PIPELINES / Westcoast Energy Delivers Another Year of Strong
Financial Results - Successful in the Development of New
Opportunities in Energy Services (Part 2 of 2)
TSE, ME, VSE SYMBOL: W
NYSE SYMBOL: WE
FEBRUARY 26, 1998
VANCOUVER, BRITISH COLUMBIA--
GAS DISTRIBUTION
The contribution to net income applicable to common shares from
the gas distribution business for the year ended December 31, 1997
was $139 million compared with $135 million in 1996.
The results for the year ended December 31, 1997 reflect continued
growth in number of customers, customer usage of natural gas,
service and rental revenues as well as an increase in Union Gas'
common equity component of rate base from 29 percent to 34
percent.
These positive factors have been partially offset by warmer
weather in 1997 compared with 1996 in all of the Company's
distribution franchise areas, together with lower approved rates
of return on common equity applicable to most of the gas
distribution businesses and development costs related to the
non-regulated retail energy services initiative which have reduced
the net contribution from the gas distribution business.
ONTARIO DISTRIBUTION OPERATIONS
The customer base of the Ontario Distribution Operations increased
by approximately 4 percent to 1,041,000 at December 31, 1997 from
1,001,700 at December 31, 1996. Natural gas volumes of the
Ontario Distribution Operations were 1,220 billion cubic feet for
the year ended December 31, 1997 compared with 1,137 billion cubic
feet in 1996.
In January 1998, Union Gas and Centra Gas Ontario were
amalgamated. The companies are both wholly-owned subsidiaries of
the Company and have operated under a shared services arrangement
since 1994. The amalgamated company will continue as Union Gas
Limited.
In February 1998, the Ontario Energy Board approved 1998 rates of
return on common equity applicable to Union Gas' utility
businesses consisting of the rate bases previously associated with
Union Gas and Centra Gas Ontario of 10.44 percent and 10.69
percent while maintaining the common equity components of the rate
bases at 34 percent and 36 percent respectively.
Union Gas requested the Ontario Energy Board to approve the
transfer of its retail merchandise and service programs, amounting
to approximately $475 million of net assets for cash and preferred
shares, to Union Energy, an affiliated, non-regulated retail
energy services business. A hearing to approve the transfer of
these programs is currently in progress. A decision is expected
in the second quarter of 1998.
The merchandise programs to be transferred include appliance sales
and rentals, appliance service work and merchandise financing.
Union Energy, as a non-regulated retail energy services business,
will have more flexibility than the regulated utilities to design
and package energy products and services to meet customer needs.
Union Gas will concentrate on developing and operating new
services, which emphasize cost effectiveness and reliability in
the delivery of natural gas to customers.
OTHER DISTRIBUTION OPERATIONS
The customer base of the other Centra Gas companies and Pacific
Northern Gas increased by approximately 4 percent to 387,000 at
December 31, 1997 from 372,100 at December 31, 1996. Natural gas
volumes applicable to these companies were 163 billion cubic feet
for the year ended December 31, 1997 compared with 169 billion
cubic feet in 1996.
CENTRA GAS MANITOBA
In November 1997, Centra Manitoba filed a general rate application
for 1998 with the Manitoba Public Utilities Board (MPUB) based on
a rate of return on equity of 9.91 percent calculated in
accordance with the MPUB's previously approved formula for
determining return on equity. The application also seeks recovery
of approximately $21 million in projected gas costs for 1998 above
the level included in the interim rates approved by the MPUB in
December 1997, and recovery of approximately $17 million in
increased gas costs incurred in November and December, 1997. A
hearing on the application is expected to be held in March 1998.
Recovery of the increased gas costs will depend on the outcome of
that hearing.
POWER GENERATION
The contribution to net income applicable to common shares from
Power Generation operations was $12 million for the year ended
December 31, 1997 compared with $9 million in 1996. The increase
in the contributions reflect high operating rates and benefits
associated with the use of tax savings.
In January 1998, the Company announced that a development accord
had been signed with the Columbia Energy Group to jointly pursue
the development of three natural gas fired generating plants in
northeastern North America. The three plants would provide a
total of 1,000 megawatts of electricity.
WESTCOAST ENERGY INTERNATIONAL
Mexico - Cantarell Nitrogen Project
Engineering and procurement has commenced for the nitrogen
production plant near Ciudad del Carmen in the State of Campeche,
Mexico. The nitrogen will be used by Pemex to enhance the
production and recovery of oil from Cantarell, one of the world's
largest oil fields, located offshore in the Bay of Campeche.
The complex, expected to cost $1.4 billion, will include the
largest nitrogen processing facilities ever built; an extensive
pipeline system, including some 90 kilometres of offshore
pipelines; and a 200 megawatt natural gas-fired power plant. The
project is scheduled to begin service in the first quarter of 2000
and reach full capacity before January 1, 2001. The Company
currently has a 20 percent interest in the project.
Indonesia - Power Plant
During 1997, the Company purchased additional interests in P.T.
Puncakjaya Power (PJP), increasing its interest from 20 percent to
43 percent.
In December 1997, PJP acquired a 195 megawatt power plant, a
related transmission line and associated facilities under
construction in Irian Jaya. The interest was acquired from P.T.
Freeport Indonesia Company (PTFI), which is the principal mining
affiliate of Freeport McMoran Copper & Gold Inc., and Rio Tinto
plc, which is PTFI's joint venture partner in its current
expansion of mine and mill facilities. The new power facilities
will support a major expansion of PTFI's copper and gold mining
and milling operation expected to be completed in early 1998 at
the Grasberg mine.
