ENERGY TRUSTS / Morrison Facilities Income Fund Third Quarter Report
for the period ended September 30, 1998
CALGARY, Nov. 25 /CNW/ -
To the Unitholders
Financial and Operational Highlights
Three Months ended Nine Months ended
September 30 September 30
(Unaudited, $ thousands except
per unit amounts) 1998 1997 1998 1997
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Gross revenues $ 8,884 $ 8,396 $ 28,465 $ 31,831
Net gas processing profits 2,426 3,230 8,573 10,750
Net pipeline profits 1,392 923 3,887 4,040
Income before restructuring
costs 891 1,622 4,515 7,432
Net income 891 1,622 (679) 7,432
Distributable cash flow 2,575 3,763 10,101 13,666
Per unit $ 0.13 $ 0.19 $ 0 .51 $ 0.69
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Volumes
Processing (mmcf/d) 94 108 100 110
Pipeline (bbls/d) 46,830 43,928 47,195 44,475
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>>
Morrison Facilities Income Fund Announces Capital Reinvestment Program
Morrison Facilities Income Fund announces its third quarter results and
declares a distribution of $0.13 per trust unit.
The Fund owns two viable businesses: a gas processing business which
features the Nevis gas facilities and a pipeline business comprising the
northeast British Columbia oil pipeline system. In existence for over 30
years, these businesses provide strategic services in the areas they operate.
The pipeline business is a very successful operation and contributes over
one third of the Fund's operating profits. The revenue stream is based on a
return on invested capital and is not affected by oil prices or throughput
volumes. The northeast British Columbia area is one of the least explored
areas of the Western Sedimentary Basin and, as a result, is experiencing
substantial production growth. This should lead to additional capital
investment by the Fund and higher revenues in the years ahead.
The gas processing business, ironically, has been affected by the weak
commodity price for crude oil. Approximately 68% of gas processing revenue
comes from natural gas produced in association with the production of crude
oil. As the price of crude oil drops, the economic returns to producers from
this type of production also declines. In addition, for much of this year oil
and gas companies have been unable to raise equity financing on acceptable
terms. These factors have led to drilling activity in the facilities' 4,000
square mile service area to be less than expected and, correspondingly,
have contributed to a decline in processing volumes through the plant. The gas
processing business has experienced fluctuations in volumes throughout its
long history. However, it has a successful track record of attracting
additional volumes and cash flow through judicious investment in capital
projects.
Western Facilities Management Limited, the new manager of the Fund, has
identified a number of capital projects which it believes will add to Nevis
facilities' processing volumes and reserve base. It also believes that in
order to maintain the financial health of the Fund it should not borrow for
capital projects beyond certain prudent levels.
Therefore, the Board of Directors has approved a capital reinvestment
program commencing immediately and continuing over the coming year whereby up
to 15% of potential distributable cash flow will be reinvested in capital
projects designed to offset the declines in the Nevis service area. This step
is being taken to solidify and strengthen one of the Fund's major business
segments.
The benefit to distributions from such capital spending takes time to be
realized. Therefore, distributable cash flow will likely continue for the
next few quarters at a level similar to that being reported for the third
quarter of 1998. Over the longer term this initiative is expected to provide
growth in processing volumes and a corresponding increase in distributions.
Even after adjusting distributions to the new level pursuant to this plan, the
Fund offers excellent value measured in terms of both net asset value per unit
and on an after tax yield basis.
The Fund has excess borrowing capacity which can be utilized if there are
attractive new business opportunities which fit into its major business
segments. One of the criteria for any new capital investment will be the
ability of the project to repay any debt taken on to fund it over a reasonable
period of time while adding to distributions for Unitholders.
Operational Results
Pipeline
The pipeline business continues to report excellent results. Volumes for
the nine months averaged 47,195 bbls/d versus 44,475 bbls/d in 1997,
reflecting an increase in activity by producers in the service area. Net
pipeline profits for the third quarter were $1.4 million compared to $0.9
million the previous year. For the nine months ended September 30, 1998, net
pipeline profits were $3.9 million, which is comparable to the same period in
1997.
