CALGARY, Alberta – November 4, 2009 – TransCanada Corporation (TSX, NYSE: TRP) (TransCanada or the Company) today announced net income for third quarter 2009 of $345 million or $0.50 per common share. TransCanada’s Board of Directors also declared a quarterly dividend of $0.38 per common share. (inline with Bilibala's expectation)
“TransCanada continues to post solid earnings and strong cash flows on the strength of our diverse energyinfrastructure business. Third quarter earnings were ahead of last year for our pipelines and natural gas storage assets, while the economic downturn continues to impact power revenues,” said Hal Kvisle, TransCanada’s president and chief executive officer. (Pipeline & Power Generation is a defensive sector during recession, because the business is based on seasonal demand rather than following economic cycle.)
“We made significant progress during the quarter executing the major projects within our $22 billion capital program. TransCanada is well positioned to fund this unprecedented growth. The carrying costs and dilution associated with financing this multi-year program continues to have a near-term impact on our earnings and cash flow per share. However, we are confident that our capital program will generate significant growth in cash flows and earnings over the next four years as our large scale, highly attractive projects commence operations.” (Continue expansion through acquisition and in house construction helps TransCanada's revenue to keep growing in future years. Canada currently having shortage in power supply and population increase will keep pipeline and power demand high.)
Third Quarter 2009 Highlights
(All financial figures are unaudited and in Canadian dollars unless noted otherwise)
Net income of $345 million or $0.50 per common share
Comparable earnings of $335 million or $0.49 per common share
Comparable earnings before interest, taxes, depreciation and amortization (EBITDA) of $994 million
Funds generated from operations of $772 million
Dividend of $0.38 per common share declared by the Board of Directors
Awarded a 20-year contract to build, own and operate a $1.2 billion, 900 megawatt (MW) power generating station in Oakville, Ontario
Issued $550 million of cumulative redeemable first preferred shares
Continued to advance $22 billion capital program
TransCanada reported net income for third quarter 2009 of $345 million ($0.50 per common share) compared to $390 million ($0.67 per common share) for third quarter 2008.
Comparable earnings were $335 million ($0.49 per common share) in third quarter 2009 compared to $366 million ($0.63 per common share) for the same period in 2008. This decrease was primarily due to lower power prices and volumes sold in Western Power and reduced generation volumes from New England and Bruce Power. (inline with expect)
Partially offsetting these decreases were higher earnings from Canadian pipelines, natural gas storage, Ravenswood acquired in August 2008 and the start up of Portlands Energy and the Carleton wind farm. (Bilibala expected a colder winter, TransCanada should be benefit from this)
Comparable earnings per common share in third quarter 2009 was further reduced compared to the same period last year due to an 18 per cent increase in the average number of shares outstanding following the Company’s issuances of 58.4 million and 35.1 million common shares in second quarter 2009 and fourth quarter 2008, respectively. Proceeds from the offerings were used to fund the acquisition of additional interests in Keystone and for other capital projects, general corporate purposes and to repay short-term debt. TransCanada’s $22 billion capital program is expected to boost cash flow and earnings in the coming years as projects come on-line. (The new shares issues are justified based on the projects listed below given continue monitor their status and performance in future are needed.)
Comparable earnings in third quarter 2009 and 2008 excluded $10 million of after tax net unrealized gains and $2 million of after tax net unrealized losses, respectively, resulting from changes in the fair value of proprietary natural gas inventory in storage and natural gas forward purchase and sale contracts.
Comparable earnings in 2008 also excluded $26 million of favourable income tax adjustments.
Comparable EBITDA in third quarter 2009 was $994 million compared to $1,066 million in third quarter 2008.
Funds generated from operations in third quarter 2009 were $772 million compared to $711 million in third quarter 2008.
Notable recent developments in Pipelines, Energy and Corporate include:
Pipelines:
On August 14, 2009, TransCanada purchased ConocoPhillips’ remaining interest in Keystone for US$553 million plus the assumption of US$197 million of short-term debt. TransCanada now owns 100 per cent of this project.
TransCanada also assumed responsibility for ConocoPhillips’ share of the capital investment required to complete the project, resulting in an incremental commitment of US$1.7 billion through the end of 2012.
The first phase of the pipeline is now approximately 90 per cent complete and TransCanada expects to begin filling the line in the fourth quarter of this year with deliveries of oil to the U.S. Midwest commencing in first quarter 2010.
Keystone is currently seeking the necessary regulatory approvals in Canada and the U.S. to build and operate an expansion and extension of the pipeline system that will provide additional capacity of 500,000 barrels per day (bbl/d) from Western Canada to the Gulf Coast in 2012.
In September 2009, the National Energy Board (NEB) held a hearing to review the application for the Canadian portion of the Keystone Gulf Coast expansion with a decision expected in early 2010. Permits for the U.S. portion of the expansion are expected by mid-2010. Construction of the Keystone expansion is expected to begin in 2010 once TransCanada receives all the necessary regulatory approvals.
When completed, the approximately US$12 billion Keystone pipeline will be one of the largest oil
delivery systems in North America with the capacity to deliver 1.1 million bbl/d from Western Canada to the largest refining markets in the United States.
Keystone has secured long-term commitments for 910,000 bbl/d for an average term of 18 years, which represents 83 per cent of the commercial design of the system.
