Taylor's first quarter of 2007 Net Operating Income was $14.4 million unchanged from the first quarter of 2006.



Net Operating Income
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Three months ended March 31
(in thousands of dollars) 2007 2006
----------------------------------------------------------------------------

Natural gas liquids sales $ 46,918 $ 51,826
Fee income 14,635 14,240

----------------------------------------------------------------------------
61,553 66,066
----------------------------------------------------------------------------

Feedstock cost 36,562 42,156
Operating costs 10,692 9,494
Realized losses (gains) on
commodity-based financial instruments (51) 8

----------------------------------------------------------------------------
47,203 51,658
----------------------------------------------------------------------------

Net Operating Income $ 14,350 $ 14,408
----------------------------------------------------------------------------
----------------------------------------------------------------------------


The revenue component of Net Operating Income was $61.6 million for the three months ended March 31, 2007, which was $4.5 million less than the same quarter in 2006. The decrease, offset by a similar reduction in feedstock costs, is explained by reduced prices for NGL and reduced sales volumes.

The Younger Extraction Plant Marketing Pool, which is the profit-share component of the sales price received by Taylor for the NGL sold under the NGL Purchase Agreement, generated $2.7 million during the first quarter of 2007 compared to $1.9 million in the same quarter of 2006.

Fee income during the first quarter of 2007 was $14.6 million compared to $14.2 from the same quarter in 2006. Fee income is largely a function of natural gas volumes processed and the fee charged for the service provided. The improvement from the comparable period is a result of increases in the fee charged for the service provided.

The expense component of Net Operating Income was $47.2 million for the three months ended March 31, 2007, a 9 percent decrease from the same quarter in 2006. The decrease is attributable to the decreased cost for feedstock or shrinkage gas, which averaged $6.99 per GJ during the quarter compared to $7.20 per GJ in the same quarter last year. Also contributing to the decrease was lower volumes of NGL produced. Shrinkage gas is initially paid by Taylor and then recovered from the purchasers of Taylor's NGL.

On March 8, 2007, Taylor was advised that the remaining claim for $5.8 million against several parties, including the Partnership, with respect to the 1999 outage at the Younger Extraction Plant (note 17 of the Partnership's 2006 annual audited consolidated financial statements), expired with no action by the claimant. As a result, Taylor has no remaining claims outstanding pertaining to this incident.

Cash Distributions

For the three months ended March 31, 2007, Funds Provided by Operations were $10.5 million. Of these funds, the Partnership invested $0.1 million in projects to sustain assets and retained $0.8 million to fund a portion of the expected 2007 long-term incentive plan (LTIP) award. During the first quarter, Taylor released $0.6 million from reserves made in 2005 and 2006 to fund the current quarter administration expense that results from the GAAP treatment of LTIP awards made in prior years. Taylor's Cash Available for Distribution for the three months ended March 31, 2007 was $10.2 million.

On a per-weighted-average-unit basis, Cash Available for Distribution was $0.239 per unit during the quarter compared to $0.258 per unit for the prior year quarter.



Cash Available for Distribution
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Three months ended March 31
(in thousands of dollars except per unit amounts) 2007 2006
----------------------------------------------------------------------------

Cash provided by operations $ 10,294 $ 8,018
Add (deduct) change in non-cash working capital 197 2,995
----------------------------------------------------------------------------
Funds Provided by Operations (1) 10,491 11,013
Reserve for Future Commitments (2) (196) 69
Sustaining Capital (3) (126) (112)
----------------------------------------------------------------------------
Cash Available for Distribution $ 10,169 $ 10,970
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Cash Available for Distribution per unit $ 0.239 $ 0.258
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Cash Distributed
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Three months ended March 31
(in thousands of dollars except per unit amounts) 2007 2006
----------------------------------------------------------------------------
Cash Available for Distribution $ 10,169 $ 10,970
Working capital returned (withheld) (2,189) (3,313)
----------------------------------------------------------------------------
Cash distributed $ 7,980 $ 7,657
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Cash distributions paid per unit $ 0.1875 $ 0.1800
----------------------------------------------------------------------------
----------------------------------------------------------------------------

(1) Non-GAAP measure described as "cash provided by operations prior to
changes in non-cash working capital" as provided in the Consolidated
Statements of Cash Flow.

(2) Reserve for Future Commitments accounts for the timing difference
between the period in which the RSUs, awarded under the LTIP, were
earned and the GAAP treatment of the award. Reserve for Future
Commitments burdens the cost of RSUs against the period in which they
are earned, while GAAP applies the cost over the vesting period. The
change in the balance of the Reserve for Future Commitments as at
March 31, 2007 is as follows:


Reserve for Future Commitments
----------------------------------------------------------------------------
----------------------------------------------------------------------------
(in thousands of dollars)
----------------------------------------------------------------------------

Balance, December 31, 2006 $ 4,095
Release of 2005 LTIP reserve (95)
Release of 2006 LTIP reserve (544)
Reserve for the 2007 LTIP award 835
----------------------------------------------------------------------------
Balance at December 31, 2006 $ 4,291
----------------------------------------------------------------------------
----------------------------------------------------------------------------

No funds or separate banking arrangements have been established for this
reserve.