With this acquisition, in addition to power generation facilities
purchased in 1994 and 1995, PJP now owns and manages approximately
$800 million of an integrated power generation plant and related
facilities in Irian Jaya which provides electrical power to the
mine under a long-term contract payable in U.S. funds in the
United States.
OTHER
Year 2000 Review
The Company has in place a major initiative to review all computer
systems, applications and key business processes in use throughout
Westcoast's businesses to determine whether each will be able to
operate accurately in and following the year 2000. The initiative
will include taking any necessary remediation steps to avoid Year
2000 problems which may cause a material disruption to the
Company's business. A Corporate Year 2000 Project office has been
established and Westcoast is communicating with customers,
suppliers, service providers and business partners to assess their
Year 2000 readiness.
Nova Scotia & New Brunswick Gas Distribution
In January 1998, the Company and Irving Oil Limited of Saint John
announced that they have formed a 50/50 alliance to pursue natural
gas distribution rights in Nova Scotia and New Brunswick. The gas
distribution systems would offer natural gas service to
residential, commercial and industrial customers.
Capital Issued
In December 1997, the Company issued $150 million of 6.75 percent
MTN Debentures, Series 4, maturing in 2027.
In December 1997, P.T. Puncakjaya Power borrowed US $448 million
under a new secured term credit facility, maturing in 2009.
In December 1997, the Company issued $125 million of 4.72 percent
Cumulative Redeemable First Preferred Shares, Series 6.
DIVIDEND
On February 26, 1998, the Board of Directors declared a quarterly
dividend of 31 cents per common share, payable on March 31, 1998,
to shareholders of record at the close of business on March 6
1998.
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CONSOLIDATED FINANCIAL RESULTS HIGHLIGHTS
For the Year Ended December 31, 1997 ($million)
Transmission Gas Power Other Total
and Services Distribution Generation
Operating
revenues 4,791 2,396 109 16 7,312
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Net income 104 139 12 (17) 238
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Net income
applicable to
common shares 102 139 12 (43) 210
-------------------------------------------------
Operating cash flow
(before working capital
changes) 198 328 31 (35) 522
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Total assets 3,858 5,497 253 467 10,075
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Per common share: (dollar/share)
Earnings -
basic $1.00 $1.36 $0.12 $(0.42) $2.06
Operating cash
flow $1.94 $3.20 $0.30 $(0.34) $5.10
Dividends $1.20
-------------------------------------------------
Common shares: (000)
Outstanding 103,246
Weighted average 102,250
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For the Year Ended December 31, 1996 ($million) (restated)
Transmission Gas Power Other Total
and Services Distribution Generation
Operating
revenues 2,458 2,297 107 13 4,875
-------------------------------------------------
Net income 87 135 9 (19) 212
-------------------------------------------------
Net income
applicable to
common shares 87 135 9 (38) 193
-------------------------------------------------
Operating cash flow
(before working capital
changes) 203 351 34 (45) 543
-------------------------------------------------
Total assets 3,417 5,212 282 155 9,066
-------------------------------------------------
Per common share: (dollar/share)
Earnings -
basic $0.88 $1.37 $0.09 $(0.38) $1.96
Operating cash
flow $2.06 $3.55 $0.34 $(0.45) $5.50
Dividends $1.05
-------------------------------------------------
Common shares: (000)
Outstanding 100,747
Weighted average 98,762
-------------------------------------------------
Transmission and Services - natural gas gathering, processing,
transmission, marketing and related services;
Gas Distribution - distribution, transmission and storage of natural
gas;
Power Generation - generation of electrical and thermal energy from
natural gas;
Other Activities - international and other activities, including
unallocated corporate financing expenses.
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QUARTERLY RESULTS
Q1 Q2 Q3 Q4 Annual
1997 (dollar/share)
Earnings per common
share $1.20 $0.31 (0.17) 0.72 2.06
Weather impact 0.01 (0.07) - 0.04 (0.02)
--------------------------------------
Weather normalized
earnings(x) $1.21 $0.24 (0.17) 0.76 2.04
--------------------------------------
1996 (dollar/share)
Earnings per common
share $1.32 $0.16 $(0.06) $0.54 $1.96
Weather impact (0.08) (0.06) 0.01 (0.04) (0.17)
--------------------------------------
Weather normalized
earnings(x) $1.24 $0.10 $(0.05) $0.50 $1.79
--------------------------------------
(x) The earnings applicable to the gas distribution companies have
been adjusted to remove positive and negative weather variances.
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OPERATIONS REVIEW HIGHLIGHTS
For the Year Ended December 31
1997 1996
Throughput (bcf)
Westcoast Energy Transmission Division 688 667
Foothills Pipe Lines 935 927
Empire State Pipeline 98 101
Union Gas and Centra Gas Ontario 1,220 1,137
Other Centra Gas and PNG 163 169
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3,104 3,001
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Average Rate Base (million)
Westcoast Energy Transmission and
Field Services Divisions 2,273 2,114
Foothills Pipe Lines (proportionate
share - Phase I - 27 percent) 189 193
Empire State Pipeline (proportionate
share - 50 percent) 129 130
Union Gas and Centra Gas Ontario 3,043 2,830
Other Centra Gas and PNG 937 888
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6,571 6,155
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Degree Days (percent from normal xx)
Union Gas - 3.3
Centra Gas Ontario 0.7 4.9
Centra Gas Manitoba 6.2 19.1
Centra Gas Alberta (3.6) 16.9
Centra Gas BC (4.1) 5.4
xx A degree day is a measure of the coldness of the weather
experienced based on the extent to which the daily mean temperature
falls below a reference temperature, usually 18 degrees Celsius. ( )
indicates warmer than normal weather. |