The pipeline is expected to begin generating EBITDA in first quarter 2010 when oil begins flowing to Wood River and Patoka, Illinois. EBITDA is expected to increase through 2011 and 2012 as future phases of Keystone become operational.
Based on current long-term commitments of 910,000 bbl/d, Keystone is expected to generate EBITDA of approximately US$1.2 billion in 2013, its first full year of commercial operation serving both the U.S. Midwest and Gulf Coast markets.
If volumes were to increase to 1.1 million bbl/d, Keystone would generate approximately US$1.5 billion of annual EBITDA. In the future, the pipeline could be economically expanded from 1.1 million bbl/d to 1.5 million bbl/d based on market demand.
On September 28, 2009, TransCanada began work on the 160 kilometre (km) Red Earth section of the North Central Corridor (NCC) pipeline that is expected to be complete by April 2010. The 140 km North Star section has been completed and two 13 MW compressor units at the Meikle River compressor station were operational on May 15, 2009 and August 21, 2009 respectively.
The NCC project is a 300 km natural gas pipeline in the northern section of the Alberta System. It will provide capacity needed to deal with increasing gas supply in northwest Alberta and northeast B.C., declining gas supply in northeast Alberta, growing markets within the province, and help deliver more gas to interconnecting pipelines at the Alberta-Saskatchewan border.
The NCC pipeline is expected to reduce fuel consumption on the entire Alberta System by
approximately 50 per cent which is expected to result in shipper savings of between $50 million-$75 million per year.
The Alaska Pipeline Project continues to move forward, with the joint TransCanada and ExxonMobil project team actively advancing the engineering, technical, commercial, environmental and stakeholder engagement work leading to the project's initial open season targeted for completion by July 2010.
Energy:
On September 30, 2009 the Ontario Power Authority (OPA) awarded TransCanada a 20-year clean energy supply contract to build, own and operate the 900 MW Oakville Generating Station in Oakville, Ontario. A contract has now been finalized with the OPA.
TransCanada expects to invest approximately $1.2 billion in the natural gas-fired, combined-cycle plant, scheduled to start producing power by the end of 2013.
Commissioning of the first phase of the Kibby Wind Power project began in September 2009. Twentytwo of the 44 turbines have been constructed and were in service effective October 30, 2009. Roads and foundations for the remaining 22 turbines will be completed this year and the turbines are expected to be installed and operational by the end of third quarter 2010. Kibby will have the capacity to produce 132 MW.
Construction of the approximately $670 million, 683 MW Halton Hills Generating Station is continuing on schedule and the facility is anticipated to be in service in the summer of 2010. All of the power produced by the facility will be sold to the OPA under a 20-year power purchase agreement.
TransCanada began construction of the US$500 million Coolidge Generating Station in August 2009. The 575 MW power facility is expected to be on-line in second quarter 2011. All of the power produced by the facility will be sold to the Phoenix, Arizona based utility Salt River Project under a 20-year power purchase agreement.
The simple-cycle, natural gas-fired peaking facility will provide a quick response to peak power demand. The facility will also provide reserve capacity and have the ability to generate power on short notice to support power reliability in the region.
Initial brush clearing work for the 212 MW Gros-Morne wind farm in Québec has been completed. Clearing for the 58 MW Montagne-Sèche wind farm will be completed by the end of November 2009. The Montagne-Sèche project and phase one of the Gros-Morne wind farm are expected to be operational by 2011. Gros-Morne phase two is expected to be operational by 2012.
These are the fourth and fifth Québec-based wind farms under development by Cartier Wind, which is 62 per cent owned by TransCanada. These two wind farms are expected to have a capital cost of approximately $340 million. Once these two phases are complete, Cartier Wind will be capable of producing 590 MW of electricity. All of the power produced by Cartier Wind is sold to Hydro- Québec Distribution under a 20-year power purchase agreement.
Progress continues on the refurbishment and restart of Bruce A Units 1 and 2 with work now advanced to the re-assembly of the reactors. As of September 30, 2009, Bruce A had incurred approximately $3.1 billion in costs for the refurbishment and restart of Units 1 and 2. TransCanada believes that the work on Units 1 and 2 is now approximately 75 per cent complete, with the bulk of the highly technical, high risk work now finished. Although a significant amount of work remains to be done, most of this work is conventional power plant construction activity.
The project has experienced delays and TransCanada now expects that Unit 2 will be restarted mid-2011, with Unit 1 expected to follow approximately four months thereafter. The impact of this delay is mitigated by the previously announced extension of the operating lives of Unit 3 to 2011 and Unit 4 to 2016, with further life extensions expected as additional reactor optimization activities proceed.
TransCanada continues to work closely with Bruce Power to address productivity and overall project management and notes that there have been recent, significant successes in this area.
Corporate:
TransCanada and its subsidiaries held cash and cash equivalents of $2.4 billion at September 30, 2009.
On September 30, 2009, TransCanada completed a public offering of 22 million cumulative redeemable first preferred shares. Net proceeds from the $550 million preferred share offering are expected to be used by TransCanada to partially fund capital projects, for general corporate purposes and to re-pay short-term debt of TransCanada and its affiliates.
TransCanada is well positioned to fund its existing capital program through its growing internallygenerated cash flow, its dividend reinvestment and share purchase plan, and its continued access to capital markets. TransCanada will also continue to examine opportunities for portfolio management, including an ongoing role for TC PipeLines, LP in the financing of TransCanada’s capital program.
