Westcoast Energy Posts Strong 1996 Results and Announces Important Step in Completing Five-Year Agreement through 2001 for Pipeline and Field Services Divisions Part 1 of 2.
Earnings per common share were $1.96 in 1996 compared with $2.01 in 1995.
1996 earnings reflect a one-time after tax charge of $15 million (15 cents per common share) relating to a major reorganization of the company's Pipeline and Field Services Division. 1996 earnings per common share, after adjusting for the one-time charge were $2.11 compared to $2.01 in 1995.
"I am particularly pleased with the strength of our earnings results for 1996. After taking into account the 15 cents per share of cost for the restructuring efforts in pipeline and field services, Westcoast was able to generate the highest level of earnings and earnings per share in its history," stated Michael E.J. Phelps, chairman and chief executive officer, Westcoast Energy Inc.
The company and the Canadian Association of Petroleum Producers have agreed on the principles of a multi-year, incentive-based toll structure for the company's Pipeline and Field Services Divisions. The principles include an innovative gas price sensitive toll designed to better align the company's interests with those of its gathering and processing customers.
The new structure would be applicable for the years 1997 through 2001 and is subject to approval by the National Energy Board. Consultations are currently under way with downstream stakeholders.
Concluded Michael Phelps: "While there are a few outstanding issues to be negotiated, the settlement with the producers for pipeline and processing tolls will help provide for a positive exploration and production climate in northeast B.C. over the next five years.
"This innovative deal is a timely response to the desires of many of our customers to see a more flexible and new form of regulation for the natural gas transportation infrastructure in B.C."
The company is also pleased that its two large projects, the Eastern Gas Pipeline Project in Australia and the Maritimes & Northeast Pipeline Project in Nova Scotia and New Brunswick, are proceeding on schedule.
Headquartered in Vancouver, B.C., Westcoast Energy (TSE:W/NYSE:WE) is a major Canadian natural gas company with assets of approximately $9 billion Canadian. The company's interests include an integrated system of gathering, processing and transmission facilities as well as storage, distribution, power generation, international and gas services businesses.
WESTCOAST ENERGY INC. 1996 RESULTS(x) HIGHLIGHTS
-Net income applicable to common shares increased 9.7 percent to $193 million for the year ended Dec. 31, 1996 compared with $176 million in 1995.
-Earnings per common share were $1.96 in 1996 compared with $2.01 in 1995.
-1996 earnings reflect a one-time after tax charge of $15 million ($0.15 per common share) relating to a major reorganization of the company's Pipeline and Field Services Divisions.
-1996 earnings per common share, after adjusting for the one-time charge, are $2.11 compared with $2.01 in 1995.
-The company and the Canadian Association of Petroleum Producers have agreed on the principles of a multi-year, incentive-based toll structure for the company's Pipeline and Field Services Divisions. The principles include a gas price sensitive toll structure and innovative toll design to provide market responsive tolling for the company's gathering and processing customers. This new structure would be applicable for the years 1997 through 2001 and is subject to approval by the National Energy Board. Consultations are currently under way with downstream stakeholders.
-The board of directors declared a dividend of 29 cents per common share payable on March 31, 1997.
Consolidated net income for the year ended Dec. 31, 1996 has increased 9.3% to $212 million compared with $194 million in 1995.
After provision for preferred share dividends, net income applicable to common shares increased 9.7 percent to $193 million for the year ended Dec. 31, 1996 compared with $176 million in 1995. Earnings per common share were $1.96 in 1996 compared with $2.01 in 1995.
1996 earnings reflect a one-time charge 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 announced in August 1996, resulted in a reduction of the workforce of the two divisions by approximately 25 percent.
Excluding the one time charge, earnings per common share were $2.11 in 1996 compared with $2.01 in 1995. 1996 earnings have increased from 1995 due to colder weather in all of the company's gas distribution franchise areas, increased investments to meet customer growth, higher customer usage, higher rental revenues and lower interest costs.
This increase was offset partially by lower approved rates of return on common equity applicable to certain of the regulated businesses.
Colder than normal weather contributed $0.17 in earnings per common share in 1996 compared with $0.06 in 1995. Consolidated operating cash flow for the year ended Dec. 31, 1996 has increased 41.4 percent to $543 million compared with $384 million in 1995. Inclusive of non-cash working capital changes, consolidated operating cash flow was $498 million in 1996 compared with $493 million in 1995.
