PIPELINE EARNINGS / Westcoast Q3 results, pt. II
Westcoast's Nine Month Earnings Solid Despite WarmWeather Patterns (Part 2 of 2)
VANCOUVER, BRITISH COLUMBIA-- GAS DISTRIBUTION
The contribution to net income applicable to common shares from
the gas distribution business was $56 million for the first nine
months of 1998 compared with $86 million in 1997.
Unusually warm temperatures in most of the Company's gas
distribution franchise areas reduced earnings by $32 million or 31
cents per common share. In the first nine months of 1998,
earnings were reduced by 25 cents due to warmer than normal
weather. In the first nine months of 1997 earnings were increased
by 6 cents due to colder than normal weather.
The reduction in earnings also reflects lower allowed rates of
return on common equity, start-up costs related to the new
non-regulated retail energy services initiative, and Centra Gas
Manitoba's disallowed recovery of certain natural gas costs net of
expected recoveries. The reduction was offset partially by
continued growth in the number of customers, higher service and
rental revenues, reduction of costs and higher rate bases.
Strong customer growth rates are continuing at Union Gas and
Centra Gas British Columbia.
UNION GAS
The customer base of Union Gas increased by approximately 4
percent to 1,058,000 at September 30, 1998, from 1,020,300 at
September 30, 1997. A strong increase in sales to industrial
customers resulted in Union Gas' natural gas volumes increasing to
846 billion cubic feet for the first nine months of 1998 compared
with 814 billion cubic feet in 1997. Sales to residential and
commercial customers were lower during the first nine months of 1998.
In January 1998, Union Gas and Centra Gas Ontario were amalgamated
and continue to carry on their operations as Union Gas Limited.
Union Gas continues to implement the orderly transfer of its
retail merchandise programs to Union Energy. The programs to be
transferred include appliance sales and rentals, appliance service
work and merchandise financing. The transfer of approximately
$525 million of net assets will take place on January 1, 1999.
Union Gas has filed a general rate application for 1999 with the
Ontario Energy Board (OEB). In October 1998, an Alternate Dispute
Resolution process will commence with intervenors, followed by an
OEB hearing in December 1998.
OTHER DISTRIBUTION OPERATIONS
The customer base of the other Centra Gas companies, excluding
Centra Gas Alberta which was sold in June 1998, and Pacific
Northern Gas increased more than 4 percent to 339,600 at September
30, 1998, from 325,200 at September 30, 1997. Natural gas volumes
applicable to the Other Distribution operations were 94 billion
cubic feet for the first nine months of 1998 compared with 116
billion cubic feet in 1997.
CENTRA GAS MANITOBA
In June 1998, the Manitoba Public Utilities Board (MPUB)
disallowed, amongst other items, recovery of approximately $27
million of natural gas costs related to price management
activities. Net of recoveries, related items and income taxes,
the earnings contribution reflects a net reduction of
approximately $12 million or 12 cents per common share.
In July 1998, Centra Gas Manitoba filed an application for leave
to appeal the disallowed gas costs and certain other items of the
June 1998 MPUB decision with the Manitoba Court of Appeal. The
leave application will be heard in late October 1998 and a
decision from the court on the leave application is expected laterthis year.
The dynamic hedging practices used by Centra Gas Manitoba in its
price management program have been discontinued and are not in use
at other Westcoast utilities.
UNION ENERGY
Union Energy continues to develop its non-regulated retail energy
services business. This activity includes pursuing investment
opportunities through the acquisition of additional heating,
ventilation and air conditioning (HVAC) businesses. To date a
total of 15 HVAC businesses have been acquired in Ontario and Manitoba.
POWER GENERATION
The contribution to net income applicable to common shares from
Power Generation operations was $6 million for the first nine
months of 1998 compared with $6 million in 1997.
