PIPELINES / Westcoast Energy Delivers Another Year of Strong
Financial Results - Successful in the Development of New
Opportunities in Energy Services (Part 1 of 2)
TSE, ME, VSE SYMBOL: W
NYSE SYMBOL: WE
FEBRUARY 26, 1998
VANCOUVER, BRITISH COLUMBIA--Westcoast Energy Inc. (Westcoast)
today announced that its net income applicable to common shares
for the year ended December 31, 1997 was $210 million compared
with $193 million in 1996. Earnings per common share were $2.06
in 1997 compared with $1.96 in 1996. The Board of Directors
declared a dividend of 31 cents per common share payable on March
31, 1998.
"Our performance this year is proof that the actions we took in
1996 to respond to a rapidly deregulating market are paying off,"
said Michael Phelps, Chairman and CEO of Westcoast. "Despite
warmer weather in 1997, compared with 1996, and generally lower
gas prices, Westcoast demonstrated its ability to deliver solid
returns to its shareholders in tougher market conditions."
Westcoast was successful in the development of new opportunities
in 1997. The Company received regulatory approval for a
multi-year incentive-based toll settlement with its producer and
shipper customers on its gathering, processing and transmission
facilities located in British Columbia. The Company was
successful in obtaining regulatory approvals to construct the
Canadian portion of the Maritimes & Northeast Pipeline.
Participation in the Alliance, TriState and Millennium Pipeline
projects positions Westcoast as a partner in the creation of a
major new west-to-east natural gas pipeline transportation network
serving North American markets. The Company successfully bid for
the Cantarell nitrogen project in Mexico and advanced its
participation in power generation in Indonesia and China.
Customer growth across all of the Company's gas distribution
businesses was approximately 4 per cent for the year. Westcoast
merged its Ontario natural gas distribution businesses, entered
the retail energy products and services sector through Union
Energy and, through Engage Energy, expanded its marketing and
trading activities.
"For Westcoast, 1997 was a very exciting year. We are building on
our solid foundation of natural gas gathering, processing,
transportation and distribution assets and growing to become a
significant player in a broad range of energy services in North
America and internationally," said Phelps.
/T/
Westcoast Highlights
YEAR ENDING FOURTH QUARTER RESULTS
3 Months Ended Dec 31
($million) ($million)
1997 1996 1997 1996
Consolidated Revenue 7,312 4,875 2,029 1,721
Net Income to Common 210 193 73 54
Earnings Per Share $2.06 $1.96 $0.72 $0.54
Operating Cash Flow 522 543 147 176
/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 an integrated natural gas gathering, processing and
transmission system, natural gas storage facilities and gas
distribution, power generation, and international energy
businesses as well as financial, information and energy services
businesses.
The figures used in this news release are presented in Canadian
dollars.
Westcoast Energy Inc. Reports 1997 Results
Highlights
- Net income applicable to common shares was $210 million for the
year ended December 31, 1997 compared with $193 million in 1996.
- Earnings per common share for the year ended December 31, 1997
were $2.06 compared with $1.96 in 1996.
- Excluding the impact of weather, earnings per common share were
$2.04 for the year ended December 31, 1997 compared with $1.79 in
1996.
- Net income applicable to common shares for the fourth quarter of
1997 was $73 million compared with $54 million in 1996. Earnings
per common share for the fourth quarter of 1997 were $0.72
compared with $0.54 in 1996.
- The Board of Directors declared a dividend of 31 cents per
common share payable on March 31, 1998.
CONSOLIDATED OPERATIONS
Net income applicable to common shares was $210 million for the
year ended December 31, 1997 compared with $193 million in 1996.
Earnings per common share for the year ended December 31, 1997
were $2.06 compared with $1.96 in 1996.
Excluding the impact of weather, earnings per common share were
$2.04 for the year ended December 31, 1997 compared with $1.79 in
1996.
The increase in net income applicable to common shares was a
result of higher earnings from the gas distribution businesses,
primarily due to 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. Higher contributions were realized from
Power Generation reflecting higher operating rates and tax
savings. In addition, 1996 earnings included a one-time charge of
$0.15 per common share for restructuring costs relating to a major
reorganization of the Company's Pipeline and Field Services
Divisions.
