NWN Reports Results for the Quarter & Six Months Ended June 30, 2008

2008-07-25 05:30:00

NWN Reports Results for the Quarter & Six Months Ended June 30, 2008

Financial & Operating Highlights

Second quarter net income up 26 percent over 2007, and earnings per

share up 20 percent over the same period, due to the gain from a

non-core asset sale and solid operating results from utility and gas

storage

Year-to-date net income down 8 percent and earnings per share down 6

percent due mainly to record gains from commodity cost savings in 2007

compared to higher gas costs in 2008

Operations & maintenance costs were 9 percent lower in the quarter and

5 percent lower in the year-to-date period compared to 2007

PORTLAND, Ore.–(EMWNews)–Northwest Natural Gas Company, dba NW Natural (NYSE:NWN), reported net

income for the second quarter ended June 30, 2008, of $3.3 million, or

12 cents per share, up from $2.6 million, or 10 cents per share in the

same quarter of 2007.

Our improved financial performance in the

quarter was primarily due to the gain on the sale of a non-core asset in

the period and relatively strong results from our utility and gas

storage operations, said NW Natural Chief

Executive Officer Mark Dodson. These factors

helped offset commodity cost losses under our regulatory sharing

mechanism, Dodson added.

For the six month period, net income was $46.5 million, or $1.75 per

share, compared to $50.7 million, or $1.86 per share for the first six

months of 2007, representing a 6 percent decrease in earnings per share

and an 8 percent decrease in net income. Year-to-date earnings were

lower due mainly to record commodity cost benefits in 2007 compared to

higher gas costs in 2008.

NW Natural has an annual Purchased Gas Adjustment (PGA) tariff in Oregon

and Washington to reflect current and projected gas costs in utility

customer rates. In Oregon, the company currently absorbs 33 percent of

any excess cost of gas, or retains 33 percent of any gas cost savings,

both as compared to the projected gas commodity prices built into rates.

The company also retains 33 percent of the margin when it sells surplus

gas commodity off-system, and credits 67 percent to customers. In

Washington, 100 percent of actual gas purchase costs are passed through

to customers.

According to NW Natural Chief Financial Officer David Anderson, The

second quarter of 2008 saw prolonged colder-than-average weather and gas

prices paid that were consistently above levels set in rates for the

current PGA year, which ends October 31, 2008. Increased gas purchases

at higher prices resulted in the company absorbing gas costs under the

PGA sharing mechanism that reduced margin by about $5.5 million in the

quarter compared to a contribution to margin of $0.8 million in last years

second quarter.

Oregons natural gas distribution companies

are currently working with the Oregon Public Utility Commission (OPUC)

to modify the gas cost sharing mechanism to better align customer and

shareholder risk from commodity price fluctuations. Changes to the PGA

mechanism, which must be approved by the OPUC, are targeted by the

company to be implemented with the next heating season, which begins

November 1, 2008.

Second Quarter Financial and Operating Highlights

  • Higher income and earnings per share

Net income in the second quarter of 2008 was $3.3 million or 12 cents

per share, compared to net income of $2.6 million or 10 cents per share

in 2007. Results from utility operations are typically low during the

second quarter due to reduced use of natural gas in spring and early

summer. The utility recorded a net loss of $0.7 million (3 cents per

share) in the quarter, compared to a net loss of $0.1 million (less than

1 cent per share) in the second quarter of 2007. Gas storage contributed

net income of $2.5 million in the quarter (9 cents per share), compared

to $2.7 million in the second quarter of 2007 (10 cents per share).

Other non-utility activities resulted in net income for the 2008 quarter

of $1.5 million (6 cents per share), compared to a small gain in 2007,

due mainly to the sale of a non-core investment in the 2008 period.

  • Customer growth remains above national average

NW Naturals utility customer growth

continues at a rate higher than the national average. This growth is

driven by new construction activity and conversions from other fuel

sources. At June 30, 2008, the company had 656,784 customers, for a

growth rate of 2.5 percent over the past 12 months.

  • Operational results

NW Naturals total gas sales and

transportation deliveries in the second quarter of 2008, excluding

deliveries of gas stored for others, were 263 million therms or 12

percent higher than the 234 million therms delivered in 2007, due mainly

to higher residential and commercial volumes from customer growth and

colder weather. Industrial volumes were roughly the same as last year.