The 1995 comparative figures have been restated to reflect the reclassification of retractable and term preferred shares as debt instruments and the related dividends as interest expense, pursuant to new accounting recommendations.
FOURTH QUARTER RESULTS
Consolidated net income for the three months ended Dec. 31, 1996 was $59 million compared with $73 million in 1995. After provision for preferred share dividends, the net income applicable to common shares for the fourth quarter was $54 million in 1996 compared with $69 million in 1995.
Earnings per common share were $0.54 for the fourth quarter of 1996 compared with $0.78 in 1995. The decrease in earnings applicable to the fourth quarter was primarily due to the one-time charge relating to the major reorganization noted above.
Consolidated operating cash flow was $176 million in the fourth quarter of 1996 compared with $93 million in 1995.
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.
The operations of the company comprise the following strategic businesses.
-TRANSMISSION AND SERVICES - natural gas processing, transmission, marketing and related services;
-GAS DISTRIBUTION - distribution and storage of natural gas;
-POWER GENERATION - generation of electrical and thermal energy from natural gas;
-OTHER ACTIVITIES - 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 in 1996 was $87 million compared with $106 million in 1995.
The decrease is primarily due to a one-time charge 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, lower approved rates of return on common equity and the recognition in 1995 of $6 million of allowance for funds used during construction of the Empire State Pipeline.
This is offset partially by higher earnings resulting from an increase in rate base in the Pipeline and Field Services Divisions and an increase in the ownership of Empire State Pipeline from 35 percent to 50 percent.
WESTCOAST PIPELINE AND FIELD SERVICES DIVISIONS
Westcoast Pipeline and Field Services Divisions' natural gas throughput was 667 billion cubic feet of natural gas in 1996 compared with 647 billion cubic feet in 1995.
INCENTIVE BASED TOLL STRUCTURE
The company and the Canadian Association of Petroleum Producers (CAPP) have agreed on the principles of a multi-year, incentive-based toll structure for the company's regulated natural gas gathering, processing and transmission operations in British Columbia.
While there are a few outstanding issues to be negotiated, this is an important first step in the completion of a five-year agreement through the year 2001.
The company has begun discussions with its other major stakeholders - the export users, BC Gas, the Council of Forest Industries and the Province of British Columbia. The agreed-upon toll structure will be subject to approval by the National Energy Board (NEB).
The transmission proposal offers a five-year agreement with fixed tolls. Alternatively, customers can choose tolls based on an incentive-based type of arrangement consistent with similar arrangements in place with other Canadian pipeline companies. Details of the transmission proposal will be finalized in the first quarter of this year.
The gathering and processing proposal gives customers the option of signing contracts for one, three or five year tolls at fixed base tolls which will be indexed monthly to gas prices. The proposed gas price sensitive toll structure is an innovative toll design to provide market responsive tolling for the company's gathering and processing customers.
The base tolls reflect a 500 basis point reduction of the return on common equity associated with the company's NEB regulated gathering and processing assets.
The company has the opportunity to recover the revenues associated with this reduction and to earn a premium return from a commodity price surcharge based on the monthly gas price determined primarily at Sumas, Washington. Such revenue uplift starts at a monthly price of $1.35 US/MMBTU and caps at a ceiling price of $2.00 US/MMBTU.
The revenues associated with the 500 basis point reduction in the rate of return on common equity for gathering and processing assets would be earned back under the commodity price surcharge if average annual gas prices are in the range of $1.50 US/MMBTU.
A portion of any revenue associated with average gas prices in excess of this range to the ceiling price of $2.00/MMBTU will be used to further increase Westcoast's return on equity and a portion will be applied to increase depreciation on gathering and processing assets.
This proposal also includes an agreement to negotiate light-handed regulation for the gathering and processing operations for the period beyond 2001. These negotiations are to be completed by Dec. 31, 1997.
Changes in contract levels applicable to the company's gathering and processing facilities will not affect the base tolls. Revenue variances associated with contract level changes on the existing facilities will be deferred and will be disposed of after 2001 in a manner consistent with the principles of light-handed regulation.
