EARNINGS - PIPELINES / TransCanada Pipelines 1st Quarter Results
PART I OF II
TRANSCANADA REPORTS LOWER NET EARNINGS FOR FIRST QUARTER 1998
CALGARY, AB, April 24 /CNW/ - TransCanada PipeLines Limited today
announced net income to common shares (net earnings) of $102.7 million, down
2.4 per cent from $105.2 million in the first quarter of 1997. On an earnings
per share basis, net earnings were 46 cents compared to 48 cents in the first
quarter of 1997.
Our Energy Transmission business is performing well but first quarter
results were affected by energy prices, particularly in our gas marketing and
gas gathering and processing businesses, said George Watson, president and
chief executive officer. The low volatility in gas prices and the trend to
narrower margins for natural gas liquids, caused by the drop in oil prices,
are affecting the whole industry, he said.
Strong operating performance from Energy Transmission generated net
earnings of $85.9 million, up $7.9 million from net earnings of $78 million in
the first quarter of 1997. Canadian Mainline net earnings increased 10.3 per
cent to $67.3 million. Energy Marketing net earnings were $2.4 million
compared to $9.5 million the previous year, caused principally by the
unusually warm winter weather. Net earnings from Energy Processing were $10.5
million compared to $20.9 million, a result of the continued downward pressure
on natural gas liquids prices. International had net earnings of $1 million
compared to $400,000.
The Canadian Mainline delivered 677.4 billion cubic feet (Bcf) of natural
gas in the first quarter compared to 662.6 Bcf in 1997. Natural gas marketing
volumes sold were 539.8 Bcf compared to 445.2 Bcf in 1997. TransCanada sold
50.1 million barrels of crude oil, refined products and natural gas liquids,
compared to 46.6 million barrels in 1997.
TransCanada PipeLines Limited is one of North America's leading energy
services companies. TransCanada manages its Cdn$15 billion asset base to
provide integrated energy transmission, energy marketing and energy processing
solutions to customers in North America and, to an increasing degree,
internationally. Common shares trade under the symbol TRP, primarily on the
Toronto, Montr‚al and New York stock exchanges.
HIGHLIGHTS
For the three months ended March 31 (unaudited)
FINANCIAL (millions of dollars
except per share amounts) 1998 1997
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Net income applicable to common shares 102.7 105.2
Capital expenditures and investments 437.2 492.0
Net income per share $0.46 $0.48
Dividends declared per common share $0.31 $0.29
OPERATING STATISTICS
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Canadian mainline gas transmission volumes
delivered (billions of cubic feet)
Domestic 358.0 342.3
Export (customers serving United
States markets) 319.4 320.3
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677.4 662.6
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Natural gas marketing volumes sold
(billions of cubic feet)
Netback 209.5 234.7
Non - netback 330.3 210.5
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539.8 445.2
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Petroleum and products marketing volumes sold
(millions of barrels)
Crude oil 27.3 24.3
Refined products 16.4 19.0
Natural gas liquids 6.4 3.3
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50.1 46.6
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Consolidated Financial Review
TransCanada's net income to common (net earnings) for the three months
ended March 31, 1998 was $102.7 million, or 46 cents per share, compared to
$105.2 million, or 48 cents per share, for the same quarter last year.
Solid performance from the Energy Transmission segment was offset by
reduced contributions from the energy marketing and gas gathering and
processing businesses.
Earnings-at-a-glance For the three months ended March 31 (unaudited)
(millions of dollars
except per share amounts) 1998 1997
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Energy Transmission 85.9 78.0
Energy Marketing 2.4 9.5
Energy Processing 10.5 20.9
International 1.0 0.4
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99.8 108.8
Unallocated amounts 2.9 (3.6)
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Net income applicable to common shares 102.7 105.2
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Net income per share $0.46 $0.48
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Energy Transmission
Net earnings from the Energy Transmission segment increased $7.9 million
to $85.9 million for the quarter ended March 31, 1998 compared to the same
quarter in 1997.
