Veresen Announces First Quarter Operational and Financial Results
(firmenpresse) - CALGARY, ALBERTA -- (Marketwired) -- 05/04/16 -- Veresen Inc. ("Veresen") (TSX: VSN) today announced its first quarter operating and financial results.
"We had a solid first quarter from both an operational and financial perspective," said Don Althoff, President and CEO of Veresen. "Alliance operated well under its new service model, with higher than expected uptake of seasonal firm and interruptible transportation, while Veresen Midstream continued to add to its significant project inventory with the sanctioning of the Saturn Phase II processing facility. With strong performance from our operations, our focus on competitive markets and nearly all of our revenues secured by take-or-pay structures, we are well positioned to deliver on our full year targets."
First Quarter Financial and Operational Highlights
Update on Key Strategic Initiatives
Financial Overview
During the first quarter, Veresen generated adjusted net income attributable to Common Shares of $18 million or $0.06 per Common Share, reflecting the strength of the pipeline business, offset by higher project development spend to continue the advancement of the Jordan Cove LNG project.
Distributable cash for the first quarter was $81 million or $0.27 per Common Share, compared to $81 million or $0.28 per Common Share for the same period last year. Increases from the pipeline business, reduced Corporate costs and lower cash taxes were offset by reduced cash flows from Aux Sable and higher preferred dividends.
Proportionate Consolidation(1)
Business Segment Overview
Pipeline
Alliance
Throughput volumes on Alliance were particularly strong in the pipeline''s first full quarter under the new service model. Average daily throughput of 1.624 bcf/d in Canadian volumes was largely in line with the 1.636 bcf/d in the first quarter of 2015 and ahead of the 1.481 bcf/d in the fourth quarter of 2015. The strong volumes were driven by solid demand by shippers for seasonal firm and interruptible transportation to send volumes to U.S. Mid-West markets. Alliance continues to optimize the operations of the pipeline under the new service model to maximize the amount of interruptible transportation offered to shippers.
Distributable cash from Alliance was $40 million in the first quarter. Although firm transportation rates under the new service model are lower than they were under the cost of service model, this was offset by the ability to generate revenues from seasonal and interruptible services and by certain cost reductions. Distributable cash also benefitted from a lower rate of debt amortization as a result of significant deleveraging during Alliance''s first 15 years of operations. Veresen expects volumes on Alliance to remain strong in the near term as a result of persisting egress issues in producing regions that have seen continued producer activity.
Approximately 60% of firm receipt capacity on Alliance is held by shippers with investment grade credit ratings and Alliance continues to monitor potential credit exposures. Although there are no specific concerns with regard to material shippers at this time, as a normal course of business, Alliance generally requires security from counterparties that are below investment grade. The weighted average contract length on Alliance of approximately five years provides insulation from near term weakness in natural gas prices.
Ruby
Volumes on Ruby during the first quarter were impacted by mild weather and weak western Canadian natural gas pricing, improving AECO''s competitiveness into Malin Hub relative to sourcing from Opal Hub. Veresen''s preferred distribution from Ruby provides the company with US$91 million per year, with variance in Veresen''s distributable cash only as a result of fluctuating foreign exchange rates. Investment grade shippers on Ruby represent sufficient volumes to meet Veresen''s preferred distribution, with debt amortization over time continuing to reduce volumes required for coverage. Weighted average contract length on Ruby is approximately seven years.
AEGS
Both volumes and distributable cash from AEGS remain very stable. During the quarter, the company continued construction of a 1 million barrel ethane storage facility located near Burstall, Saskatchewan, underpinned by a 20-year contract with NOVA Chemicals. Total cost of construction is expected to be approximately $140 million, with $5 million spent during the quarter and an additional $55 to $65 million projected for the balance of the year.
Midstream
Veresen Midstream
Veresen Midstream had very strong operational results in the first quarter. Volumes at Hythe / Steeprock were ahead of expectations and exceeded take-or-pay commitments, with nearly 100% plant reliability. Volumes in April were slightly impacted by curtailments in third party downstream pipelines, however, year to date volumes remain above estimate. Gathering and compression at Dawson also benefited from strong volumes in the first quarter. Saturn Phase I, which was placed into service in June 2015, continues to perform well with year to date volumes approximately 15% above estimates.
