Hal Kvisle
President and Chief Executive Officer |
As we begin 2007, TransCanada is set to significantly expand its continental natural gas pipeline and storage operations through the acquisition of American Natural Resources Company, ANR Storage Company (together, ANR) and an additional interest in Great Lakes Gas Transmission Limited Partnership (Great Lakes). The ANR announcement marked a strong finish to an excellent year for TransCanada. In addition to the ANR transaction, we continued to build our portfolio of high-quality power generation assets and established a substantial natural gas storage business in Western Canada. By continuing along the strategic growth path we embarked on seven years ago, we've made significant progress towards our objective of being the leading North American energy infrastructure company. Our efforts are focused on three key objectives: maximizing the profitability and value of our existing assets; implementing new projects and initiatives; and continually cultivating a high-quality portfolio of future growth opportunities. Maximizing profitability and value TransCanada's net income for the year ended December 31, 2006 was $1.079 billion or $2.21 per share. Excluding net income from discontinued operations of $28 million or $0.06 per share, net income from continuing operations (net earnings) was $1.051 billion or $2.15 per share, compared to $1.209 billion or $2.49 per share in 2005. Our 2006 and 2005 results were impacted by a number of significant items, which are highlighted in Management's Discussion and Analysis on page 74 of TransCanada's 2006 Annual Report. Net earnings excluding these significant items(1) increased nine per cent in 2006 to $925 million or $1.90 per share, from $849 million or $1.75 per share in 2005. Funds generated from operations grew to approximately $2.4 billion in 2006, an increase of 22 per cent over 2005. This strong underlying cash flow enabled us to make significant capital investments in our pipelines and energy businesses. In 2006, we invested approximately $2 billion in growth initiatives. Our performance in 2006 builds on our track record of delivering steady growth in earnings and cash flow. Over the past seven years, TransCanada has:
Our strong 2006 financial performance enabled our Board of Directors to increase the quarterly dividend on the company's common shares in January 2007 by six per cent to $0.34 per share. On an annualized basis, this equates to $1.36 per share. This is the seventh year in a row the Board has increased the dividend. Our strong financial performance has resulted in significant returns for our shareholders. In 2006, TransCanada generated a total shareholder return of approximately 15 per cent. The compound average annual total shareholder return over the past seven years is approximately 24 per cent. Implementing new projects and initiatives, and... North America is faced with two critical challenges: a fundamental shortage of energy supply from existing sources, and a lack of critical infrastructure to connect new supply to where it is needed. While we have seen some progress toward addressing these challenges, the fact remains that energy demand continues to grow at a faster rate than available supply. This situation creates tremendous opportunity for TransCanada. With more than 50 years of experience in planning, constructing and operating large-scale energy infrastructure, we are well positioned to play a key role in connecting new sources of supply with growing demand in our preferred North American markets. In 2006, we continued to invest in our North American natural gas transmission, natural gas storage and power businesses. We also continued to pursue new and complementary opportunities in oil pipelines and liquefied natural gas (LNG). These projects and initiatives will allow TransCanada to continue to strengthen its position as a leading North American energy infrastructure company and deliver significant value to our shareholders in the future. In Pipelines - Expanding our continental footprint ANR acquisition - In February 2007, we completed our acquisition of ANR and an additional interest in Great Lakes for approximately US$3.4 billion, including US$488 million of assumed debt. The acquisition of ANR represents a unique opportunity to acquire regulated pipeline and storage assets that are a strong fit with our existing North American footprint. ANR is one of the largest interstate natural gas pipeline systems in the United States providing transportation, storage and various capacity related services to a variety of customers in both the U.S. and Canada. With this acquisition, our wholly owned natural gas pipeline network extends more than 59,000 kilometres (36,500 miles), offering our customers unparalleled connections from traditional and emerging supply basins. In a separate transaction, TC PipeLines, LP acquired the remaining 46.45 per cent interest in Great Lakes for US$962 million, including US$212 million of assumed debt. TransCanada owns approximately 32 per cent of TC PipeLines, LP and is the general partner. In February 2007, TransCanada issued $1.5 billion in Subscription Receipts to help finance the ANR acquisition. The Subscription Receipts converted to common shares on a one-to-one basis on closing of the acquisition. Our decision to issue new equity is aligned with our commitment to maintain a strong financial position and TransCanada PipeLines Limited's 'A' credit ratings. Canadian Mainline and Alberta System expansions - We continue to invest in our existing pipeline systems in response to our customers' needs to connect supply in Alberta and meet market demand in the East. Our highly competitive gas transmission network is capturing the majority of new gas connections in Western Canada. Our customers see real value in the size, scale and reach of our systems. Tamazunchale - The 130-kilometre Tamazunchale Pipeline went into commercial service in December 2006. We are exploring additional opportunities in the Mexican energy market as the government advances its initiative to promote the use of natural gas for regional development, particularly as a fuel for much needed power generation. Northern Border and Tuscarora - Over the past year, through TC PipeLines, LP, we have increased our interests in Northern Border Pipeline Company, the largest natural gas pipeline connecting Western Canadian supply with growing U.S. Midwest markets, and Tuscarora Gas Transmission, meeting the growing demands of the northern Nevada market. TransCanada will operate these pipelines in 2007. Keystone - TransCanada's Keystone Pipeline is an innovative and cost competitive proposal to add much needed new oil pipeline capacity from Alberta to key refining centres in the U.S. Midwest. Shippers have demonstrated strong support for the proposed pipeline. In January 2006, we announced binding contracts for 340,000 barrels per day with an average duration of 18 years. A key feature of the 2,960-kilometre Keystone Pipeline is the proposal to convert a section of TransCanada's Canadian Mainline from natural gas to oil transmission. We marked a critical milestone in the project in February 2007 when the National Energy Board (NEB) approved this conversion. Subject to further NEB and U.S. regulatory approvals, construction of the Keystone Pipeline is expected to begin in early 2008, with commercial operations scheduled to commence in the fourth quarter of 2009. Northern pipelines - Over the longer term, we remain a key player in projects to bring northern natural gas to market. On the Mackenzie Gas Project, the project coventurers expect to file an updated cost estimate and schedule with regulators in the first quarter of 2007. The project continues to move through the regulatory process. In Alaska, it continues to be our objective to see a natural gas pipeline project develop within Alaska on terms that Alaskans find satisfactory. We look forward to working with the State of Alaska and the Alaska producers to develop commercial arrangements for the movement of Alaska gas through Canada, taking advantage of the Northern Pipeline Act, our existing Yukon right-of-way and spare capacity in our extensive North American natural gas pipeline network. In Energy - Building a solid platform for long-term growth Bécancour Power Plant - In September 2006, our 550-megawatt (MW) Bécancour cogeneration plant went into commercial service. We are proud to have completed this significant project on time and under budget. Cartier Wind - In November 2006, the 110-MW Baie-des-Sables wind farm was completed and placed into service. This is the first of six phases of the Cartier Wind project, of which TransCanada owns 62 per cent. Phase two is expected to go into commercial service in the third quarter of 2007. Edson Gas Storage - In December 2006, we commenced commercial operations at our new Edson natural gas storage facility. TransCanada now has interests in approximately 130 billion cubic feet (Bcf) of natural gas storage capacity in Alberta, or approximately one-third of the capacity in the province. Bruce Power - The Bruce Power restart and refurbishment project continues to progress as expected. To date, the partners have invested approximately $1.1 billion in the project that will ultimately see another 1,500 MW of generating capacity returned to the Ontario power grid. Portlands Energy Centre and Halton Hills Generating Station - We are also proceeding with construction on the Portlands Energy Centre (PEC) with our partner, Ontario Power Generation, and completing the environmental permitting process for the Halton Hills Generating Station. We anticipate beginning construction on Halton Hills later in 2007. PEC is expected to begin delivering electricity to the Ontario grid by the summer of 2008, with full operations beginning in 2009. Halton Hills is expected to be operating in the second quarter of 2010. These two plants will add significant incremental generating capacity in the Ontario power market and, along with our Bécancour plant, will be fuelled by natural gas. Cacouna and Broadwater LNG projects - With North American natural gas supply from traditional basins expected to essentially remain flat over the next decade, new sources of supply are needed to meet the growing demand for natural gas to fuel power generation and meet industrial and residential heating needs. Our two LNG proposals, Cacouna Energy, near Gros-Cacouna, Québec, and Broadwater Energy, in the New York waters of Long Island Sound, are designed to connect 1.5 billion cubic feet per day of natural gas directly to the areas where it is needed most, helping meet local needs while at the same time moderating energy prices and minimizing environmental impacts. Both LNG projects require additional regulatory approvals before construction can proceed and we will continue to work with our partners to advance through the regulatory process in 2007. Continued growth, enduring value Our accomplishments in 2006 give us confidence that TransCanada is well on its way to becoming North America's leading energy infrastructure company. Over the next five years we expect to capitalize on increased demand for natural gas and power by continuing to invest in our natural gas transmission, natural gas storage and power generation businesses. In addition to these businesses, we are now positioned to make substantial investments in crude oil pipelines and LNG. We have identified and developed a portfolio of attractive projects that will allow us to invest more than $4 billion over the next three years alone. With the ANR acquisition, our total capital program is expected to exceed $8 billion over that same time period. In closing, I would note that TransCanada's strength and enduring value is evident in our high-quality physical assets, our financial position and our people. The TransCanada team is exceptionally skilled, knowledgeable and energetic, and it is their efforts that have made our company a success. Our strong and highly motivated team is our real competitive advantage, and I am confident that we will sustain and build on that advantage in the years ahead. As always, our success will be measured in the value we create for our shareholders. 
Hal Kvisle
(1) "Net earnings excluding significant items" does not have any standardized meaning prescribed by GAAP and is therefore unlikely to be comparable to similar measures presented by other issuers. |