Margin from utility operations in the quarter was $57.2 million,

benefiting from customer growth and colder weather, but was 3 percent

lower than 2007 margin of $59.1 million primarily due to changes in the

commodity cost sharing discussed above.

Sales to residential and commercial customers in the second quarter of

2008 were 131 million therms, 27 percent higher than 2007 consumption of

103 million therms, due primarily to higher usage in the period

resulting from weather that was 23 percent colder than in 2007 and 26

percent colder than average. Residential and commercial sales

contributed $63.0 million to margin, up 23 percent from $51.2 million in

2007. The companys weather normalization and

decoupling rate mechanisms in Oregon reduced margin by $8.3 million in

the second quarter of 2008, compared to a net $0.8 million contribution

to margin in the second quarter of 2007.

Gas deliveries to industrial customers in the second quarter of 2008

were essentially unchanged from 2007 levels at 132 million therms for

both periods. Margin in this sector was $7.1 million, down 6 percent

compared to last years margin contribution of

$7.5 million, due to some temporary shut-downs and cutbacks by a few

large customers in the period and movements to lower margin rate

schedules.

NW Natural continues to provide gas storage and optimization services to

customers in the interstate and intrastate gas markets. Earnings from

gas storage in the second quarter of 2008 were $2.5 million, or 9 cents

per share, compared to $2.7 million or 10 cents per share in last years

second quarter. These results include income from gas storage services

as well as income from a contract with an unaffiliated energy marketing

company that optimizes the companys unused

storage and pipeline transportation capacity.

  • Operations and maintenance costs

Operations and maintenance expenses in the second quarter of 2008 were 9

percent lower than last year. The decrease was primarily due to lower

employee-related expenses, including reduced incentive accruals.

  • Company sells last major non-core asset

In late April, the company sold a Boeing 737 airplane that NW Natural

had purchased and leased to Continental Airlines since the 1980s. This

marks the sale of the last significant non-core asset owned by the

company. The company sold solar electric generating systems and wind

power electric generation projects between 2005 and 2007. The company

recorded an after-tax gain of $1.1 million on the sale of the plane,

which was recorded in the second quarter of 2008. We

have been able to convert these non-core assets into cash, as planned,

said Anderson, which allows us to

concentrate on our core utility, gas storage and gas transmission

pipeline activities.

  • Second phase of Automated Meter Reading (AMR) launched

In July 2008, NW Natural signed an agreement to complete the second

phase of an automated meter reading project. The first phase was

successfully implemented in 2006 with the installation of 260,000

electronic metering devices in the companys

service territory. According to NW Natural President and Chief Operating

Officer Gregg Kantor, The second phase of

the project, which will now equip 375,000 meters primarily in the

Portland and Salem metropolitan areas, will be completed over the next

two years and follows the success of the first phase of the project in

areas outside of Portland and Salem. The new metering system has proven

to be more efficient for our customers. It

is expected that NW Natural will seek regulatory recovery of the

estimated $30 million project cost at a later date.

Year-to-Date (Six Month) Financial and Operating Highlights

  • Lower net income and earnings per share

For the six month period, net income decreased 8 percent to $46.5

million or $1.75 per share, compared to $50.7 million or $1.86 per share

in the same period in 2007. NW Naturals

utility operations contributed $39.8 million or $1.50 per share in the

first six months of 2008, compared to $46.0 million or $1.69 per share

in the first six months of 2007. Gas storage contributed $4.9 million in

the period or 18 cents per share, compared to $4.5 million or 16 cents

per share in the 2007 period. Other non-utility activities resulted in

net income of $1.8 million, or 7 cents per share, compared to $0.2

million or 1 cent per share in 2007.

  • Operating results

NW Naturals total gas sales and

transportation deliveries in the first six months of 2008, excluding

deliveries of gas stored for others, were 712 million therms, up 10

percent from 2007 due to higher residential and commercial volumes from

customer growth and higher consumption due to colder weather in the

six-month period. Margin from utility operations was $184.6 million in

2008, compared to $194.7 million in 2007, or 5 percent lower than last

years first six months due mainly to higher

customer use combined with higher prices for natural gas.

Gas sales to residential and commercial customers in the first six

months of 2008 were 420 million therms, up 16 percent from 363 million

therms in 2007 due to customer growth and weather that was 11 percent

colder than last year and 11 percent colder than normal for the period.