The base tolls in the CAPP agreement do not include the recovery of development expenditures relating to the Grizzly Valley and Fort St. John Expansion Projects. Recovery of these costs will be the subject of a National Energy Board hearing in 1997 and the base tolls will be adjusted if recovery is approved.
FOOTHILLS PIPE LINES
In January 1997, the NEB approved the revised Eastern Leg Expansion Project, which will increase the Eastern Leg capacity by approximately 45 percent from 1,500 MMcf per day to 2,190 MMcf per day.
Construction of the facilities has been moved to 1998 from 1997 with an in-service date of November 1, 1998 to match a delay of the planned expansion of Northern Border's connecting pipeline system, which still needs to receive regulatory approval.
EMPIRE STATE PIPELINE
In April 1996, the company increased its investment in Empire State Pipeline by 15 percent to 50 percent. In January 1997, the New York Public Service Commission approved new tolls effective Nov. 1, 1996, which included a 12.5 percent rate of return on common equity and maintained the common equity component at 40 percent.
WESTCOAST GAS SERVICES MERCHANT AND MANAGEMENT SERVICES (M&MS)
The M&MS business of Westcoast Gas Services had sales volumes of 1,097 billion cubic feet in 1996, 59.4 percent higher than 1995 volumes of 688 billion cubic feet. Average daily volumes of 3.1 billion cubic feet were achieved in 1996 compared to 1995 average daily volumes of 1.9 billion cubic feet.
The company expects to finalize the transaction to merge the natural gas marketing, merchant and management services operations of Westcoast Gas Services with those of The Coastal Corporation of Houston, Texas by the end of February.
The new joint venture is expected to be North America's fourth largest marketer of natural gas and electricity. The company and The Coastal Corporation will each own 50 percent of the joint venture.
UNREGULATED GATHERING AND PROCESSING
In September 1996, the company announced two gas processing projects in northeastern British Columbia. The proposed new Highway plant, to be owned and operated by Westcoast Gas Services, will have a sales gas capacity of 110 million cubic feet per day and is scheduled to be in service in 1997. The estimated cost of the plant and related pipelines is approximately $58 million.
All necessary approvals for this plant have been received. Westcoast Gas Services also proposes to construct and operate an expansion of its existing Jedney plant to double its sales gas capacity to 140 million cubic feet per day.
The Jedney plant expansion is subject to receipt of necessary project approvals from the Province of British Columbia and finalization of contractual agreements. The expansion is projected to cost approximately $70 million and is scheduled to be in-service in 1997. In December 1996 the original Jedney plant was completed and put into service.
The contribution to net income applicable to common shares from the Gas Distribution business was $135 million in 1996 compared with $101 million in 1995 due to overall customer growth, increased usage, higher rental revenues, higher rate bases and colder weather in all of the company's franchise areas in 1996 compared with 1995.
Union Gas' total customer base increased to 755,000 at Dec. 31, 1996 from 728,000 in 1995. Natural gas volumes applicable to Union Gas' operations were 972 billion cubic feet in 1996 compared with 1,005 billion cubic feet in 1995.
A decision from the Ontario Energy Board (OEB) is pending for fiscal 1997 rates and is expected late in the first quarter of 1997. In October 1996, an Alternate Dispute Resolution (ADR) settlement agreement was filed with the OEB which provides for an 11.50 percent rate of return on common equity, an increase in the common equity component of rate base from 29 percent to 34 percent and a change to flow through tax accounting from the deferred tax accounting methodology currently in use. The ADR reflects a 1997 rate base of approximately $2,214 million.
Union Gas is also awaiting a decision from the OEB with respect to an application filed jointly with Westcoast Energy and Centra Gas Ontario, for approval from the Ontario Government to proceed with a merger of Union Gas and Centra Gas Ontario.
If approved, the merger would be effective Jan. 1, 1998. The merger will further the operating efficiencies which were started with the Shared Services Arrangement under which Union Gas and Centra Gas Ontario have been operating since 1994.
CONTACT: Westcoast Energy Inc.
Graham M. Wilson, 604/488-8007,
Wayne M. Bingham, 604/488-8020,
Thomas M. Merinsky, 604/488-8021,
Patricia S. Bowles, 604/488-8093
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|Date:||Feb 19, 1997|
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