Veresen Midstream currently provides Veresen with approximately $15 million in distributable cash each quarter. EBITDA for the quarter of $18 million was evenly split between Hythe / Steeprock and Dawson, and was in line with the fourth quarter of 2015. Costs were also effectively in line with the prior quarter. EBITDA from Dawson is expected to continue to grow as additional gathering lines, compression and gas plants are brought into service.
In March 2016, CRP sanctioned the $930 million Saturn Phase II processing facility, the third major facility now under construction as part of the Veresen Midstream infrastructure development with CRP. Saturn Phase II is an expansion to the previously constructed Saturn compressor station and will add 200 MMcf/d of additional compression, 400 MMcf/d of processing, and significant inlet liquids and NGL handling facilities.
Veresen Midstream is also proceeding with a 50 MMcf/d refrigeration expansion of its Hythe gas processing facility. Veresen Midstream has received all regulatory approvals for the expansion, which is expected to be in service in the fall of 2016 at a capital cost of $25 million ($12 million net to Veresen). The additional capacity is in support of increased liquids-rich production by CRP. The Hythe facility expansion is governed by the existing take-or-pay Midstream Services Agreement.
Veresen Midstream currently has over $2.5 billion (approximately $1.2 billion net to Veresen) of projects under construction. During the quarter, a total of $145 million ($69 million net to Veresen) of capital was incurred. Construction remains on schedule and on budget, with approximately one fifth of expenditures incurred to date. The company continues to expect the Sunrise and Tower gas plants in service by the end of 2017 and the Saturn Phase II gas plant to be in service by mid-2018.
When all three of these facilities are operational, Veresen Midstream will have 1.5 bcf/d of processing capacity in operation and will be a dominant player in the core of the Montney, one of North America''s most prolific and competitive resource plays. Once commissioned, these facilities are expected to generate incremental run-rate EBITDA of between $250 million to $300 million (approximately $120 million to $145 million net to Veresen), based on target volumes. Veresen Midstream will fund approximately 55% to 60% of the construction costs of the Sunrise, Tower and Saturn gas plants with its existing $1.275 billion credit facility and additional non-recourse debt at the partnership level, with the balance to be contributed by Veresen and KKR over time.
Capital fees from the gas plants under construction will be generated from fee-for-service agreements where unit capital fees are set to achieve a target rate of return based on invested capital and expected throughput, and will be adjusted after 12 months of commercial operations based on updated throughout expectations. The facilities under construction, when placed into service, will address growing production volumes and current infrastructure constraints in the region and allow Veresen Midstream to take advantage of opportunities to bring in additional volumes from regional producers. As fallback protection, if Veresen Midstream has not recovered its invested capital after the eighth year of a facility''s service period, the Dawson MSA provides for CRP to make a lump sum payment to Veresen Midstream for capital invested.
Aux Sable
In line with expectations, continued weakness in NGL margins resulted a minimal contribution of $1 million of distributable cash from Aux Sable during the quarter, with the NGL Sales Agreement with BP continuing to provide certain downside protection. While liquids prices remain at cyclical lows, Veresen anticipates the U.S. Mid-West market will come into balance over the next several years as the significant build out of petrochemical capacity in the U.S. Gulf Coast comes into service and waterborne exports of ethane and propane continue to increase.
The on-going debottlenecking at the Channahon Facility will add 27,500 bbl/d additional liquids handling capacity, which will allow for increased liquids to flow on the Alliance pipeline. The project, which remains on schedule and on budget, is expected to be completed by mid-2016 with US$11 million net to Veresen incurred during the first quarter. Approximately US$37 million of the total US$56 million of expenditures net to Veresen were incurred at the end of the quarter.
Power
The power segment''s operations were in line with expectations, although a mild winter resulted in limited opportunities to take advantage of high energy demands typically seen during more seasonably cold winters.
Jordan Cove LNG Project and Pacific Connector
On March 11, 2016, the FERC denied the applications of Jordan Cove LNG and Pacific Connector seeking authorization for the construction and operation of the LNG export terminal and related natural gas pipeline. Specifically, the FERC stated that in the context of a lack of demonstrated commercial support for the projects, the public benefits of Pacific Connector do not outweigh the potential for adverse impacts on landowners and communities.