These factors were partially offset by warmer weather in 1997
compared with 1996, a negative contribution applicable to Engage
Energy after acquisition and financing costs, development costs
related to the non-regulated retail energy services initiative,
higher preferred share dividends, and lower approved rates of
return on common equity applicable to certain of the regulated
businesses.
Consolidated operating cash flow for the year ended December 31,
1997 was $522 million compared with $543 million in 1996.
Inclusive of non-cash working capital changes, consolidated
operating cash flow was $506 million in 1997 compared with $498
million in 1996.
FOURTH QUARTER RESULTS
Net income applicable to common shares for the fourth quarter in
1997 was $73 million compared with $54 million in 1996. Earnings
per common share were $0.72 for the fourth quarter of 1997
compared with $0.54 in 1996.
The increase in earnings applicable to the fourth quarter was due
to the one-time charge in 1996 relating to the major
reorganization previously noted and additional seasonality in
revenues resulting from new gathering and processing tolls.
These factors were partially offset by warmer weather in 1997
compared with 1996, development costs related to the retail energy
services initiative, lower approved rates of return on common
equity applicable to certain of the regulated businesses, and a
negative contribution applicable to Engage Energy after
acquisition and financing costs.
The Company's natural gas distribution businesses are highly
seasonal, with the majority of gas deliveries occurring during the
winter heating season from mid-October to mid-April. Gas sales
during this period typically account for approximately two-thirds
of annual gas distribution revenues, resulting in strong first
quarter results, second and third quarters that show either small
profits or losses, and strong fourth quarter results.
In addition, the Company's regulated Field Services Division's
earnings are partially indexed to natural gas prices which are
typically higher in the winter months, resulting in additional
seasonal variations.
Excluding the impact of weather, net income per common share in
the fourth quarter of 1997 was $0.76 compared with $0.50 in 1996.
Consolidated operating cash flow in the fourth quarter of 1997 was
$147 million compared with $176 million in 1996.
SEGMENTED INFORMATION
The operations of the Company have been grouped according to the
following strategic businesses:
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 - international and 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 for the year ended December
31, 1997 was $102 million compared with $87 million in 1996.
The increase in earnings is primarily due to a one-time charge in
1996 of $26 million ($15 million after-tax) or $0.15 per common
share relating to a major reorganization of the Company's Pipeline
and Field Services Divisions. The reorganization, which was
initiated in 1996 and continued through 1997, resulted in a
reduction of the work force of the two divisions by approximately
25 percent.
Additional earnings realized from allowance for funds used during
construction applicable to the Maritimes & Northeast Pipeline
Project and other increases were offset by a loss incurred in the
Company's energy marketing business in 1997 after acquisition and
financing costs.
WESTCOAST PIPELINE AND FIELD SERVICES DIVISIONS
The Company's Pipeline and Field Services Divisions' natural gas
throughput was 688 billion cubic feet in 1997 compared with 667
billion cubic feet in 1996.
INCENTIVE-BASED REGULATION
In August 1997, the National Energy Board (NEB) approved a
multi-year incentive-based toll settlement (1997 to 2001) which
the Company and key stakeholders entered into with respect to the
Company's regulated British Columbia natural gas gathering,
processing and transmission facilities.
The settlement was subject to agreement being reached on the
principles of regulation which would apply to gathering and
processing services provided by the Company commencing January 1,
2002. The Company and its principal customers have now agreed to
a framework for light-handed regulation of the gathering and
processing facilities. An application is anticipated to be filed
with the NEB for approval of the framework in March 1998.
The framework is intended to form the basis for the regulation of
the Company's gathering and processing facilities regulated by the
NEB in a manner which is consistent with the evolving competitive
market for gathering and processing services in British Columbia.
Under the framework, the Company will negotiate tolls for
gathering and processing services with new and existing shippers.
The framework also provides that the Company will become
responsible for the utilization of its gathering and processing
assets, and accordingly will have opportunities and risks
associated with that responsibility unless the NEB does not
approve the framework or alters the substance of it prior to
December 31, 1999.
The framework applies to gathering and processing services.
Transmission services will continue to operate under the
multi-year incentive-based toll settlement.