The majority of the increase results from the strong financial
performance of the Canadian Mainline during the first quarter of 1998. Net
earnings of $67.3 million for the three months ended March 31, 1998 represent
an increase of 10.3 per cent, or $6.3 million, over the same period last year.
The decline in the approved rate of return on common equity, from 10.67 per
cent in 1997 to 10.21 per cent in 1998, was more than offset by increased
earnings due to the growth in rate base from the 1997 capital expansion
program.
TransCanada's proportionate share of net earnings from its North American
pipeline investments for the three months ended March 31, 1998 and 1997 was
$18.6 million and $17 million, respectively.
Canadian Mainline
Construction is scheduled to commence in May 1998 for the capital
expansion program. This expansion will add 417 million cubic feet (MMcf) per
day of new capacity at a cost of approximately $825 million and has been
approved by the National Energy Board (NEB).
In March, TransCanada filed an application with the NEB to construct a
$14.7 million, 6.5-kilometre pipeline loop in southern Ontario in response to
customer requests for more flexibility at the Parkway delivery point. The
project is slated for completion in July 1998.
Also in March, the NEB approved, on an interim basis, TransCanada's
request for new tolls on the Canadian Mainline, effective April 1. The
Eastern Zone toll is 90.4 cents per gigajoule (GJ), a 3.3 cent increase per GJ
on an annualized basis when compared to the annual 1997 Eastern Zone toll.
The tolling changes are primarily related to the 1997 facilities expansion,
which provide an additional 304 MMcf per day of firm capacity for
TransCanada's customers, plus expected increases in costs.
- Great Lakes
In March, Great Lakes Gas Transmission System filed an application with
the U.S. Federal Energy Regulatory Commission (FERC) for an expansion, through
the addition of pipeline loop, amounting to US$620.3 million. If built, the
expansion will add about 300 MMcf per day of capacity from St. Vincent,
Minnesota to St. Clair, Michigan and tie into the Union Gas system in Ontario.
- Northern Border
Work is underway on Northern Border Pipeline Company's Chicago expansion,
designed to bring an additional 700 MMcf per day of Canadian natural gas into
U.S. markets. The expansion is expected to be complete by November 1, 1998.
- Portland
Construction on the northern portion of the Portland Natural Gas
Transmission System (Portland) 292-mile pipeline is scheduled to begin later
this spring. Directional drilling of the Piscataqua River crossing commenced
in February. The certificate from FERC requires the successful completion of
this crossing before proceeding with construction of the southern portion of
the pipeline, which is scheduled to begin in May 1998.
In March, Portland concluded its open season held to gauge shipper
interest in additional transportation services beginning in 1999. Prospective
shippers expressed interest in more than 500 MMcf per day of additional
transportation capacity for natural gas, primarily to supply electric
generation facilities and startup gas utility operations in northern New
England.
- TQM
In April, the NEB approved the Trans Qu‚bec & Maritimes Pipeline Inc.
application to build a 213-kilometre pipeline extension from Lachenaie, Qu‚bec
to East Hereford, Qu‚bec. The extension will serve markets in Qu‚bec and
connect with Portland to serve U.S. northeast markets. Construction is
scheduled to commence in the spring of 1998.
- Iroquois
Construction of the Athens compressor station began in April and is
expected to be in service November 1, 1998. The project will add 30 MMcf per
day of additional capacity at a capital cost projected to be US$24 million.
- Viking Voyageur
The Viking Voyageur pipeline project has been unable to secure sufficient
shipper and natural gas supply support. The partners in the proposed Viking
Voyageur gas pipeline are currently discussing their options for the project.
The pipeline was to run from Emerson, Manitoba, to Joliet, Illinois, to
deliver 1.4 billion cubic feet per day of western Canadian natural gas to
markets in Minnesota, Wisconsin and northern Illinois.
- TransCanada Turbines Ltd.