Residential and commercial sales contributed $185.3 million to margin,

up 13 percent from $164.6 million in 2007, due mainly to customer growth

and colder weather than last year. The companys

weather normalization and decoupling mechanisms reduced margin in the

first six months of 2008 by $14.2 million. This compared to a net

contribution to margin of $0.4 million for the first six months of 2007

on weather that was about average for the 2007 period.

Gas deliveries to industrial customers in the first six months of 2008

were 292 million therms, up 3 percent from 284 million therms in the

same period last year. Contribution to margin from sales and

transportation in these markets was $15.4 million, compared to $15.9

million last year.

As noted earlier, for the first six months of the year higher gas

purchases at unusually high prices contributed to a $5.8 million

reduction to margin, equivalent to 13 cents per share, due to the companys

commodity cost sharing mechanism. This compares to a contribution to

margin of $10.6 million, equivalent to 24 cents per share, for the first

six months of the year in 2007 under the companys

PGA. All gas costs are passed through to customers in Washington.

YTD O&M Costs on Track

Operations and maintenance costs for the six-month period were 5 percent

lower than the 2007 period, primarily related to lower payroll and

employee-related expenses in the current period, including reduced

incentive accruals. Bad debt expense as a percent of revenues billed

remained well below 1 percent at 0.31 percent for the 12 months ended

June 30, 2008.

Cash Flows and Capital Structure

Cash provided by operations in the first six months of 2008 was $138.1

million, compared to $180.3 million in the same period in 2007. Cash

flows reflect lower operating results but mostly higher gas costs versus

record gas commodity savings last year. Cash used in investing

activities totaled $46.7 million compared to $52.5 million in 2007,

mainly reflecting investments in the companys

Palomar pipeline and Gill Ranch storage projects, offset by proceeds

from the sale of the non-utility airplane investment.

NW Naturals capitalization at June 30, 2008,

reflected 51.6 percent common equity, 42.4 percent long-term debt, and

6.0 short-term debt. This compared to 52.2 percent common equity, 44.2

percent long-term debt, and 3.6 percent short-term debt at June 30, 2007.

Outlook for 2008

NW Natural reaffirmed its prior estimate that full-year earnings per

share in 2008 will be in the range of $2.48 to $2.63. Our estimate

assumes normal weather for the remainder of the year, continued customer

growth, benefits from cost reduction initiatives, no significant changes

in current regulatory policies and no estimate of future gains or losses

from our gas commodity sharing mechanism, since we are unable

to predict future gas cost increases or decreases with reasonable

certainty. To the extent that gas costs remain above levels set in our

purchase gas adjustment mechanism, the company could recognize

additional gas expense. The company continues to target long-term

earnings per share growth of 5 percent or more and to maintain a

dividend payout ratio of 60 to 70 percent of earnings.

Dividend Declaration

The Board of Directors of NW Natural on July 1, 2008 declared a

quarterly dividend of 37.5 cents per share on the companys

common stock. The dividends will be paid August 15, 2008, to

shareholders of record on July 31, 2008. The current indicated annual

dividend is $1.50 per share.

Presentation of Results

In addition to presenting results of operations and earnings amounts in

total, NW Natural has expressed certain measures in this press release

on an equivalent cents per share basis, including the earnings impact

from our commodity cost sharing mechanism. These amounts reflect factors

that directly impact the companys earnings.

In calculating these financial measures, we allocate income tax expense

based on the effective tax rate. NW Natural believes this per share

information is useful because it enables readers to better understand

the impact of these factors on its earnings.

Conference Call Arrangements

As previously reported, NW Natural will conduct a conference call and

webcast starting at 7:00 a.m. Pacific Time (10 a.m. Eastern Time) on

July 25 to review the companys financial

results of operations for the three and six months ended June 30, 2008.

To hear the conference call live, dial 1-800-860-2442 from anywhere in

the United States and 1-412-858-4600 from international points,

including Canada. To access the recording, please call 1-877-344-7529

and enter the identification pass code (420734#). To hear the replay

from international locations, please dial 1-412-317-0088.

To hear the conference by webcast, log on to NW Naturals

corporate website at www.nwnatural.com

or through www.InvestorCalendar.com.

