PIPELINES / TransCanada Pipelines Ltd. 1997 Earnings (Part 1)
TRANSCANADA'S 1997 EARNINGS INCREASE
CALGARY, Jan. 23 /CNW/ - TransCanada PipeLines Limited today announced
that net income to common shares (net earnings) rose $22.4 million to $407.6
million in 1997. Earnings per share were $1.85, the same as 1996. For the
fourth quarter, net earnings were $100.5 million or 45 cents per share,
compared to $102 million or 48 cents per share in 1996.
''We have had strong contributions from all our businesses except those
affected by petroleum and products prices,'' said George Watson, TransCanada's
president and chief executive officer. ''Deteriorating margins in petroleum
and products marketing and the US gas processing businesses, particularly in
the fourth quarter, plus the costs associated with the ongoing expansion of
our energy transmission business, kept our earnings per share flat on a year
over year basis. We remain confident that we will achieve our earnings per
share targets of $2.40 by 2000 and $3.00 by 2002,'' he said.
''As we expand into more market-based businesses, the earnings of the
company will become less predictable than what we have been used to in the
past. This is the price today of providing our shareholders with
opportunities for increased value added in the future,'' Watson said.
Net earnings from the Energy Transmission segment were $333.9 million in
1997, up $10.3 million from 1996. The Canadian Mainline contributed $257.8
million in 1997, up $7.1 million from 1996 despite a 58 basis point reduction
in the allowed rate of return on common equity. TransCanada's proportionate
share of net earnings from its North American pipelines was $76.1 million in
1997, compared with $72.9 million the previous year.
The Energy Marketing segment had net earnings of $7.6 million in 1997,
down from $27.9 million in 1996. Although price volatility for natural gas
created profitable marketing opportunities and greater volumes of natural gas
were sold in 1997 than in 1996, these positive results were more than offset
by the loss in the petroleum and products marketing business. The narrow
movement in petroleum and products prices throughout 1997, together with a
December price decline triggered by the Asian currency crisis, resulted in
substantially reduced margins.
Energy Processing contributed $61.4 million in net earnings in 1997, an
increase of $19.8 million from 1996, largely due to higher contributions from
specialty chemicals, power generation and the Canadian gas gathering
businesses.
1997 marks the first year that the International segment has achieved
profitability. Net earnings from this segment rose $11.5 million to $6.3
million, based largely on higher income from the Colombian investments - the
Cusiana oil pipeline, the TransGas natural gas pipeline and CentrOriente.
Overall, TransCanada's 1997 capital spending and investment program
totalled $1.92 billion, up from $1.65 billion in 1996. The major element of
this program includes capital expenditures of $1.4 billion in Energy
Transmission.
TransCanada PipeLines Limited is one of North America's leading
transporters of natural gas through its energy transmission business.
TransCanada also operates complementary businesses in energy marketing and
energy processing in North America, and is extending its operations
internationally.
TRANSCANADA PIPELINES LIMITED
REPORT TO SHAREHOLDERS FOURTH QUARTER DECEMBER 31, 1997
TRANSCANADA PIPELINES LIMITED
HIGHLIGHTS
Three months ended Year ended
December 31 December 31
FINANCIAL (millions of dollars (unaudited)
except per share amounts) 1997 1996 1997 1996
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Net income applicable to
common shares 100.5 102.0 407.6 385.2
Capital expenditures and
investments 558.5 476.8 1,920.8 1,652.3
Net income per share $0.45 $0.48 $1.85 $1.85
Dividends declared per
common share $0.31 $0.29 $1.18 $1.10
OPERATING STATISTICS (unaudited)
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Canadian mainline gas
transmission volumes delivered
(billions of cubic feet)
Domestic 339.0 333.2 1,326.7 1,266.9
Export (customers serving
United States markets) 315.0 305.4 1,179.5 1,170.9
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654.0 638.6 2,506.2 2,437.8
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Natural gas marketing volumes
sold (billions of cubic feet)
Netback 221.8 238.8 916.6 943.4
Non - netback 321.2 195.3 918.4 670.1
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543.0 434.1 1,835.0 1,613.5
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Petroleum and products
marketing volumes sold
(millions of barrels)
Crude oil 28.0 19.0 110.7 71.1
Refined products 18.7 20.4 80.6 63.5
Natural gas liquids 5.0 5.0 18.0 13.1
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51.7 44.4 209.3 147.7
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>>
Consolidated Financial Review
TransCanada's 1997 financial performance, particularly in the fourth
quarter, reflects the deterioration in petroleum and products prices and the
costs associated with the ongoing expansion of the energy transmission
business. These factors mask the strong contributions from most of
TransCanada's business operations.