(3) Sustaining Capital is defined as capital expenditures necessary to
maintain the safe and efficient operation of Taylor's facilities for
the long term. Sustaining Capital items are not expensed due to the
long-term nature of these investments.


The Partnership's Cash Available for Distribution is derived solely from cash distributions made by the Operating Partnerships to the Partnership as a limited partner of the Operating Partnerships as defined in note 1 of the Partnership's 2006 audited consolidated financial statements.

Cash distributions declared for each period are derived by adding back non-cash items to net income, and deducting Sustaining Capital, Reserves for Future Commitments and discretionary working capital amounts, which the Board of Directors deems necessary. Since January 1, 2005, the Partnership has invested $2.1 million in projects to sustain the Partnership's assets and retained $16.5 million to fund growth initiatives, support future distributions, fund the Partnership's long-term incentive plan awards and repay debt. Management believes that these funds will be sufficient to ensure the productive capacity of the Partnership and fund future obligations.

Cash distributions are not guaranteed and will fluctuate with the Partnership's performance. Distributions will depend on cash flow and other factors beyond the control of the Partnership including new taxes that may apply to the Partnership. The Partnership has the discretion to fund capital expenditures, to borrow to fund such expenditures and to establish cash reserves. Funding of capital expenditures or adding to cash reserves will reduce the amount of Cash Available for Distribution. Based on the Partnership's conservative distribution strategy and current status of operations, Taylor is expected to meet its financial commitments and debt covenants for the foreseeable future.

OUTLOOK

The Partnership's assets have commercial lives that are measured in decades. Long-life assets are the foundation that supports sustainable revenues, cash flows and distributions.

The Harmattan Complex and the RET Complex are the dominant service providers in their capture areas. Taylor's NGL extraction business is founded on regional natural gas supply and demand. The Younger Extraction Plant is supplied from the robust natural gas producing region of northeast British Columbia, while the Joffre Extraction Plant depends on the fuel gas demands of central Alberta's petrochemical industry. The Partnership's NGL pipelines are critical components of the infrastructure that supports the petrochemical sector.

The profitability of the Partnership's extraction plants is strongly influenced by NGL margin. Early into the second quarter, NGL margins have increased as oil price has strengthened.

Taylor's Harmattan Co-stream Project continues to progress through the regulatory review. The Alberta Energy and Utilities Board have provided notice that the decision process will formally commence May 23, 2007, culminating with a hearing beginning July 9, 2007. The Harmattan Co-stream Project will bring rich, sweet natural gas from TransCanada's Alberta system to the Harmattan Complex for processing to recover ethane, propane, butane and condensate. Upon approval by the regulator, construction will commence, requiring approximately 12 months to complete. The project, as currently envisioned, will cost in the range of $70 million to $90 million. For more information, please refer to the following page on Taylor's website: http://www.taylorngl.com/HarmattanCochranePipeline.htm.

On March 8, 2007, the Alberta Government introduced legislation to reduce greenhouse gas emissions. The "Climate Change and Emissions Management Amendment Act", along with its accompanying "Specified Gas Emitters Regulation", state that facilities that emit more than 100,000 tonnes of greenhouse gases a year must reduce their emissions intensity by 12 percent starting July 1, 2007. Taylor's Harmattan Complex falls within the scope of the legislation as its greenhouse emissions are slightly above 100,000 tonnes per year. Management is following the progress of this legislation. Initial review suggests that the financial and operational impacts will be minor and in fact may provide Harmattan with the opportunity to further develop its position as the premier facility in the area.

Subsequent to the first quarter, Taylor entered into a commercial arrangement with a single shipper for a new NGL transportation service using a portion of the Ethylene Delivery System that was not essential to the current ethylene transportation service that the system provides. The NGL transportation service is being offered on a 35 kilometre section of six-inch diameter pipeline the runs between Fort Saskatchewan and Edmonton. Segregation of this segment will commence immediately with commercial operations expected to begin in the first quarter of 2008.

In 2007, Taylor's management will continue to focus on growth through projects and acquisitions designed to diversify the Partnership's asset base and increase Net Operating Income and Cash Available for Distribution.

CORPORATE INFORMATION

Taylor NGL Limited Partnership owns and operates the RET Complex, the Harmattan Complex and the Joffre Extraction Plant, all in Alberta, and the Younger Extraction Plant in British Columbia. The Joffre and Younger plants are natural gas liquids extraction facilities that produce ethane, propane, butane and condensate. The RET Complex and the Harmattan Complex are natural gas processing facilities that provide services to oil and natural gas producers. The Partnership also owns two NGL pipelines - the Ethylene Delivery System and the Joffre Feedstock Pipeline, both of which move products between Joffre, Alberta and Fort Saskatchewan, Alberta.

Taylor NGL Limited Partnership units and convertible debentures trade on the Toronto Stock Exchange (TSX) under the symbol TAY.UN and TAY.DB, respectively.

The Partnership is organized in accordance with the terms and conditions of a limited partnership agreement which provides that no Partnership units may be transferred to, among other things, a person who is a "non-resident" of Canada or a partnership which is not a "Canadian partnership" for purposes of the Income Tax Act (Canada).

Contact Information