In the 30 days following the FERC decision, Jordan Cove LNG finalized the key commercial terms for the purchase of at least 3 million tonnes per annum of natural gas liquefaction capacity, representing at least 50% of the project''s initial design capacity. In addition, Pacific Connector executed natural gas transportation service precedent agreements representing in excess of 75% of the rated capacity of the pipeline.
Subsequent to the end of the quarter, Jordan Cove LNG and Pacific Connecter submitted a request for rehearing to the FERC. The submission urges the FERC to consider the agreements with customers of the LNG terminal and shippers on Pacific Connector as evidence of market support for the projects, and that the public benefits of the projects outweigh the potential adverse impacts on landowners.
Approximately $40 million of project development spend was incurred in the first quarter. Project development spend for the full year will be contingent on the project continuing to meet regulatory and commercial milestones.
Balance Sheet and Funding Strategy
Veresen is using proceeds from its Premium Dividend™ and Dividend Reinvestment Plan as the primary source of funding for the equity component of the $1.4 billion of projects currently under construction. At the end of the first quarter, approximately $315 million of the aggregate cost of these projects had been incurred, with a remaining equity component requirement of approximately $450 to $550 million to be funded over the next three years. Veresen does not expect a need for additional external equity financing for these projects.
For the balance of the capital requirements within Veresen Midstream, the partnership expects to use its existing credit facilities, which had $885 million (approximately $425 million net to Veresen) of available capacity at March 31, 2016, and intends to secure additional debt at the partnership level to maintain its target capital structure. Debt at the partnership level is non-recourse to Veresen.
The debt component of the $140 million Burstall Ethane Storage project and the remaining approximately US$20 million in funding required to complete construction of the Aux Sable fractionation expansion will initially be funded from Veresen''s existing credit facilities. Veresen intends to replace these borrowings with permanent debt financing at an appropriate time in the future.
At March 31, 2016, Veresen had approximately $471 million of available, undrawn capacity on its $750 million revolving credit facility. Veresen is committed to maintaining strong investment grade credit ratings. Standard & Poor''s and DBRS Limited both reaffirmed Veresen''s BBB (stable) credit rating during the fourth quarter of 2015.
2016 Guidance Reaffirmed
Veresen has reaffirmed its 2016 distributable cash to be in the range of $0.94 per Common Share to $1.08 per Common Share as expected performance of the respective businesses has not changed. Further details concerning 2016 guidance can be found on the home page of Veresen''s web site at .
Webcast of AGM Presentation
Veresen is holding its annual meeting of shareholders today, Wednesday, May 4, 2016 at 2:00 p.m. Mountain Time at Livingston Place (South Tower) in the Livingston Club Conference Centre, Plus 15, 222 - 3rd Avenue S.W., Calgary, Alberta.
At approximately 2:20pm Mountain Time, and following the conclusion of the formal proceedings of Veresen''s annual shareholder meeting, Mr. Don Althoff, President and CEO, will address shareholders and provide an update of Veresen''s 2015 accomplishments, remarks on the current state of the business and discuss highlights of the company''s key initiatives.
To view a live broadcast of the presentation on the Internet, please access the following URL:
A digital recording will be available on the company''s website for replay two hours after the completion of the presentation.
Conference Call and Webcast
A conference call and webcast presentation will be held to discuss first quarter 2016 financial and operating results at 7:00am Mountain Time (9:00am Eastern Time) on Thursday, May 5, 2016.
To listen to the conference call, please dial 647-788-4919 or 1-877-291-4570 (toll-free). This call will also be broadcast live on the Internet and may be accessed directly at the following URL:
A presentation will accompany the conference call and will be available via the webcast. Alternatively, the presentation will be made available immediately prior to the conference call start time of 7:00am Mountain Time on Veresen''s website at: .
A digital recording will be available for replay two hours after the call''s completion, and will remain available until May 19, 2016 21:59 Mountain Time (23:59 Eastern Time). To listen to the replay, please dial 416-621-4642 or 1-800-585-8367 (toll-free) and enter Conference ID 95413052. A digital recording will also be available for replay on the company''s website.