The narrow movement in crude oil prices throughout 1997, and the decline
in crude prices in December, produced poor results in the petroleum and
products marketing and U.S. gas processing businesses. The impact of the
costs related to new business opportunities is seen in the form of start-up
losses associated with Express and project development expenses.
Net income to common shares (net earnings) for the year ended December
31, 1997 was $407.6 million, increasing from $385.2 million in 1996. On a per
share basis, earnings remained unchanged at $1.85. Fourth quarter net
earnings decreased to $100.5 million, or $0.45 per share, in 1997 from $102
million, or $0.48 per share, in 1996.
Energy Transmission
Net earnings from the Energy Transmission segment were $91.9 million and
$333.9 million for the three months and year ended December 31, 1997,
respectively, compared to $86.2 million and $323.6 million for the same
periods last year.
The Canadian Mainline provided net earnings of $257.8 million in 1997,
representing an increase of $7.1 million over the prior year. These solid
results were achieved despite the 58 basis point reduction in the allowed rate
of return on common equity in 1997. Earnings from the growth in rate base
more than offset the effect of the decrease in the allowed rate of return.
TransCanada's proportionate share of net earnings from its North American
pipelines for the three and twelve months ended December 31, 1997 was $24.6
million and $76.1 million, respectively, compared to $22.5 million and $72.9
million in 1996. Operating performance from the Great Lakes System was
strong, resulting in higher short-term firm service revenues and lower
operating expenses, and the United States dollar strengthened relative to the
Canadian dollar. However, the favourable impact of these factors was partially
offset by the costs associated with TransCanada's continued development of new
energy transmission opportunities. Specifically, losses incurred during the
initial period of operations of the Express oil pipeline and the expenses
related to TransCanada's participation in several proposed North American
pipeline projects are captured in this segment.
- Canadian Mainline
In December, the National Energy Board (NEB) approved the Canadian
Mainline's application to construct new facilities in 1998, expected to cost
$824.9 million. The construction will add about 352 million cubic feet (MMcf)
per day of new firm service from Empress, Alberta and 65 MMcf per day of new
short-haul firm service from St. Clair, Ontario. About 83 per cent of the new
capacity is dedicated to export deliveries and the remainder to domestic
markets.
When these facilities are placed into service in November 1998, the
Canadian Mainline will have expanded by more than 900 MMcf per day since
November 1996. Combined with the 1998 expansion on Northern Border,
TransCanada and its affiliates will have increased pipeline capacity out of
western Canada by 1.6 billion cubic feet (Bcf) per day between November 1996
and 1998.
In January 1998, TransCanada announced it intends to file a 1999
facilities application this winter with the NEB that will include a 1.4 Bcf
per day expansion to serve the proposed Viking Voyageur pipeline. The planned
expansion will require construction of pipeline facilities in Saskatchewan and
Manitoba by November 1999 to meet downstream market requirements in the U.S.
Midwest.
