PIPELINE EARNINGS / Westcoast Q3 results, Pt. I
Westcoast's Nine Month Earnings Solid Despite WarmWeather Patterns (Part 1 of 2)
VANCOUVER, BRITISH COLUMBIA--Westcoast Energy Inc. (Westcoast)
today announced that net income applicable to common shares for
the first nine months of 1998 was $98 million compared with $137
million for the same period in 1997. Earnings per common share
for the first nine months were $0.94 in 1998 compared with $1.34
for the same period in 1997. The net loss for the three months
ended September 30, 1998 was $6 million ($0.06 per common share)
compared with $17 million ($0.17 per common share) for the same period in 1997.
The Board of Directors declared a common share dividend of $0.32
cents per common share, payable on December 31, 1998.
Unusually warm weather conditions, including the warmest winter of
this century in Ontario, continue to have a significant effect on
overall earnings. Excluding the impact of weather, earnings per
common share for the first nine months of 1998 were $1.19 compared
with $1.28 in 1997. Nine-month results have been affected by
unusual items in the second quarter totaling a loss of 12 cents.
"The effects of the warm weather patterns across Canada in the
first six months of the year will impact the Company's full year's
earnings," said Michael Phelps, Chairman and CEO of Westcoast.
"The Company's local distribution businesses have been operating
in a highly efficient and reliable manner and have focused their
efforts on reducing costs in response to the effects of the warm
weather. As well, customer growth rates for Union Gas and Centra
Gas British Columbia continue to be strong."
Mr. Phelps also said the Company is pleased with the positive
results being generated by the Pipeline and Field Services
Divisions in the new light-handed regulatory environment. Strong
gas prices at the Sumas export point east of Vancouver, British
Columbia and strong interruptible gas service revenues have
contributed to solid results from these operations.
Operating results continue to be negatively affected by losses
from the Company's 50 percent interest in Engage Energy. Engage
is now implementing a revised business plan and expects that an
improvement in operating results will be forthcoming in future
earnings periods.
"While we are confident in the long term outlook for natural gas
and electricity related businesses, we are mindful of the
challenges provided by the current global financial uncertainty.
We will focus our efforts on ensuring the continued health and
growth of our businesses, and on the successful execution of major
projects like Maritimes & Northeast Pipeline, Alliance Pipeline
and Cantarell that are currently under development," said Mr. Phelps. /T/
Westcoast Highlights YEAR TO DATE THIRD QUARTER RESULTS
9 Months Ended 3 Months Ended
Sept 30 Sept 30
($millions) ($millions)
1998 1997 1998 1997
Consolidated Revenue 5,509 5,283 1,843 1,485
Net Income to Common 98 137 (6) (17)
Earnings Per Share $0.94 $1.34 $(0.06) $(0.17)
Operating Cash Flow 336 375 86 68
The figures used in this news release are presentedin Canadian dollars./T/
Westcoast Energy Inc. (TSE: W; NYSE: WE) headquartered in
Vancouver, British Columbia, is a leading North American energy
company with assets of $10 billion. The Company's interests
include natural gas gathering, processing and transmission,
natural gas storage facilities and gas distribution, power
generation, and international energy businesses as well as
financial, information and energy services businesses. CONSOLIDATED OPERATIONS
Net income applicable to common shares was $98 million for the
first nine months of 1998 compared with $137 million in 1997.
Earnings per common share were $0.94 for the first nine months of
1998 compared with $1.34 in 1997. Excluding the impact of
weather, earnings per common share were $1.19 for the first nine
months of 1998 compared with $1.28 in 1997.
Higher contributions were realized primarily from the Pipeline and
Field Services Divisions, new pipeline projects, continued growth
in the number of gas distribution customers, higher service and
rental revenues, management of operating and maintenance expenses,
higher rate bases, international operations, and tax savings.
These factors were more than offset by unusually warm temperatures
in most of the Company's gas distribution franchise areas which
reduced earnings by 31 cents per common share for the first nine
months of 1998 compared with the same period in 1997.
Unusual items in the second quarter of 1998 reduced earnings by 12
cents per common share, reflecting Centra Gas Manitoba's
disallowed recovery of certain natural gas costs net of expected
recoveries (12 cents), and Engage Energy's loss arising from
customer defaults (14 cents) offset partially by the gain on the
sale of Centra Gas Alberta (14 cents).
