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Article Excerpt
Original Source: FD (FAIR DISCLOSURE) WIRE
OPERATOR: Good afternoon, ladies and gentlemen. Welcome to the AltaGas Income Trust 2008 second-quarter conference call and webcast. I would now like to turn the meeting over to Ms. Diane Zuber, Manager of Investor Relations. Please go ahead, Ms. Zuber.
DIANE ZUBER, MANAGER OF IR, ALTAGAS INCOME TRUST: Thank you, Ann. Good afternoon, everyone. My name is Diane Zuber, and I'm the Manager of Investor Relations at AltaGas. Welcome to AltaGas' second-quarter 2008 conference call. David Cornhill, Chairman and Chief Executive Officer, will open with a few remarks regarding results for the quarter and will then discuss AltaGas' growth initiatives. Debbie Stein, Vice President, Finance and Chief Financial Officer, will review our financial results. Richard Alexander, President and Chief Operating Officer, will close the formal presentation with a discussion of our operating results for the quarter and outlook for 2008. We will then conclude the call with a question-and-answer session.
I remind you that certain information presented today may constitute forward-looking statements. Such statements reflect the Trust's current expectations, estimates, projections and assumptions. These forward-looking statements are not guarantees of future performance and are subject to certain risks, which could cause actual performance and financial results to vary materially from those contemplated in the forward-looking statements. For additional information on these risks, please see the Trust's annual information form under the heading Risk Factors.
It's now my pleasure to introduce David Cornhill, Chairman and Chief Executive Officer.
DAVID CORNHILL, CHAIRMAN AND CEO, ALTAGAS INCOME TRUST: Thank you, Diane. Good afternoon and welcome to the second-quarter conference call. I'm happy to report that AltaGas had a strong second quarter. Our strong financial results reflect solid performance of our energy infrastructure business with the assistance from strong commodity prices.
We reported net income of $32.9 million or $0.49 per unit. Excluding some onetime items reported in the second quarter 2008 and 2007, net income was $36.4 million. That is a 32% increase quarter over quarter. On a per-unit basis, net income increased 13% to $0.54.
At a high level, this strong second-quarter performance was a result of our solid base business; our new assets, which continued to perform strongly, both operationally and financially; our continued favorable results from our effective commodity hedging and risk management [indication] strategies; and strong spot power prices and frac spreads in the quarter.
AltaGas' strategy is to grow our gas and power infrastructure business. We're driving this strategy forward and seeing the results. We're actively creating opportunities to grow our businesses by increasing the profitability of our current assets by developing new and complementary assets and through acquisitions.
Let me tell you about our growth. Building upon the 70 megawatt of run-of-river development projects we have been developing, we recently announced the acquisition of NovaGreenPower. Included in this acquisition is a 195-megawatt Forrest Kerr project located in Northwest BC. This project is in the advanced stages of development and has secured the water license and environmental assessment certificates.
Forrest Kerr fits into our growth plans. This significant addition to our renewable energy portfolio is one of the largest single-location run-of-river development projects in North America. It is a large-scale project that will provide long-term, stable returns for our power business.
The technical aspects of Forrest Kerr have been established by 40 years of water data, as well as an engineering study that supports the size and scale. There is strong government support for renewable power development in British Columbia, and Forrest Kerr has a high level of support from communities which will be affected by it.
In addition to Forrest Kerr, NovaGreen is also pursuing three other development projects with a total potential run-of-river capacity of 130 megawatts. These projects are in the early to midstage of development and are located in the same region as Forrest Kerr. These run-of-river assets are expected to begin coming onstream in around 2012.
We expect in the long term these renewable power developments will be as significant to AltaGas as the existing Sundance PPA. AltaGas is committed to develop renewable energy projects. This commitment is driven by market demand for clean energy, resulting from both regulatory and consumer preference. AltaGas' strategy is to be a leader to meet these demands.
The Bear Mountain Wind Park is the most developed of our renewable energy projects. Construction of the Wind Park continues to move forward on time and on budget. Our people are on-site overseeing construction of the foundations for the turbines. To date, 15% of the foundation work has been completed, with several foundations excavated and poured. The remaining foundations will be completed by the end of summer. The Wind Park is on track to be operational in November 2009, as scheduled.
We have acquired the remaining 45% of GreenWing Energy Development Limited Partnership for 100% ownership. We're actively working on 640 megawatts of mature wind development projects. AltaGas' renewable energy portfolio now includes 1500 megawatts of wind power development, including the 100-megawatt Bear Mountain Wind Park. In total, AltaGas has approximately 1900 megawatts of renewal energy capacity under development in Western Canada and the Western United States.
These acquisitions demonstrate our commitment to prudently grow and diversify our energy infrastructure business. We're growing the power business this year with the addition of gas-fired peaking capacity. We're currently operating 32.2 megawatts of gas-fired peaking capacity, including the newly added 7.2 megawatts at our Bantry field gathering processing facility. Another 7.2 megawatts will soon be online at our Parkland facility for a total of 39.4 megawatts of peaking capacity.
This increased peaking capacity will provide both energy and auxiliary services to the grid and partially backstop our PPA. We continue to develop and pursue opportunities in our gas business. We're continuing to build on the Taylor acquisition by capitalizing on opportunities to enhance our returns on these assets.
In April, we announced $55 million worth of growth and efficiency initiatives at the Harmattan complex. Several of these initiatives were completed during the turnaround that took place in May. We will continue to move forward with consolidating the Carstairs gas plant. We're awaiting regulatory approval and expect completion of the project by fourth quarter of this year, as planned.
We will spend $12.5 million to upgrade a 12-kilometer section of the ethylane delivery system, or EDS. The upgrade will meet regulatory requirements associated with the increasing population density to maximize our ability to provide optimum service to our customers.
We remain focused on active gas-producing areas in Northeast BC and Northwest Alberta. Pouce Coupe expansion is progressing and is currently in the regulatory approval stage. We recently received regulatory approval from the Ontario Energy Board for the Sarnia Airport storage pool. Construction is scheduled to begin in the third quarter of 2008 and the storage pool will be coming online in mid-2009.
We had previously announced $150 million in capital expenditures for 2008 and a further $250 million in 2009. Today, we are increasing our capital forecast to $225 million for 2008, mainly a result of the acquisition of NovaGreen and GreenWing, as well as the EDS upgrade. We expect to finance the 2008 capital program from cash from operation, credit facilities and proceeds from our DRIP.
Looking ahead to the rest of 2008, we're on track to be at the high end of our estimate, mid- to high-single-digit growth in earnings per unit as our assets continue to perform well. This earnings growth is expected despite significant scheduled turnarounds in our gas business this year. We expect earnings growth to continue in 2009 and 2010 as we enhanced our base business with projects like those at Harmattan, the Pouce Coupe plant expansion, the EDS upgrade. Bear Mountain and Sarnia storage will come online in 2009 and begin to add to earnings.
In addition, we continue to see strong commodity prices for 2009 and continue to lock in frac spread and power hedges for 2009. I'm happy to announce today AltaGas increased monthly distributions to $0.18 per unit from $0.175 per unit or $2.16 annualized. We remain within our target payout ratio of between 65% and 70% of funds from operation.
This increase reflects the strong performance of AltaGas' base business and continued asset growth. In June, we had a very successful equity offering that resulted in AltaGas issuing...
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