DBRS Comments on Pacific Northern Gas Special Dividend

DBRS notes that Pacific Northern Gas Ltd. (PNG or the Company) announced that it has declared a special dividend of approximately $11 million, representing almost half the $21 million after-tax net proceeds from the initial payment of $30 million received for the sale of PNG’s 50% stake in Pacific Trail Pipelines Limited Partnership (PTP).

PNG recently completed the sale of its stake in PTP for gross consideration of up to $50 million, to be paid in two parts: the first is the cash payment of $30 million that has been received; the second consists of a cash payment of $20 million to be paid when the purchasers make a decision to proceed with the construction of the Kitimat LNG export facility in British Columbia. There is no guarantee that the final payment will be made; however, if received, the total net proceeds to PNG would be approximately $34 million to $38 million.

As part of the sale, PNG and the PTP buyers (Apache Canada Ltd (Apache Canada) and EOG Resources Canada Inc.) reached a 20-year transportation services agreement that would increase the utilization of PNG's currently under-utilized pipeline if the Kitimat LNG facility and PTP were to proceed (and another party does not exercise its option on this capacity). Apache Canada also agreed to engage PNG as the operator of the PTP pipeline for an initial term of seven years.

The $11 million dividend payment has no current impact on PNG’s credit ratings (BBB (low) and Pfd-3 (low), both with Stable trends) and is consistent with the existing capital structure of approximately 50/50. Going forward, if a significant amount of the realized total net proceeds from the sale of the stake in PTP are retained and re-invested in the Company, this could have a longer-term positive impact on PNG’s creditworthiness. However, the extent of any credit impact will depend entirely on the amounts to be retained and how they are re-invested.

Notes:
All figures are in Canadian dollars unless otherwise noted.

The applicable methodology is Rating North American Energy Utilities (Electric, Natural Gas, and Pipelines), which can be found on our website under Methodologies.