Earnings were also reduced by start-up costs related to the retail
energy services initiative, lower allowed rates of return on
common equity, operating losses incurred in the energy marketing
business, and higher interest expenses.
Consolidated operating cash flow was $336 million for the first
nine months of 1998 compared with $375 million in 1997. Inclusive
of non- cash working capital changes, consolidated operating cash
flow was $335 million for the first nine months of 1998 compared
with $448 million in 1997. THIRD QUARTER RESULTS
The net loss applicable to common shares for the three months
ended September 30, 1998 was $6 million compared with $17 million in 1997.
The net loss per common share for the three months ended September
30, 1998 was $0.06 compared with $0.17 in 1997. Excluding the
impact of weather, the net loss per common share for the three
months ended September 30, 1998 was $0.07 compared to $0.17 in 1997.
The reduced loss was primarily due to higher contributions from
the Pipeline and Field Services Divisions, the new pipeline
projects, and the Gas Distribution businesses.
Consolidated operating cash flow was $86 million for the three
months ended September 30, 1998 compared with $68 million in 1997.
SEGMENTED INFORMATION
The operations of the Company have been grouped according to the
following strategic businesses:
Transmission and Services - natural gas gathering, processing,
transmission, energy marketing and related services;
Gas Distribution - natural gas distribution, transmission,
storage and related services;
Power Generation - electrical and thermal energy generated from natural gas;
International - international operations, development projects,
and related services;
Other Activities - other activities, including unallocated
corporate financing expenses. TRANSMISSION AND SERVICES
The contribution to net income applicable to common shares from
the Transmission and Services business was $65 million for the
first nine months of 1998 compared with $72 million in 1997.
The decrease reflects a loss incurred by Engage Energy relating to
the default of two customers in conjunction with electricity
trading transactions in the second quarter of 1998, amounting to
approximately $14 million, combined with operating losses incurred
in the energy marketing business.
These factors were partially offset by higher contributions from
the Pipeline and Field Services Divisions and the Empire State
Pipeline, and the recording of allowance for funds used during
construction applicable to the Maritimes & Northeast Pipeline and
Alliance Pipeline Projects. WESTCOAST PIPELINE AND FIELD SERVICES DIVISIONS
The contribution to net income applicable to common shares from
the Pipeline and Field Services Divisions was $75 million for the
first nine months of 1998 compared with $68 million in 1997.
The increase is primarily due to higher earnings realized under
the multi-year incentive-based toll settlement, which was
implemented in the second quarter of 1997. Under the settlement
gathering and processing tolls are partially indexed to natural
gas prices, which were much higher than in recent years at the
Sumas export point east of Vancouver, British Columbia. In
addition higher interruptible toll revenues have exceeded 1997 levels.
The Pipeline and Field Services Divisions' natural gas throughput
was 512 billion cubic feet for the first nine months of 1998
compared with 505 billion cubic feet in 1997. CONTRACTUAL DEVELOPMENTS
In May 1998, gas gathering volumes of 280 million cubic feet per
day or 14 percent of total volumes under firm service contract
were not renewed for the period beginning November 1998. Since
then, 104 million cubic feet per day of firm service has been recontracted.
Similarly in May 1998, gas processing volumes of 190 million cubic
feet per day or 11 percent of total volumes under firm service
contract were not renewed for the period beginning November 1998.
Since then, 131 million cubic feet per day of firm service has
been recontracted. Under light handed regulation, the Company advertises the
available capacity and expects that most of the remaining capacity
will be recontracted or utilized by shippers on an interruptible basis.
ENERGY MARKETING
The energy marketing business incurred a loss of $32 million for
the first nine months of 1998 compared with a loss of $8 million in 1997.
The losses are primarily due to the Company's 50 percent interest
in Engage Energy which realized higher operating losses on its
natural gas trading activities and recorded a loss from customer
defaults on electricity trading in the second quarter of 1998.
A significant component of the deterioration in operating results
from Engage over the comparable period from last year has been the
impact of substantially warmer than normal weather. Lower winter
prices and very competitive market conditions have resulted in
compressed margins for its natural gas trading activities in the United States.