Nevis Facilities
Processing volumes averaged 100 mmcf/d for the nine months of 1998 versus
110 mmcf/d for the same period in 1997. This decline in volumes combined with
a movement to a higher percentage of sweeter gas processed than sour,
contributed to lower net processing profits of $8.6 million through the first
nine months of 1998 versus $10.8 million a year earlier.
Operations have been affected by natural reservoir decline, reduced
drilling activity in the Nevis service area and an unexpected loss of a 5
mmcf/d well that was shut-in. Current processing volumes are now running at
about 90 mmcf/d.
As previously discussed, a number of capital projects have been
identified which are expected to contribute to additional processing volumes
through the facilities beginning in 1999. A major study is currently underway
to evaluate the use of the facilities' excess compressor capacity to lower the
inlet pressure to the plant of certain natural gas streams. This would have
the effect of increasing volumes and ultimate reserves produced from the
service area.
As previously reported, two area producers made an application to the
Alberta Energy and Utilities Board (EUB) in an attempt to reduce processing
fees. The EUB hearing is scheduled for November 30, 1998. The processing
fees are governed by existing contracts and management believes that the
producers claims are without merit. The application is being vigorously
opposed.
Financial Results
Distributable cash flow for the three months ended September 30, 1998 was
$2,575,000 or $0.13 per trust unit, down from $0.19 per unit in 1997. The
lower distribution is the result of $0.02 per unit reserved for capital
reinvestment, a decline in net gas processing profits, higher interest
expenses and certain non-recurring charges incurred in the third quarter.
The distribution will be made on December 31, 1998 to unitholders of
record on December 15, 1998. It will be tax deferred to unitholders.
New Management Arrangements
The management arrangement with Western Facilities Management Limited
entered into in June 1998 aligns the interests of the manager with those of
the unitholders. The management fee is calculated at 4% of operating income
after the deduction of general and administrative costs.
In 1999, the new arrangement is expected to contribute $700,000 in
savings to the Fund. The arrangement provides for an incentive fee to be paid
to the manager if the amount of actual distributions for the year exceeds
$0.819 per unit in 1998 and $0.851 per unit in subsequent years. As a result,
the manager has a major incentive to increase distributions to unitholders.
Board of Directors
The Fund is pleased to announce that a number of new directors have been
added to the Board. The Board is now comprised of Peter A. Braaten, President
and CEO of Morrison Middlefield Resources Limited, Joseph R. Dundas, former
President of Westcoast Petroleums Ltd., R. M. (Bob) Shaunessy, Chief Operating
Officer and Director of Rio Alto Exploration Ltd., Lloyd C. Swift, former Vice
President and director of Nesbitt Burns and director of a number of public oil
and gas companies and Ken S. Woolner, Operations Director of the Fund. These
gentlemen provide a wealth of business and oil and gas experience and their
contribution will be of tremendous benefit to the Fund.
Outlook
The Nevis facilities are strategic with unique processing capabilities.
While the oil and gas sector has been capital constrained through much of
1998, there has been a number of equity issues completed recently, primarily
for gas producers. High natural gas prices should encourage further drilling
and tie-in of shut-in production as the geological potential of the area
remains excellent. In addition, northeast British Columbia continues to
experience growth in drilling activity which can provide further opportunities
for the pipeline business. All of these factors are expected to contribute to
growth in distributions.
Raymond R. Pether Harry D. Cupric
President & CEO Vice President, Finance & CFO
This news release contains forward-looking information. Actual future
results may differ materially. The risks, uncertainties and other factors
that could influence actual results are described in the Fund's annual report
to unitholders and other documents filed with regulatory authorities.
