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Q3 2008 AltaGas Income Trust Earnings Conference Call - Final.

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OPERATOR: Good afternoon ladies and gentlemen welcome to the AltaGas Income Trust 2008 third-quarter conference call and webcast. I would now like to turn the meeting over to Miss Sheena McKellar of investor relations. Please go ahead, Miss McKeller.

SHEENA MCKELLAR, IR, ALTAGAS INCOME TRUST: Thank you. Good afternoon everybody. Welcome to AltaGas's third-quarter 2008 conference call. David Cornhill, Chairman and Chief Executive Officer, will open today's call with a few remarks. Debbie Stein, Vice President, Finance and Chief Financial Officer will then review our consolidated financial results and Richard Alexander, President and Chief Operating Officer will close our presentation with a discussion of AltaGas's operating results and our outlook for 2008 and 2009. We will then wrap up 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 they 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 take a look at our annual information form under the heading risk factors. I will now turn the call over to David Cornhill.

DAVID CORNHILL, CHAIRMAN AND CEO, ALTAGAS INCOME TRUST: Thank you Sheena. Good afternoon and welcome to our third quarter conference call. Today AltaGas announced net income of $53.5 million or $0.75 per unit for the three months ending September 30, 2008 compared to $31.4 million or $0.54 per unit for the same period in 2007.

Adjusting for unrealized gains on risk management of $0.8 million, net income was $52.7 million or $0.74 per unit for the third quarter 2008 compared to $30.7 million or $0.53 per unit for third quarter 2007. The hard work of the AltaGas team resulted in the creation of some onetime earnings opportunities in the third quarter.

We decreased income tax liabilities as a result of reorganization of assets including assets from Taylor within the trust structure. These actions enhanced earnings by $13.8 million.

We sold some power assets under development for proceeds of $6.6 million and an after-tax gain of $900,000 in the third quarter. We faced some earnings challenges in the extraction business in the third quarter -- the fire that occurred in the natural gas fired heater at the Harmattan complex, the major turnaround at the younger plant.

These items reduced earnings from the extraction business by approximately $3 million. In my view, the normalized earnings for the third quarter is approximately $41 million, a strong quarter.

Our financial position is strong. Our debt to total of capitalization as at September 30 was 37.5%, below our target of 40 to 45%. Both S&P and DBRS have revised our bond rating outlook from stable to positive in the third quarter.

Our strong balance sheet, our strong cash flow plus our unused bank lines provide us the flexibility to move forward on our plans. Let me talk about the progress we have been making on major projects.

First the Bear Mountain project. All the foundation work has been completed and we are ready to receive turbines which will begin erection in late spring of next year. We are also beginning work on substation foundation and transmission lines. We are on schedule.

Second, the Harmattan project, $55 million. All major parts of these projects are completed and operational. They're generating cash flow today. Finally, we're finalizing our work on the BC Hydro call for power. We expect to bid three to four projects into this call.

Clearly, 2008 will be a very strong year. In the first nine months of 2008, AltaGas had earned more than we had earned in any year in AltaGas's history. We expect the fourth quarter earnings to be similar to the normalized Q3 results. For 2009, we have put foundations in place for another strong year.

The majority of AltaGas's revenues are underpinned by contractual arrangements that provide stability and predictability in earnings and cash flow. 60% of the 2009 volumes exposed to frac spreads have been hedged at more than $27 per barrel.

AltaGas is on track to hedge two-thirds of its (inaudible) Power Generation for 2009 by year-end at prices similar to 2008 average hedge price. In addition, we continue to optimize current operations and develop new assets. The volume addition at the Harmattan Complex as well as the Bear Mountain Wind Park and the Sarnia storage projects will contribute to earnings and cash flow next year.

The nature of the assets we invest in allow us to think and plan long-term. Because of AltaGas's stability and predictability of cash flows and earnings, we have the confidence in the sustainability of our distribution. We have disclosed our thoughts on future conversion to a corporation by 2011. AltaGas is well-positioned for 2011.

Finally, Q3 2008 was a good quarter. Q4 2008 is expected to be strong. The foundations have been laid for 2009. We have a strong balance sheet. We have low payout ratios.

We have great projects available to enhance unitholder value. All in all, not a bad position to be in in these troubled times. Now, I will turn it over to Debbie.

DEBBIE STEIN, VP, FINANCE AND CFO, ALTAGAS INCOME TRUST: Thank you David. Good afternoon everyone.

Our net income was a record $53.5 million or $0.75 per unit for the third quarter and $124 million or $1.83 per unit for the first nine months of the year. During the third quarter, we recorded a onetime reduction in future income tax liability of $13.8 million. This recovery resulted from lower tax rates applied to a portion of our future tax liability as a result of legal entity ownership changes within the trust structure.

Adjusted for this change and marked to market changes, third quarter net income was $38.9 million or $0.55 per unit compared to $30.7 million or $0.53. Normalized for these items, year-to-date net income was $112.5 million or $1.66 per unit compared to $83 million or $1.45 in the first nine months of 2007.

On a consolidated basis, amortization expense rose almost $6 million to $17.4 million in the third...