Construction of the TransCanada Turbines Ltd. (TCT) $25 million gas
turbine repair and overhaul facility in Calgary is underway and expected to be
complete in June 1998. TCT, a joint venture between TransCanada PipeLines
Services Ltd. and Wood Group Gas Turbines Ltd. of Scotland, is the only North
American facility fully authorized to service the industrial gas turbines
manufactured by both Rolls-Royce and General Electric.
Energy Marketing
The Energy Marketing segment contributed net earnings of $2.4 million
during the first three months of 1998, compared to $9.5 million during the
same period in 1997.
The $7.1 million reduction in net earnings is mainly due to low
volatility in natural gas prices, caused by the unusually warm winter weather.
This significantly reduced opportunities to earn above average margins. In
addition, refined products marketing was negatively affected by narrower
margins resulting from extreme price volatility and oversupply in certain
markets.
- Natural Gas Marketing
Gas Marketing introduced an innovative Strategic Pricing Management
Program. The program now has almost 130 customers, with daily sales of
approximately 44 MMcf and it continues to attract new customers. By pooling
the requirements of many buyers, the volume of gas purchased is large enough
to capitalize on purchasing opportunities.
In March, an application was filed with the NEB seeking approval to
export 30 MMcf per day of natural gas to New England markets for a 10-year
period beginning in November 1998. Under the terms of the application,
TransCanada would export the gas from East Hereford, Qu‚bec to supply markets
in New England. Buyers in the United States include local distribution
companies, industrial customers and power generation facilities.
Energy Processing
Net earnings from the Energy Processing segment were $10.5 million and
$20.9 million, respectively, for the three months ended March 31, 1998 and
1997.
These results reflect the further narrowing of the spread in the U.S. gas
gathering and processing business during the first three months of 1998 due to
increasing natural gas prices combined with declining product prices. This
trend, which began late in the first quarter of 1997, continues to negatively
affect the net earnings of this business. The Canadian gathering and
processing business has also been impacted by lower natural gas liquids
prices.
- Power
In April, the Power business increased its share of electrical output
from Ocean State Power (OSP) by an additional 28 per cent through the
acquisition of power purchase agreements currently in place between an
affiliate of Eastern Utilities Associates (EUA) and OSP. TransCanada will
receive approximately US$130 million over nine years from EUA as compensation
for acquiring the obligations contained in the power purchase agreements.
TransCanada also plans to acquire an additional 30 per cent equity interest in
OSP and 48.5 per cent of the OSP power purchase agreements from another
partner in 1998. At the conclusion of these transactions, and subject to
regulatory approvals, TransCanada will own a 70 per cent interest in OSP and
will control 76.5 per cent of the plant's electrical output.
- TransCanada Power, L.P.
In March, TransCanada Power, L.P. (Power L.P.) acquired a 42.6-megawatt
facility from Potter Station Power Limited Partnership. The facility, located
in Tunis, Ontario, employs enhanced combined-cycle generating technology to
produce electricity that is sold to Ontario Hydro under long-term contracts.
Natural gas, used to fuel the facility, is purchased under long-term
contracts. To finance the transaction and planned improvements to the
facility, Power L.P. issued approximately 4.9 million limited partnership
units to the public for $28.50 per unit - a total of $140 million. As a
result of the issuance of these additional units, TransCanada's interest in
the partnership has been reduced from 50 per cent to 39.8 per cent.
International
Net earnings from the International segment increased $0.6 million to $1
million in the three months ended March 31, 1998 compared to the same period
in 1997.
This quarter-over-quarter increase is primarily attributable to higher
equity income from TransCanada's investment in the OCENSA crude oil pipeline
in Colombia.
- Mayakan
In February, Energia Mayakan S. de R.L. de C.V. (Mayakan), a company
owned by TransCanada, InterGen and Gutsa Construcciones, hosted a sod turning
ceremony signalling the launch of construction on the US$266 million pipeline
that will transport natural gas from Ciudad Pemex to the Yucatan Peninsula in
Mexico.
TransCanada has a 62.5 per cent interest in the 700-kilometre pipeline,
Mexico's first significant pipeline development to be owned by the private
sector. Construction of the pipeline is expected to be completed in 1999.
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