Bc gas prices

Westcoast Energy and BC Gas offer potential growth and income

Income-producing investments such as bonds can help to make your portfolio less erratic. However, bond prices could suffer these next few years if interest rates rise. If you already have modest bond holdings, hold them to maturity. That way, you will get your money back without paying commissions or losing out to the wide spread that often exists between bid and ask prices in the retail end of the bond market. For new investment, these two utilities offer income and growth, as well as a hedge against inflation. They're a better buy than bonds.

Westcoast Energy (TSE: W; Recent price: $37; Rating: Above average) transports natural gas from BC to markets in Canada and the northwestern U.S. It also operates electrical power plants in Canada, the U.S. and other countries.

Westcoast's revenues rose from $4.9 billion in 1996 to $7.4 billion in 1998, but fell to $6.3 billion in 1999 due to the sale of a subsidiary. Revenues jumped to $9.0 billion in 2000 due to strong demand for natural gas and rising gas prices. Revenues in 2001 will likely reach $10.6 billion.

Profits before unusual items and adjusted for weather patterns rose from $1.79 a share in 1996 to $2.04 a share in 1997. Profits fell steadily to $1.58 a share in 1999, but grew 62.0% to $2.56 a share in 2000 as natural gas prices soared. Westcoast's profits will probably rise to $2.68 a share in 2001.

In the second quarter of 2001, profits rose 22.5%, to $0.49 a share from $0.40 a share a year earlier, mostly due to strong gains from its energy-trading subsidiary. Including the effects of weather and recent income tax changes, earnings rose to $0.84 a share from $0.60. Revenues climbed 16.7% to $2.1 billion from $1.8 billion.

The company spent heavily in the last three years to build its pipeline assets. Westcoast has a 23.6% stake in the new Alliance pipeline, which began shipping gas from BC and Alberta to Chicago in November 2000. Westcoast also owns 30% of the new Vector pipeline, which moves gas from Chicago to eastern Canada and the U.S. A group of energy companies built these lines to ease their reliance on TransCanada Pipelines' network. Alliance has already captured substantial business that would have gone to TransCanada. Westcoast could eventually take part in the proposed high-capacity pipeline that would ship natural gas from Alaska and the Mackenzie Delta to markets in Canada and the U.S.

Now that its major pipeline projects are in service, capital spending in 2000 fell to $6.15 a share from $11.36 a share in 1999. Capital spending in 2001 will likely drop below $6.00 a share. The company has raised its dividend in each of the last five years and now pays $1.36 a share yearly, for a yield of 4.7%. It trades for 14.2 times its likely earnings in 2001.

BC Gas (TSE: BCG; Recent price: $35; Rating: Above average) is the largest distributor of natural gas in BC, serving 750,000 customers in over 100 communities. It also owns Trans Mountain Pipe Line Company, which transports crude oil and refined petroleum from BC and Alberta to Washington State.

Revenues at BC Gas rose from $901.4 million in 1996 to $933.9 million in 1997. Revenues fell slightly to $925.0 million in 1998, but rose to $1.03 billion in 1999 and to $1.3 billion in 2000. Per-share earnings before non-recurring items grew from $1.48 a share in 1996 to $2.06 a share in 2000, or 6.8% compounded annually.

In the first half of 2001, profits before unusual items rose 7.1% to $1.51 a share, from $1.41 a share a year earlier. The addition of a new pipeline offset a drop in the company's regulated rate of return. Revenues rose 43.8% to $345.5 million from $240.2 million.

Capital spending in 2000 soared to $16.20 a share from $4.27 a share in 1999 as the company began work on the new Corridor pipeline. Starting in late 2002, Corridor will transport heavy oil from the Athabasca Oil Sands Project in northern Alberta to Edmonton. The company will also build a connecting pipeline in the lower BC mainland that will link its Southern Crossing pipeline with a regional marketing hub. This should improve natural gas supplies in the region when it's ready in 2003. Capital spending will likely fall to $14.50 a share in 2001.

BC Gas now trades at 16.0 times this year's likely earnings of $2.19 a share, and at 1.9 times its book value of $18.68 a share. The company just raised its quarterly dividend by 6.5%, from $0.31 a share to $0.33. It now yields 3.8%.

BC Gas is a buy.

Patrick McKeough is a fee-based investment manager and a publisher of investor newsletters. This article is extracted from The Successful Investor