About Veresen Inc.
Veresen is a publicly-traded dividend paying corporation based in Calgary, Alberta that owns and operates energy infrastructure assets across North America. Veresen is engaged in three principal businesses: a pipeline transportation business comprised of interests in the Alliance Pipeline, the Ruby Pipeline and the Alberta Ethane Gathering System; a midstream business which includes a partnership interest in Veresen Midstream Limited Partnership which assets owns in western Canada, and an ownership interest in Aux Sable, which owns a world-class natural gas liquids (NGL) extraction facility near Chicago, and other natural gas and NGL processing energy infrastructure; and a power business comprised of a portfolio of assets in Canada. Veresen is also developing Jordan Cove LNG, a six million tonne per annum natural gas liquefaction facility proposed to be constructed in Coos Bay, Oregon, and the associated Pacific Connector Gas Pipeline. In the normal course of business, Veresen regularly evaluates and pursues acquisition and development opportunities.
Veresen''s Common Shares, Cumulative Redeemable Preferred Shares, Series A, Cumulative Redeemable Preferred Shares, Series C, and Cumulative Redeemable Preferred Shares, Series E trade on the Toronto Stock Exchange under the symbols "VSN", "VSN.PR.A", "VSN.PR.C" and "VSN.PR.E", respectively. For further information, please visit .
Forward-looking Information
Certain information contained herein relating to, but not limited to, Veresen and its businesses and the offering of the notes, constitutes forward-looking information under applicable securities laws. All statements, other than statements of historical fact, which address activities, events or developments that Veresen expects or anticipates may or will occur in the future, are forward-looking information. Forward-looking information typically contains statements with words such as "may", "estimate", "anticipate", "believe", "expect", "plan", "intend", "target", "project", "forecast" or similar words suggesting future outcomes or outlook. Forward-looking statements in this news release include, but are not limited to, the in service dates of the Sunrise and Tower gas plants, the Saturn Phase II processing facility, the refrigeration expansion of the Hythe gas processing facility and the Burstall ethane storage facility; volumes of natural gas expected to be transported on the Alliance pipeline; cost of construction of the Burstall ethane storage facility and the refrigeration expansion of the Hythe gas processing facility; EBITDA to be realized by the Veresen Midstream facilities; the outlook for the U.S. Mid-West NGL market; the sources of equity and debt financing required to fund the capital of Veresen and Veresen Midstream. Readers are also cautioned that such additional information is not exhaustive. The impact of any one risk, uncertainty or factor on a particular forward-looking statement is not determinable with certainty as these factors are independent and management''s future course of action would depend on its assessment of all information at that time. Although Veresen believes that the expectations conveyed by the forward-looking information are reasonable based on information available on the date of preparation, no assurances can be given as to future results, levels of activity and achievements. Undue reliance should not be placed on the information contained herein, as actual results achieved will vary from the information provided herein and the variations may be material. Veresen makes no representation that actual results achieved will be the same in whole or in part as those set out in the forward-looking information. Furthermore, the forward-looking statements contained herein are made as of the date hereof, and Veresen does not undertake any obligation to update publicly or to revise any forward-looking information, whether as a result of new information, future events or otherwise, except as required by applicable laws. Any forward-looking information contained herein is expressly qualified by this cautionary statement.
Certain financial information contained in this news release may not be standard measures under Generally Accepted Accounting Principles ("GAAP") in the United States and may not be comparable to similar measures presented by other entities. These measures are considered to be important measures used by the investment community and should be used to supplement other performance measures prepared in accordance with GAAP in the United States. US GAAP requires us to equity account for our investments in jointly-controlled businesses. However, we have chosen to provide some information on our jointly-controlled businesses on a proportionate basis to assist the reader. For further information on other non-GAAP financial measures used by Veresen see Management''s Discussion and Analysis, in particular, the section entitled "Non-GAAP Financial Measures" contained in the annual Management Discussion and Analysis, filed by Veresen with Canadian securities regulators.
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Contacts:
Mark Chyc-Cies
Investor Relations Director
(403) 213-3633
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Datum: 04.05.2016 - 14:02 Uhr
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