MANAGEMENT’S DISCUSSION & ANALYSIS
INTRODUCTION The Management’s Discussion and Analysis (MD&A) highlights the primary factors that affected SaskEnergy’s consolidated financial condition and performance for the nine month period ended September 30, 2015. Using financial and operating results as its basis, the MD&A describes the Corporation’s past performance and future prospects, enabling readers to view SaskEnergy from the perspective of management. This MD&A is presented as at November 20, 2015 and should be read in conjunction with the Corporation’s condensed consolidated financial statements, which have been prepared in accordance with International Accounting Standard (IAS) 34 Interim Financial Reporting using accounting policies consistent with International Financial Reporting Standards (IFRS). For additional information related to the Corporation, refer to SaskEnergy’s 2014 Annual Report. The following discussion contains certain forward-looking statements that are subject to inherent uncertainties and risks, which are described in the Risk Management and Disclosure section of SaskEnergy’s 2014 Annual Report. All forward-looking statements reflect the Corporation’s best estimates and assumptions based on information available at the time the statements were made. However, actual results and events may vary significantly from those included in, contemplated by, or implied by such statements. The volume of natural gas distributed is sensitive to variations in the weather, particularly through the prime heating season of November to March. Additionally, changes in market value adjustments may cause significant fluctuations in net income due to the volatility of natural gas prices. Therefore, the condensed consolidated financial results for the first nine months of 2015 should not be taken as indicative of the performance to be expected for the full year. In order to compare financial performance from period to period, the Corporation uses the following measures: income before unrealized market value adjustments, realized margin on commodity sales, and realized margin on gas marketing sales. Each measure removes the impact of fair value adjustments on financial and derivative instruments and the revaluation of natural gas in storage to the lower of cost and net realizable value. These unrealized market value adjustments vary considerably with the market prices of natural gas, drive significant changes in the Corporation’s consolidated net income, and may obscure other business factors that are also important to understanding the Corporation’s financial results. The measures referred to above are non-IFRS measures, in that there is no standardized definition, and may not be comparable to similar measures presented by other entities. CONSOLIDATED FINANCIAL RESULTS
Consolidated Net Income
Three months ended September 30
Nine months ended September 30
2015
2014 Change
2015
2014 Change
(millions)
(Loss) income before unrealized market value adjustments Impact of fair value adjustments Revaluation of natural gas in storage
$
(13)
$
31
$
(13)
$
-
$
20
$
11
(6) (1)
3
6
(12)
8
(5)
-
-
(1)
11
(11)
$
(20)
$
34
Consolidated net (loss) income
$
(7)
$
(13)
$
39
$
(5)
Income before unrealized market value adjustments of $31 million for the first nine months of 2015 was $11 million higher than the first nine months of 2014. Low natural gas prices and a commodity rate increase effective July 1, 2014 have contributed to higher realized commodity margins in the first nine months of 2015 compared to 2014. Transportation revenue also increased, a result of higher contracted demand volumes and a rate increase effective January 1, 2015. Delivery revenue declined due to lower volumes consumed, a result of the winter heating season of 2015 being significantly warmer than 2014 combined with higher heating values in 2015, which means that customers need to consume less gas by volume to heat their homes. In recent years, increasing imports of natural gas from Alberta, which has a higher heating value than conventional Saskatchewan production, increased the average heating value of gas sold. Additionally, new production within Saskatchewan is increasingly sourced from gas associated with oil production, which has higher heat values than conventional production. Operating and maintenance expenses have increased over 2014, due to transportation expenses related to the provision of additional transportation services which have increased transportation revenues. Natural gas market prices have been low through the first nine months of 2015 and are expected to remain low for the remainder of the year. Low prices together with small differentials between current and forward prices create limited gas
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2015 THIRD QUARTER REPORT
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