ISLAND COGENERATION PROJECT
On October 21, 1998, Westcoast announced that it had acquired
Fletcher Challenge Energy Inc.'s 60 percent interest in the $220
million Island Cogeneration Project giving the Company 100 percent
ownership of the project. The 250-megawatt cogeneration plant
will be constructed at Fletcher Challenge Canada Limited's pulp
and paper mill near Campbell River on Vancouver Island.
In October 1998, ICP and BC Hydro signed a 20-year Electricity
Purchase Agreement. With the signing of this agreement, all major
contracts have now been completed and the lead contractor has been
given notice to proceed with construction. The proposed
commercial in-service date for the project is mid-2000.
BAYSIDE COGENERATION PROJECT
The proposed Bayside Cogeneration Project (formerly referred to as
the NB Power Project) involves a $150 million repowering of a 250-
megawatt heavy fuel oil-fired generating plant to a natural
gas-fired combined cycle plant at Courtenay Bay in Saint John, NewBrunswick.
Westcoast Power continues to advance the necessary agreements
required for the Bayside Project. A Letter of Agreement was
recently concluded with Irving Paper for the sale of process
steam. In addition, an agreement in principle with New Brunswick
Power to sell firm winter electricity and optional summer power
for 15 years has also been concluded. The proposed commercial
in-service date for the project is December 2000.
WHITBY COGENERATION
The Whitby Cogeneration Plant commenced commercial operations in
September 1998. The 50-megawatt plant provides electricity to the
provincial power grid and steam to the Atlantic Packaging Products
Ltd. paper mill at Whitby, Ontario.
FORT FRANCES COGENERATION
The operations at the Fort Frances Cogeneration Plant continue to
be shut down as a result of a labour strike, which began in June
1998, at the adjacent operations of Abitibi Consolidated Inc., the
steam host for the cogeneration plant.
INTERNATIONAL
The contribution to net income applicable to common shares from
International activities was $2 million for the first nine months
of 1998 compared with a loss of $2 million in 1997.
The increase in the contribution primarily reflects higher
earnings applicable to the Company's Irian Jaya Power investment
and benefits associated with tax management, partially offset by
ongoing costs associated with developing new projects.
CANTARELL NITROGEN PROJECT
The Company currently has a 20 percent interest in the Cantarell
Nitrogen Project. The project facilities, which will cost
approximately $1.5 billion, will produce nitrogen to enhance the
production and recovery of oil by Pemex, the national oil company
of Mexico, from the Cantarell oilfield located in the Bay of
Campeche, Gulf of Mexico.
The plant site has now been fully cleared and construction work is
focused on site preparation activities. The complex is scheduled
to begin service during 2000. Project financing, on a limited
recourse basis, is in the process of being arranged.
CAMPECHE NATURAL GAS COMPRESSION SERVICES PROJECT
In August 1998, an international consortium, in which Westcoast
has a 45 percent interest, was awarded a $375 million contract by
Pemex Exploracion y Produccion (PEP) to construct and operate a
250 million cubic feet per day off-shore gas compression and
liquids recovery facility in the Bay of Campeche, Gulf of Mexico.
The facility, which is expected to commence operations in late
1999, will recover natural gas for PEP for processing and ultimate
delivery into the Mexican national pipeline system which is being
expanded to meet the needs of new gas distribution systems and
power generation plants.
SHANGHAI POWER PROJECT
The Company has a 32.5 percent interest in a captive power project
which will produce 50-megawatts of electrical power at the
Shanghai No.1 Iron & Steel (Group) Company Limited facilities in
China, utilizing a waste product, blast furnace gas, as its primary fuel.
All key commercial agreements, including power purchase and fuel
supply contracts have been executed. A turnkey contract for the
engineering, procurement and construction of the power plant has
been awarded and construction has commenced. The plant is
scheduled to commence commercial operations in late 1999.
EASTERN GAS PIPELINE PROJECT (AUSTRALIA)
Discussions are continuing with Westcoast's partner and
prospective shippers on the development of the Eastern Gas
Pipeline and have not yet been completed on a basis satisfactory
to Westcoast. The Company is reviewing its investment in the
project and may consider various alternatives.