<<
CONSOLIDATED BALANCE SHEETS
September 30 December 31
(Unaudited, $ thousands) 1998 1997
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Assets
Current Assets
Cash $ 347 $ 1,343
Accounts receivable 8,497 6,945
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8,844 8,288
Reclamation bond 2,648 2,495
Fixed assets 190,196 198,241
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$201,688 $209,024
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Liabilities and Unitholders' Equity
Current Liabilities
Accounts payable $ 8,258 $ 4,558
Unit distribution payable 2,575 4,159
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10,833 8,717
Bank debt 17,500 12,172
Pipeline obligation 2,691 6,810
Provision for future site restoration 2,836 2,654
Unitholders' equity 167,828 178,671
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$201,688 $209,024
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CONSOLIDATED STATEMENTS OF INCOME
Three Months ended Nine Months ended
September 30 September 30
(Unaudited, $ thousands except
per unit amounts) 1998 1997 1998 1997
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Revenues
Gas processing fees $ 6,193 $ 5,945 $ 20,115 $ 24,588
Operating expenses 3,767 2,715 11,542 13,838
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Net gas processing profits 2,426 3,230 8,573 10,750
Pipeline fees 2,637 2,395 8,188 7,068
Operating expenses 1,245 1,472 4,301 3,028
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Net pipeline profits 1,392 923 3,887 4,040
Interest and other income 54 56 162 175
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3,872 4,209 12,622 14,965
Expenses
General and administrative 153 161 603 512
Interest and bank charges 407 110 686 279
Depreciation & site
restoration 2,263 2,187 6,316 6,355
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2,823 2,458 7,605 7,146
Income before taxes 1,049 1,751 5,017 7,819
Capital taxes 158 129 502 387
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Income before restructuring costs 891 1,622 4,515 7,432
Restructuring costs - - 5,194 -
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Net income $ 891 $ 1,622 $ (679) $ 7,432
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Net income per unit $ 0.05 $ 0.08 $ (0.03) $ 0.38
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CONSOLIDATED STATEMENTS OF DISTRIBUTABLE CASH FLOW
Three Months ended Nine Months ended
September 30 September 30
(Unaudited, $ thousands except
per unit amounts) 1998 1997 1998 1997
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Net income $ 891 $ 1,622 $ (679) $ 7,432
Items to be added (deducted):
Restructuring costs - - 5,194 -
Depreciation & site
restoration 2,263 2,187 6,316 6,355
Interest on reclamation bond (54) (46) (162) (121)
Reinvestment capital (396) - (396) -
Restructuring costs
amortization (129) - (172) -
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Distributable cash flow $ 2,575 $ 3,763 $ 10,101 $ 13,666
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Distributable cash flow per unit $ 0.13 $ 0.19 $ 0.51 $ 0.69
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CONSOLIDATED STATEMENTS OF CHANGES IN FINANCIAL POSITION
Nine Months ended
September 30
(Unaudited, $ thousands) 1998 1997
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Cash provided by operating activities:
Net income $ (679) $ 7,432
Items not required to be deducted:
Depreciation & site restoration 6,316 6,355
Interest on reclamation bond (162) (121)
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Funds from operations 5,475 13,666
Changes in non cash working capital 2,147 (3,451)
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7,622 10,215
Provided by (used for) financing activities:
Increase in bank borrowings 5,329 12,058
Distribution paid to unitholders (11,685) (9,903)
Increase (decrease) in pipeline obligation (4,119) 1,411
Net proceeds on issue of trust units - 186,926
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(10,475) 190,492
Provided by (used for) investing activities:
Proceeds (expenditures) on fixed assets 1,857 (16,698)
Acquisition of Nevis Facilities and BC Pipeline - (179,908)
Purchase of reclamation bond - (2,329)
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1,857 (198,935)
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Increase (decrease) in cash position (996) 1,772
Cash position - beginning of period 1,343 -
Cash position - end of period $ 347 $ 1,772
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