- Viking Voyageur
In October, Viking Voyageur, a proposed US$1.2 billion pipeline to
deliver Canadian natural gas to customers in the U.S. Midwest, filed its
application with the U.S. Federal Energy Regulatory Commission (FERC). The
proposed 773-mile pipeline, 40 per cent owned by TransCanada, is designed to
transport an estimated 1.4 Bcf of natural gas per day. Viking Voyageur has
received support from the major gas distribution companies serving Minnesota,
Wisconsin and northern Illinois and, if built, Viking Voyageur will offer
western Canadian gas producers access to markets in the Chicago area.
- Millennium Pipeline
In December, sponsors of the Millennium Pipeline, in which TransCanada
has a 21 per cent interest, filed an application with FERC seeking approval to
construct and operate a natural gas pipeline to supply eastern U.S. markets.
Approximately 425 miles in length, and extending from Port Stanley, Ontario to
Erie, Pennsylvania, the Millennium Pipeline will be designed to transport up
to 700 MMcf per day. The estimated cost of the project is US$650 million.
- Kootenay Pacific Pipeline
ANG Pipeline, owned by TransCanada, announced plans in November for a
natural gas pipeline to be built across southern British Columbia at a cost of
$530 million. If built, the 550 MMcf per day pipeline will provide Alberta
gas producers with direct access to markets in British Columbia and the U.S.
Pacific Northwest.
- TransMaritime Pipeline Project
In December, Trans Qu‚bec & Maritimes (TQM) and TransMaritime Gas
Transmission Ltd., formally withdrew applications before the NEB to transport
Sable Island natural gas in the Maritime provinces.
- Northern Border
In December 1997, Northern Border Pipeline Company, 30 per cent owned by
TransCanada, made significant progress in the construction of its Chicago
expansion. A total of 3,800 feet of pipe was laid under the Mississippi
River. The completion of this river crossing is a key element in meeting the
November 1, 1998 proposed in-service date. The Chicago expansion is designed
to deliver an additional 700 MMcf per day of Canadian natural gas into U.S.
markets.
- TQM Extension
An NEB decision is pending on TQM's application to build a 213-kilometre
pipeline extension from Lachenaie, Qu‚bec to East Hereford, Qu‚bec. If
approved, the extension will serve markets in Qu‚bec and connect with the
proposed Portland Natural Gas Transmission System, serving the U.S. Northeast.
- Express Pipeline System
The pressure reduction imposed by the U.S. Office of Pipeline Safety
(OPS) after a line break in Nebraska on July 2, 1997 remains in effect. The
pressure reduction has lowered throughput by approximately 25,000 barrels per
day. The pressure reduction will extend into 1998 until it is determined,
with OPS, what corrective action is required before operating pressure can be
increased. Refurbishments to the section of the pipeline that runs from
Casper, Wyoming to Wood River, Illinois are virtually complete.
- New Ventures
TransCanada PipeLines Services Ltd. formed a joint venture in October
with Wood Group Gas Turbines of Aberdeen, Scotland to create a new,
independent gas turbine repair and overhaul company. TransCanada Turbines
(TCT) will provide inspection, repair and overhaul services at a new facility
in Calgary which is expected to open in the summer of 1998. Currently, TCT is
the only company in the world authorized by both Rolls-Royce and GE to service
their gas turbines. TCT is expected to create approximately 55 jobs; the two
companies intend to invest a total of $17 million in TCT over the next two
years.
Energy Marketing
Year-to-date net earnings from TransCanada's energy marketing activities
were $7.6 million in 1997 compared to $27.9 million in 1996. Fourth quarter
net earnings decreased $6.8 million compared to the same period last year
resulting in a net loss of $6.7 million.
The Energy Marketing segment contributed mixed results in fiscal 1997.
The natural gas marketing business delivered a strong performance fuelled by
its ability to capture marketing opportunities created by price volatility and
by increased volumes sold during 1997. These positive results were negatively
impacted by the reduction in 1997 earnings and the fourth quarter loss in the
petroleum and products business. This reduction reflects the narrow movement
in petroleum and products prices throughout 1997 and the decline in prices in
the month of December, resulting in substantially reduced margins.