OTHER
OTHER ACTIVITIES
The net costs applicable to other activities, including
unallocated corporate financing expenses, were $31 million for the
first nine months of 1998 compared with $25 million in 1997. ENLOGIX
In October 1998, Enlogix CIS began operating its new Customer
Information System and commenced providing customer billing
services to Union Gas. This represents the first phase of a
full-scale implementation of the Enlogix CIS system within the
Westcoast group of companies. The initial phase of the system
manages the billing requirements for approximately one quarter of
the more than one million Union Gas customers.
The Enlogix CIS system is scheduled to be implemented in 1999 for
the remaining Union Gas customers, other Westcoast companies, and
the City of Calgary. Enlogix is actively pursuing opportunities
with other utilities, municipalities and energy service providers.
The successful implementation of the system forms a significant
component in the implementation of the Company's year 2000 program.
CAPITAL ISSUED In July 1998, Union Gas issued $100 million of 5.70 percent MTN
Debentures, Series 1, maturing in 2008.
In August 1998, the Company sold $150 million of 5.50 percent
Cumulative First Preferred Shares, Series 7.
In September 1998, the Company issued $25 million of 5.75 percent
MTN Debentures, Series 6, maturing in 2003.
In October 1998, the Company issued an additional $200 million of
5.75 percent MTN Debentures, Series 6, maturing in 2003. DIVIDEND
On October 22, 1998, the Board of Directors declared a quarterly
dividend of $0.32 cents per common share, payable on December 31,
1998, to shareholders of record at the close of business on December 4, 1998.
YEAR 2000 PROJECT Westcoast has underway an extensive program of review and
remediation of computer systems and applications and key business
processes in use throughout the Company in an effort to avoid year
2000 problems which could cause material disruption to the
Company's business. The review phase of the Year 2000 program has
been completed and the Company is carrying out the remediation,
testing and implementation phase. The Company is in communication
with its customers, vital suppliers and other third parties to
assess their level of year 2000 readiness. However, it is not
possible for the Company to be certain that all aspects of the
year 2000 issue affecting the Company, including those related to
efforts of customers, suppliers or other third parties, if needed,
will be fully resolved. The Company, therefore, is developing
business contingency plans to allow it to carry on business in an
orderly manner into the year 2000. In 1997 the Company undertook
a program to identify and address year 2000 issues and project
offices were established at each of its operating companies across
the enterprise. A Corporate Year 2000 Project Office has been in
place at the Company's headquarters in Vancouver since late 1997.
The Company projects the cost of its year 2000 project to be
approximately $50 million, including internal costs, based on
current estimates of remediation measures. Approximately
one-third of the costs have been incurred to date.
FORWARD LOOKING INFORMATION
The information in this news release contains forward-looking
statements with respect to Westcoast Energy Inc., its subsidiaries
or affiliated companies. By their nature, these forward-looking
statements involve risks and uncertainties that could cause actual
results to differ materially from those contemplated by the
forward- looking statements. Such risks and uncertainties
include, among others: general economic and business conditions,
the ability of the Company to successfully implement the
initiatives and projects referred to in this news release, natural
gas prices, availability of capital, changes in the regulatory
environment in which the Company's regulated entities operate
(including changes in allowed rates of return), and the changes
in, or failure to comply with, the laws and government regulations
applicable to the Company.