Forward-Looking Statements

This report and other presentations made by NW Natural from time to time

may contain forward-looking statements within the meaning of Section 21E

of the Securities Exchange Act of 1934, as amended. Forward-looking

statements include statements concerning plans, objectives, goals,

strategies, future events or performance, and other statements that are

other than statements of historical facts. The companys

expectations, beliefs and projections are expressed in good faith and

are believed to have a reasonable basis. However, each such

forward-looking statement involves uncertainties and is qualified in its

entirety by reference to the factors described in Part I, Item 1A, Risk

Factors, and Forward-Looking

Statements following Part II, Item 7A, in

the companys 2007 Annual Report on Form

10-K, and in Forward-Looking Statements

following Part I, Item 2, of the companys

quarterly financial statements, that could cause the actual results of

the company to differ materially from those projected in such

forward-looking statements.

All subsequent forward-looking statements, whether written or oral and

whether made by or on behalf of the company, also are expressly

qualified by these cautionary statements. Any forward-looking statement

speaks only as of the date on which such statement is made, and the

company undertakes no obligation to update any forward-looking statement

to reflect events or circumstances after the date on which such

statement is made or to reflect the occurrence of unanticipated events.

New factors emerge from time to time and it is not possible for the

company to predict all such factors, nor can it assess the impact of

each such factor or the extent to which any factor, or combination of

factors, may cause results to differ materially from those contained in

any forward-looking statement.

About NW Natural

NW Natural is headquartered in Portland, Ore., and serves nearly 657,000

residential and business customers in Oregon and southwest Washington.

It is the largest independent natural gas utility in the Pacific

Northwest. The company has approximately $2.0 billion in total assets,

which includes approximately 16 Bcf of underground gas storage capacity

within its service territory at Mist, Ore. The company has rate

mechanisms in place that help to protect revenues from warmer than

average weather and declining consumption. NW Natural has increased its

dividends paid on common stock for 52 consecutive years.

NORTHWEST NATURAL GAS COMPANY

Comparative Income Statement

(Consolidated – Unaudited)

 

 

 

 

 

Three Months Ended

 

(Thousands, except per share amounts)

06/30/08

06/30/07

Increase

% Change

Gross Operating Revenues

$

191,254

$

183,249

$

8,005

4%

Net Income

$

3,297

$

2,617

$

680

26%

 

Average Shares of Common Stock Outstanding

26,421

26,999

(578

)

(2%)

Basic Earnings Per Share of Common Stock

$

0.12

$

0.10

$

0.02

20%

Diluted Earnings Per Share of Common Stock

$

0.12

$

0.10

$

0.02

20%

 

 

Six Months Ended

 

(Thousands, except per share amounts)

06/30/08

06/30/07

Increase

% Change

Gross Operating Revenues

$

578,948

$

577,340

$

1,608

(0)%

Net Income

$

46,465

$

50,692

$

(4,227

)

(8%)

 

Average Shares of Common Stock Outstanding

26,415

27,114

(699

)

(3%)

Basic Earnings Per Share of Common Stock

$

1.76

$

1.87

$

(0.11

)

(6%)

Diluted Earnings Per Share of Common Stock

$

1.75

$

1.86

$

(0.11

)

(6%)

 

 

Twelve Months Ended

 

(Thousands, except per share amounts)

06/30/08

06/30/07

Increase

% Change

Gross Operating Revenues

$

1,034,801

$

1,029,142

$

5,659

1%

Net Income

$

70,270

$

71,080

$

(810

)

(1%)

 

Average Shares of Common Stock Outstanding

26,471

27,310

(839

)

(3%)

Basic Earnings Per Share of Common Stock

$

2.65

$

2.60

$

0.05

2%

Diluted Earnings Per Share of Common Stock

$

2.64

$

2.59

$

0.05

2%

NORTHWEST NATURAL GAS COMPANY

Consolidated Balance Sheets (unaudited)

 

June 30,

 

June 30,

Thousands

 

2008

 

2007

Assets:

Plant and property:

 

Utility plant

$

2,091,092

$

2,002,460

Less accumulated depreciation

 

637,680

 

 

595,195

 

 

Utility plant – net

 

1,453,412

 

 

1,407,265

 

Non-utility property

72,242

57,061

Less accumulated depreciation and amortization

 

8,537

 

 

7,392

 

Non-utility property – net

 

63,705

 

 

49,669

 

Total plant and property

 

1,517,117

 

 

1,456,934

 

 

Current assets:

Cash and cash equivalents

5,242

Northwest Natural Gas Company
Investors
Bob Hess,

1-800-422-4012, ext 2388 or 503-220-2388
Bob.Hess@nwnatural.com

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