- Natural Gas Marketing
The results from natural gas marketing activities were positive in 1997,
with both volumes and profits higher compared to those in 1996. A number of
new services were introduced and the delivery of existing products was
expanded in current markets.
TransCanada has also introduced a number of initiatives designed to
improve customer satisfaction with the netback pool,
including several price changes to provide above average returns to producers.
During the contract year, the average, blended, long-term and short-term price
exceeded the Alberta monthly spot price by $0.13 per gigajoule.
- Petroleum and Products Marketing
Margins in the crude oil marketing business were low in the fourth
quarter. This, combined with a price decline late in December 1997 triggered
by the Asian currency crisis, resulted in reduced net earnings. Products
marketing in both Canada and the United States was affected by the decline in
the crude oil price, mild winter weather, price discounting by refiners, and,
in anticipation of spring sales, an increase in inventories during a period of
declining prices.
Energy Processing
The Energy Processing segment contributed net earnings of $61.4 million
for the year ended December 31, 1997, an increase of $19.8 million compared to
last year. Fourth quarter net earnings were $12.8 million and $14.6 million
for 1997 and 1996, respectively.
The strong earnings performance in this segment compared to last year is
due to higher contributions from the specialty chemicals, power generation and
Canadian gas gathering and processing businesses. However, the margins in
TransCanada's U.S. gas gathering and processing activities were adversely
impacted by a decline in gas liquids prices and a rise in natural gas prices
during 1997.
- U.S. Gathering & Processing
The rapid rise in natural gas prices in September in the U.S. Gulf Coast
region substantially reduced processing margins in the last four months of the
year. Management of the spread between natural gas and gas liquids prices
improved margins slightly but not enough to offset the negative impact of the
high cost of gas.
- Power Generation
In December, TransCanada announced plans to build an $80 million power
generation plant at Calstock, Ontario. The 33-megawatt plant will be fired
by wood waste and waste heat from an adjacent TransCanada natural gas
compressor station. Once operational, the plant's use of wood waste and waste
heat as an energy source will be both efficient and environmentally positive
since it provides a long-term solution to wood waste disposal problems in the
area. Construction of the plant is scheduled to begin in the summer of 1998,
with service targeted to commence in 2000. The power will be sold exclusively
to Ontario Hydro.
International
Net earnings generated by the International segment increased $11.5
million to $6.3 million for the year ended December 31, 1997 compared to 1996.
Fourth quarter net earnings were $2.3 million in 1997 compared to 1996's net
loss of $2.2 million.
Fiscal 1997 marks the first year that International's results are
profitable. This evidences TransCanada's success in developing its
international business. Higher income from the Colombian investments, the
Cusiana oil pipeline, the TransGas natural gas pipeline and CentrOriente,
account for the 1997 year-to-date and fourth quarter increases when compared
to the same periods last year.
- Mayakan
In December, Energia Mayakan S. de R. L. de C. V., a company owned by
TransCanada, InterGen and Gutsa Construcciones, completed debt financing for a
US$266 million pipeline that will transport natural gas from Ciudad Pemex to
the Yucatan Peninsula in Mexico. A total of approximately US$56 million of
equity is planned to be invested.
TransCanada has a 62.5 per cent interest in the 700-kilometre pipeline,
Mexico's first significant pipeline development to be owned and operated by
the private sector. Construction of the Mayakan pipeline is scheduled to
begin in early 1998, with completion expected in 1999.
Corporate
- Dividends Declared
In December, TransCanada's board of directors declared an increased
quarterly dividend of 31 cents per share for the quarter ended December 31,
1997 on the outstanding common shares. This dividend represents an increase
of seven per cent over the dividend of 29 cents per common share paid in each
of the first, second and third quarters of 1997. It is the 136th consecutive
dividend paid by TransCanada on its common shares, and is payable on January
30, 1998 to shareholders of record at the close of business on December 31,
1997. The board also declared regular dividends on TransCanada's preferred
shares. |