/T/CONSOLIDATED FINANCIAL RESULTS HIGHLIGHTS
For the Nine Months Ended September 30, 1998 ($million)
Transmission Gas Power Inter- Other Total
and Services Distri- Gener- national
bution ationOperating
Revenues 3,901 1,503 65 38 2 5,509
-----------------------------------------------------------
Net income 66 56 6 2 (6) 124
-----------------------------------------------------------
Net income applicable tocommon shares
65 56 6 2 (31) 98
-----------------------------------------------------------Operating cash
Flow (beforeworking capital
changes) 144 195 14 11 (28) 336
-----------------------------------------------------------
Total assets 4,077 5,395 237 603 129 10,441
-----------------------------------------------------------
Per common share:
(dollar/share)Earnings-basic $0.62 $0.54 $0.06 $0.02 $(0.30) $0.94
Operating cash flow $1.38 $1.87 $0.14 $0.11 $(0.27) $3.23
Dividends $0.94
-----------------------------------------------------------
Common shares:(000)
Outstanding 104,814
Weighted average 104,250
-----------------------------------------------------------
For the Nine Months Ended September 30, 1997 ($million)(restated)
Transmission Gas Power Inter- Other Total
and Services Distri- Gener- national
bution ation
-----------------------------------------------------------
Operating
Revenues 3,451 1,742 78 10 2 5,283
-----------------------------------------------------------
Net income 72 86 6 (2) (4) 158
-----------------------------------------------------------
Net income
applicable tocommon shares 72 86 6 (2) (25) 137
-----------------------------------------------------------
Operating cash
Flow (beforeworking capital
changes) 133 253 18 4 (33) 375
-----------------------------------------------------------
Total assets 3,737 5,182 254 122 61 9,356
-----------------------------------------------------------
Per common share:
(dollar/share)Earnings-basic $0.70 $0.85 $0.06 $(0.02) $(0.25) $1.34
Operating cash flow $1.30 $2.49 $0.17 $0.04 $(0.32) $3.68
Dividends $0.89
-----------------------------------------------------------
Common shares: (000)
Outstanding 102,579
Weighted average 101,947
-----------------------------------------------------------
Transmission and Services - natural gas gathering,
processing, transmission, energy marketing andrelated services;
Gas Distribution - natural gas distribution,
transmission, storage and related services;
Power Generation - generation of electrical and thermalenergy from natural gas;
International - international operations, development
projects and related services;
Other Activities - other activities, including unallocated
corporate financing expenses.
/T//T/QUARTERLY RESULTS
Q1 Q2 Q3 Q4 Annual1998 (dollar/share)
Earnings per common share $0.99 $0.01 $(0.06)
Weather impact 0.19 0.07 $(0.01)
---------------------------------------------------------Weather normalized
earnings(1) $1.18 $0.08 $(0.07)
---------------------------------------------------------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(1) $1.21 $0.24 $(0.17) $0.76 $2.04
---------------------------------------------------------
(1) The earnings applicable to the gas distribution
companies have been adjusted to remove positive and
negative weather variances.OPERATIONS REVIEW HIGHLIGHTS
For the Nine Months Ended September 30
1998 1997Throughput (Bcf)
Westcoast Energy Pipeline Division 512 505
Foothills Pipe Lines 704 690
Empire State Pipeline 74 72
Union Gas 846 814
Other Distribution (2) 94 116
----- -----
2,230 2,197
----- -----
Average Rate Base ($million)Westcoast Energy Pipeline and Field
Services Divisions 2,286 2,264
Foothills Pipe Lines (proportionate
share - Phase I - 27 percent) 189 188
Empire State Pipeline (proportionate
share - 50 percent) 131 128
Union Gas 3,170 2,989
Other Distribution (2) 842 940
----- -----
6,618 6,509
----- -----
Degree Days (percent from normal (3))
Union Gas (18.8) 1.0
Centra Gas Ontario (amalgamated with
Union Gas in 1998) - 2.2
Centra Gas Manitoba (12.7) 22.6
Centra Gas BC (8.6) (1.0)
(2) The 1997 comparative figures include Centra Gas
Alberta which was sold in June 1998.
(3) 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.
FOR FURTHER INFORMATION PLEASE CONTACT:
Westcoast Energy Inc.
Jane Peverett
Vice President, Finance
(604) 488-8214
or
Westcoast Energy Inc.
Tom Merinsky
Investor Relations
(604) 488-8021
or
Westcoast Energy Inc.
Paul Clark
Corporate Communications
(604) 488-8093
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