DBRS Removes Pacific Northern Gas from Under Review - Negative, Confirms Ratings, Changes Trends to Negative

DBRS has today confirmed the ratings of Pacific Northern Gas Ltd.’s (PNG or the Company) Secured Debentures and Cumulative Redeemable Preferred Shares at BBB (low) and Pfd-3 (low), respectively, and changed the trends to Negative. This resolves the prior status of the ratings at Under Review with Negative Implications, where they were initially placed on September 1, 2005, as a result of Methanex’s announcement to close its Kitimat, British Columbia, methanol plant permanently due to the negative impact of rising natural gas prices, the prevalence of dual-heating source customers, and the increasing volatility of natural gas prices. On May 15, 2007, DBRS announced the maintenance of the Under Review with Negative Implications status noting that while DBRS had gained some comfort regarding the issues that led to the Company originally being placed under review, PNG had a bank credit facility that limited its financial flexibility.

The confirmation reflects the Company’s continued stable operating results and successful renegotiation of a new operating company credit facility with less-restrictive covenants. DBRS’s expectation was that the ratings would be confirmed with Negative trends upon PNG securing a more flexible credit facility. The Company is also in the process of negotiating a new five-year revolving term facility, which should provide additional flexibility.

There remain a number of issues that need to be reviewed over a longer period, and DBRS will look to resolve the trend within the next 12 months by focusing on these issues, including but not limited to the following:

(1) PNG maintaining a stable and strong financial profile;

(2) Economic stability/development in PNG’s service areas and a stable customer base. Alcan, one of PNG’s remaining large industrial customers, has a gas transportation agreement with an original term that expired October 31, 2004, but that remains in effect until either party gives one contract year’s notice of termination. Notice of termination delivered on or prior to October 31 of any year would result in the contract terminating on October 31 of the following year. West Fraser’s contract, which runs through to December 31, 2013, has a clause allowing West Fraser to give notice of termination by July 1, 2008, if West Fraser plans to permanently shut down its Kitimat pulp mill. To avoid an early termination “make-whole” payment to PNG, West Fraser must commence the permanent shut down by January 1, 2009, and complete it by December 31, 2009; and

(3) Whether the KSL Project will proceed, and if it does, the impact this will have on the Company’s structure and financial profile. PNG is expected to make a decision by December 2007 on whether to continue with further development of the KSL Project.

See DBRS press releases dated September 1, 2005, and May 15, 2007, for further details on past rating actions pertaining to PNG.