ENGAGE ENERGY
The contribution applicable to the Company's 50 percent interest
in Engage Energy for the year ended December 31, 1997 was a loss
of $7 million after acquisition and financing costs, reflecting
intense competition and related margin contraction.
MARITIMES & NORTHEAST PIPELINE PROJECT
In December 1997, the NEB issued a certificate of public
convenience and necessity for the Maritimes & Northeast Pipeline
Project (M&NP). The certificate was the last major regulatory
approval required for construction of the Canadian portion of the
pipeline.
With respect to the U.S. portion of the pipeline, the Federal
Energy Regulatory Commission (FERC) has awarded M&NP a full
certificate on the portion of the pipeline from Dracut,
Massachusetts to Wells, Maine, and has issued a preliminary
determination with respect to the portion of the pipeline from
Wells, Maine to the Canada/US border. Final regulatory approval
of the construction of the U.S. portion of the pipeline is
expected in the second quarter of 1998.
M&NP will transport natural gas sourced from offshore fields being
developed near Sable Island through Nova Scotia and New Brunswick
into the United States, serving markets in Atlantic Canada and the
northeastern United States. The pipeline is expected to cost in
excess of $1 billion and is expected to be in service by November
1999. The Company has a 37.5 percent interest in the project.
ALLIANCE PIPELINE PROJECT
In September 1997, the Company acquired an 11 percent ownership
interest in the Alliance Pipeline Project (Alliance).
In January 1998, the Company announced that it had agreed to
purchase an additional 8 percent interest in Alliance from an
existing Alliance partner. Under a separate arrangement, the
Company has agreed with another Alliance partner for it to acquire
one-half of this interest. As a result of these transactions, the
Company's interest in Alliance will increase to approximately 14.5
percent.
The Alliance Pipeline Project is a 3,100-kilometre pipeline system
which is designed to deliver an incremental 1.3 billion cubic feet
per day of natural gas from western Canada to the Chicago area.
The pipeline is fully subscribed by shippers under 15-year term
agreements. The pipeline is expected to cost in excess of $4
billion and is expected to be in service in late 1999, assuming an
expeditious and positive decision from the NEB. The hearing for
this project is now underway.
TRISTATE PIPELINE PROJECT
In November 1997, the Company announced that it had reached an
agreement with a subsidiary of CMS Energy Corporation (CMS) to
participate in the development of the proposed TriState Pipeline
Project. The Company has a one-third ownership interest in the
project. CMS has the remaining ownership interest and will be the
project manager.
The TriState project involves the construction of a new natural
gas pipeline from a point near Joliet, Illinois, where it will
interconnect with several other pipelines, to a terminus in
Michigan. From that point, the existing CMS pipeline system will
be incrementally expanded to permit gas to be delivered to various
points in Michigan and to the Union Gas system in Ontario, from
which delivery to markets in eastern Canada and the United States
may be made through interconnecting pipelines.
The initial capital cost of the project, depending on capacity, is
approximately $350 to $500 million. Construction of the pipeline,
which is expected to be in service by November 2000, is subject to
a number of conditions, including regulatory approvals and
completion of contractual agreements.
MILLENNIUM PIPELINE PROJECT
In April 1997, the Company announced its participation in the 700
million cubic feet per day Millennium Pipeline Project, which
would transport natural gas from southwestern Ontario to New York
City and other markets in the eastern United States. Westcoast
has a 21 percent interest in the project, which is expected to
cost approximately $950 million and is proposed to be in service
in late 1999. The Millennium Pipeline, with the construction of
additional pipeline facilities, would also connect to Union Gas'
existing pipeline system and its storage facilities at Dawn in
southern Ontario.
In October 1997, St. Clair Pipelines (1996), a wholly-owned
subsidiary of the Company, filed a preliminary submission with the
NEB to begin the environmental review process for the Millennium
West Pipeline Project (MWPP), a pipeline from Dawn to the shore of
Lake Erie. This pipeline is intended to interconnect with another
proposed pipeline which would cross Lake Erie near Port Stanley,
Ontario to connect with the Millennium Pipeline. The capital cost
of the MWPP is expected to be approximately $160 million. |