Engage's Canadian operations and individually structured gas and
electricity activities for customers in the United States have
been successful and continue to grow. Engage's strategy is to
increase focus on these higher valued services. PIPELINE PROJECTS
The Company is continuing its development work on the Maritimes &
Northeast Pipeline, the Alliance Pipeline, the TriState Pipeline,
and the Millennium Pipeline projects. MARITIMES & NORTHEAST PIPELINE
The Company has a 37.5 percent interest in the Maritimes &
Northeast Pipeline (M&NP) which will transport in excess of 500
million cubic feet per day of natural gas sourced from offshore
fields being developed near Sable Island to markets in Nova
Scotia, New Brunswick, and the northeast United States. The
1,040-kilometre main pipeline and associated lateral pipelines are
expected to cost approximately $1.7 billion. The main pipeline is
expected to be in service by November 1999.
The Canadian segment of the project will be built and operated by
Westcoast. In December 1997, the NEB issued a certificate of
public convenience and necessity for M&NP, which was the last
major regulatory approval required for construction of the
Canadian portion of the pipeline. Construction of the Canadian
portion of the mainline is scheduled to commence with the clearing
of the pipeline route in the fourth quarter of 1998.
With respect to the portion of the pipeline in the United States,
final certificate orders were received from the Federal Energy
Regulatory Commission (FERC) in July 1998. Construction of the
American portion of the mainline commenced in mid-1998.
M&NP has filed applications with the National Energy Board for
proposed lateral pipeline projects to Point Tupper, Halifax and Saint John.
The recording of allowance for funds used during construction by
M&NP has contributed $6 million to earnings for the nine months
ended September 30, 1998. ALLIANCE PIPELINE PROJECT
The Company has a 14.5 percent interest in the proposed Alliance
Pipeline Project which is designed to deliver up to 1.6 billion
cubic feet per day of natural gas from western Canada to the
Chicago area. The 3,100-kilometre pipeline is expected to cost in
excess of $4 billion and is expected to be in service by October 2000.
The NEB hearing applicable to the Alliance Pipeline Project was
completed in May 1998. In October 1998, the NEB issued the
Comprehensive Study Report (CSR) for the Alliance Pipeline and
submitted it to the Minister of Environment and the Canadian
Environmental Assessment Agency. The NEB concluded that the
Canadian portion of the Alliance Pipeline is not likely to cause
significant adverse environmental effects. Following a 30-day
review period of the CSR, the Minister of Environment will make a
final decision on the project. Final regulatory approvals from
the NEB are expected in the fourth quarter of 1998.
In September 1998, the FERC approved an order granting Alliance
Pipeline a Certificate of Public Convenience and Necessity (CPCN)
for the construction and operation of the American segment of the
project. The CPCN is the major regulatory approval needed in the
United States. The recording of allowance for funds used during construction by
Alliance has contributed $2 million to earnings for the nine
months ended September 30, 1998. TRISTATE PIPELINE PROJECT
The Company has a one-third interest in the proposed TriState
Pipeline Project which is designed to deliver between 300 million
cubic feet and one billion cubic feet per day of natural gas. The
pipeline would commence near Joliet, Illinois and then
interconnect with several other pipelines, to Dawn, Ontario. The
cost of the project, depending on capacity, is approximately $500
to $700 million and is expected to be in service by November 2000.
Regulatory applications are being prepared and are expected to be
filed with the FERC and the NEB in the fourth quarter of 1998.
MILLENNIUM PIPELINE PROJECTS
The Company has a 21 percent interest in the proposed Millennium
Pipeline Project which is designed to deliver 700 million cubic
feet per day of natural gas from southwest Ontario to New York
City and other markets in the eastern United States. The
611-kilometre pipeline is expected to cost approximately $950
million. The Millennium West Pipeline Project is a $150 million
75-kilometre pipeline which will indirectly connect to the
Millennium Pipeline. The Millennium and Millennium West pipeline
projects are scheduled to go into service in November 2000.
A Preliminary Determination from the FERC with respect to the
American portion of the Millennium Pipeline is anticipated to be
received by late October or November 1998. An application to
construct the Millennium West Pipeline will be filed with the NEB
in late October 1998. |
