Westcoast Energy Inc. Announces 1998 Year End Results -- Part 2 of 3.

VANCOUVER, B.C.--(BUSINESS WIRE)--Feb. 17, 1999--Westcoast(TSE:W.) (VSE:W.) (ME:W.) (NYSE:WE)

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 1,051-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 portion of the project will be built and operated by Westcoast. In November 1998, M&NP commenced the clearing of the Canadian portion of the pipeline through Nova Scotia and New Brunswick. Clearing work is scheduled for completion in March 1999, with construction to commence thereafter.

In 1998, M&NP filed applications with the NEB for proposed lateral pipeline projects to Point Tupper and Halifax, Nova Scotia and Saint John, New Brunswick. In December 1998, the NEB approved construction of the 59-kilometre, $21-million Point Tupper lateral pipeline project and construction is proceeding to meet the anticipated in-service date of November 1999. The $74-million Halifax and $90-million Saint John laterals have not yet been approved by the NEB and, as a result, may be delayed to 2000.

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 Phase I of the U.S. portion of the mainline commenced in mid-1998. Construction of Phase II will commence in the spring of 1999. An application was made to the FERC in January 1999 to amend the certificate in order to recognize that the initial firm contracts on the U.S. pipeline will be less than originally planned.

The recording of allowance for funds used during construction by M&NP has contributed $9 million to net income applicable to common shares for the year ended December 31, 1998, compared with $4 million in 1997.

ALLIANCE PIPELINE PROJECTS

The proposed Alliance Pipeline Project is designed to deliver up to 1.6 billion cubic feet per day of natural gas from western Canada to the Chicago area. Direct capital costs (excluding allowance for funds used during construction) for the 3,100-kilometre pipeline are currently estimated at $4.5 billion and the Chicago area liquids recovery facilities associated with the project will require an additional $525 million.

In December 1998, the Company acquired an additional 9.1 percent ownership interest in the Alliance Pipeline Projects, increasing the Company's interest in the projects from 14.5 percent to 23.6 percent.

Canadian and U.S. regulatory approvals have been received from the NEB and the FERC, and construction will commence in the second quarter of 1999. The Alliance Pipeline Projects are expected to be in operation in October 2000.

The recording of allowance for funds used during construction by Alliance has contributed $4 million to earnings for the year ended December 31, 1998. There was no allowance for funds used during construction recorded in 1997.

GAS DISTRIBUTION

The contribution to net income applicable to common shares from the Gas Distribution segment for the year ended December 31, 1998, was $122 million compared with $161 million in 1997.

Unusually warm temperatures in most of the Company's gas distribution franchise areas reduced earnings by $41 million or 39 cents per common share relative to 1997. In 1998, earnings were reduced by 37 cents due to warmer than normal weather whereas in 1997, earnings were increased by 2 cents due to colder than normal weather.

The reduction in earnings also reflects lower allowed rates of return on common equity and Centra Gas Manitoba's disallowance of gas costs by the Manitoba Public Utilities Board, net of recoveries. The reduction was partially offset by continued growth in the number of customers, higher service and rental revenues, management of operating and maintenance expenses, higher rate bases and the gain on the sale of Centra Gas Alberta.

UNION GAS

The contribution to net income applicable to common shares from Union Gas for the year ended December 31, 1998, was $97 million compared with $128 million in 1997. Unusually warm weather in 1998 reduced earnings by $35 million compared with 1997.

The customer base of lumes of Union Gas were 1,127 billion cubic feet continue to carry on their operations as Union and service programs to Union Energy, Westcoasequity for Union Gas at 9.61 percent with a comperations were 133 billion cubic feet for the year ended December 31, 1998, compared with 163 billion cubic feet in 1997 reflecting warmer weather and the sale of Centra Gas Alberta.

CENTRA GAS MANITOBA

The net loss applicable to common shares from Centra Gas Manitoba for the year ended December 31, 1998 was $4 million compared with a contribution to net income applicable to common shares of $14 million in 1997.

In June 1998, the Manitoba Public Utilities Board (MPUB) disallowed the recovery of approximately $27 million of natural gas costs related to price management activities. The impact of the disallowance net of recoveries, related items and income taxes is a net reduction to earnings of approximately $12 million or 12 cents per common share.

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.

Centra Gas Manitoba and the MPUB have agreed to a joint 1999/2000 general rate application to be filed in June 1999.

CENTRA GAS BRITISH COLUMBIA 

The contribution to net income applicable to common shares from Centra Gas British Columbia for the year ended December 31, 1998, was $12 million, the same contribution as in 1997.

POWER GENERATION

The contribution to net income applicable to common shares from the Power Generation segment was $6 million for the year ended December 31, 1998 compared with $11 million in 1997. The decrease is primarily due to the shut down of the Fort Frances Cogeneration Plant due to a labour strike.

FORT FRANCES COGENERATION

The operations at the Fort Frances Cogeneration Plant were shut down from June to late November 1998 as a result of a labour strike at the adjacent operations of Abitibi-Consolidated Inc., the steam host for the cogeneration plant. As a result, the Fort Frances facility incurred a net loss applicable to common shares of $2 million in 1998 compared to net income of $2 million in 1997.

ISLAND COGENERATION PROJECT

Westcoast has a 100 percent ownership interest in the $235-million Island Cogeneration Project (ICP). The 250-megawatt cogeneration plant is under construction 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. The proposed commercial in-service date for the project is late 2000.

INTERNATIONAL

The contribution to net income applicable to common shares from the International segment was $16 million for the year ended December 31, 1998, compared with $5 million in 1997. The increase in the contribution primarily reflects the $8 million gain on the sale of the Company's interest in the Eastern Gas Pipeline Project and higher earnings applicable to the Company's Irian Jaya Power investment as the Company purchased an additional interest in the power plant in December 1997 and the power facilities were expanded.

CANTARELL NITROGEN PROJECT

The Company has a 20 percent interest in the Cantarell Nitrogen Project. The project facilities, which are expected to cost approximately $1.5 billion, will produce nitrogen under a long term take or pay agreement with Pemex Exploracion y Produccion (PEP), a subsidiary of the national oil company of Mexico, to enhance the production and recovery of oil from the Cantarell oilfield located in the Bay of Campeche, Gulf of Mexico.

Construction work is underway and the project is approximately 50 percent complete. The complex is scheduled to commence operations during the third quarter of 2000. Project financing, on a limited recourse basis, is 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 5-year take or pay contract by PEP to provide 250 million cubic feet per day of offshore gas compression and liquids recovery services on a platform in the Cantarell oil field in the Bay of Campeche. The consortium will construct, own and operate the platform which has an estimated cost of $390 million. The facility is expected to be in service in early 2000.

As a result of the deterioration in the international financial markets, limited recourse financing is more difficult and expensive to secure. Pursuant to a provision in the contract, the consortium is claiming price relief from PEP based on the changed financing environment. Under the terms of the contract, the contract has been suspended for the period of such negotiations. The contract with PEP contains a provision for cost recovery should the project not proceed as a result of these negotiations.

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 Ltd. 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 was awarded and construction commenced in September 1998. The plant is scheduled to commence commercial operations in late 1999.

EASTERN GAS PIPELINE PROJECT (AUSTRALIA)

In December 1998, the Company sold its 50 percent interest in the Eastern Gas Pipeline Project to a subsidiary of Duke Energy for approximately $27 million. The disposition resulted in a contribution to net income applicable to common shares of $8 million or 8 cents per common share. Part 3 of 3 to follow.