COMPANY

HISTORY

Pacific Northern Gas Ltd. (PNG) was incorporated under the laws of British Columbia as a private company on October 28, 1965 and was converted to a public company on November 4, 1968.

In 1968 PNG constructed a transmission line from a point 50 kilometers north of Prince George at Summit Lake on the Spectra Energy  pipeline system west through to Prince Rupert and Kitimat on the British Columbia coast. Gas transmission service commenced in 1969, with service provided mainly to large industrial customers. Following completion of construction of the gas transmission line, PNG developed gas distribution services in the communities adjacent to its transmission line.

In 1993 PNG acquired Northland Utilities (B.C.) Limited. This system serves the Dawson Creek and Tumbler Ridge areas and is connected to the Spectra Energy pipeline system.

In 1997 PNG completed three more acquisitions; the Centra Gas Fort St. John Inc. system which added over 8,000 accounts in the Fort St. John area to the customer base, the Granisle grid, a small propane vapour distribution system located adjacent to PNG’s western service area, and Peace River Transmission Company Limited which owned the transmission pipeline used to transport gas between Spectra Energy pipeline facilities and the Dawson Creek distribution system.

The Fort St. John, Dawson Creek and Tumbler Ridge gas pipeline systems are owned and operated by PNG’s wholly owned subsidiary, Pacific Northern Gas (N.E.) Ltd.

In 2000, a major company reorganization was undertaken in response to liquidity issues created when PNG’s largest customer, Methanex Corporation, shut down for a one-year period. A Customer Care Center was opened in Terrace, thereby permitting closure of ten community service offices and significant reductions in labour requirements and operating costs. Additional savings were realized through downsizing and consolidation of responsibilities of operations and maintenance personnel.

On December 18, 2003 Tricor Acquisition (STP) Inc., a subsidiary of Tricor Pacific Capital, Inc. acquired PNG’s Class A non-voting and the Class B voting common shares held by Westcoast Energy Inc. In connection with the acquisition, all of PNG’s Class A and Class B common shares were reclassified as one class of common shares with one vote per share. As a result of the acquisition, Tricor owned 37 percent of the outstanding common shares of PNG. On April 12, 2005, all of the common shares of PNG owned by Tricor were sold through a secondary public offering at a price of $19.40 per common share, for total gross proceeds of approximately $26 million.

On August 30, 2005, Methanex Corporation gave notice of termination of its transportation agreement with PNG. Under the terms of the agreement, Methanex made a termination payment to PNG of approximately $23.3 million on February 28, 2006, the effective date of the termination. On August 16, 2006 the B.C. Utilities Commission approved PNG’s proposal to record the termination payment in an interest bearing credit deferral account, to be amortized into income over the 44-month period from March 1, 2006 to October 31, 2009, the original date of expiry of the transportation agreement. At the same time, the Commission approved PNG’s application to recover in customer rates the reduction in revenue from the Methanex contract termination.

In mid-2006, Pacific Northern formed Pacific Trail Pipelines Limited Partnership (“PTP”) as a 50/50 partnership between PNG and Galveston LNG Inc. for the purpose of furthering the development, started in 2005, of a project to loop its mainline transmission system from Kitimat to Summit Lake (the “KSL Project”). The KSL Project would entail the construction of approximately 463 kilometres of 36 inch diameter pipeline and associated compression facilities, at a cost of $1.2 billion based on estimates made in 2006 to serve the Kitimat LNG export terminal. On January 13, 2010 Apache Corporation’s subsidiary Apache Canada Ltd. (“Apache”) acquired a 51 percent interest in the LNG export terminal and a 25.5 percent interest in PTP from Galveston LNG Inc. In December, 2010 EOG Resources Inc.’s Canadian subsidiary EOG Resources Canada Inc. (“EOG”) acquired the remaining 49 percent of the LNG export terminal and a 24.5 percent interest in PTP.

On February 7, 2011, PNG announced it had agreed to sell its 50 percent interest in PTP for $50 million to Apache and EOG. Payment of $30 million was made to PNG in early March 2011. The remaining $20 million is contingent on a decision being made to proceed with construction of the Kitimat LNG export facility, expected in late 2012. In connection with the sale, PNG reached agreement on the terms for a 20-year transportation service agreement with Apache and EOG that will significantly increase the utilization of the existing pipeline if this capacity is not first claimed by LNG Partners LLC out of Houston (“LNG Partners”) under an earlier arrangement. If the LNG Partners project does not proceed and the Kitimat LNG facility does proceed, Apache and EOG would use up to 50 MMcf per day of existing pipeline capacity to supplement KSL Project pipeline throughput. Deliveries would initially be 30 MMcf per day upon commencement of LNG production. Delivery of an additional 20 MMcf per day would commence if liquefaction capacity is later increased. Commercialization of the Kitimat LNG export facility is expected to occur in 2015. PNG, Apache and EOG also agreed that PNG would operate the KSL Project pipeline under an operating and maintenance agreement with an initial term of seven years beginning in 2015, with renewal provisions. The transportation service and operating and maintenance agreements will be subject to approval by the B.C Utilities Commission.

LNG Partners is pursuing a smaller scale LNG export project in the Kitimat area. PNG and LNG Partners are parties to a transportation service agreement (“TSA”) that provides LNG Partners with the option to contract for 80 MMcf per day of firm transportation service on PNG’s existing pipeline. LNG Partners has paid option fees of $6.5 million to secure the option under the TSA until June 30, 2012. The option provides for contracting for a two- to five-year primary term, with a right to renew for an additional three five-year terms. In late 2010, BC LNG Export Co-operative LLC, an affiliate of LNG Partners, applied to the National Energy Board (“NEB”) for a 20 year LNG export license. The NEB approved the application on February 2, 2012. This approval is expected to enhance the probability that LNG Partners will proceed with their LNG export project. If service commences under the TSA, the PNG-West system would be at full capacity utilization, generating approximately $16 million per year of incremental margin for the benefit of PNG and its customers. On December 20, 2011, PNG was acquired by AltaGas Ltd. of Calgary, Alberta. AltaGas is an energy infrastructure business with a focus on natural gas, power and regulated utilities.