Veresen Announces 2014 First Quarter Results and Updates Guidance

CNW Group

/NOT FOR DISTRIBUTION TO UNITED STATES NEWSWIRE SERVICES OR FOR DISSEMINATION IN THE UNITED STATES ./

CALGARY , May 6, 2014 /CNW/ - Veresen Inc. ("Veresen" or the "Company") (VSN.TO) announced today financial and operating results for the three months ended March 31, 2014 .

Highlights

  • Veresen generated distributable cash1 of $65.6 million ( $0.33 per Common Share) in the first quarter of 2014 compared to $54.6 million ( $0.27 per Common Share) in the first quarter of 2013.
  • Net income attributable to Common Shares was $31.3 million ( $0.16 per Common Share) in the first quarter of 2014 compared to $1.2 million ( $0.01 per Common Share) in the first quarter of 2013.
  • Cash from operating activities was $45.0 million in the first quarter of 2014 compared to $37.4 million in the first quarter of 2013.
  • Veresen received a conditional order from the U.S. Department of Energy ("DOE") to export liquefied natural gas ("LNG") from its proposed Jordan Cove LNG terminal to those countries that do not have Free Trade Agreement ("FTA") status with the U.S.
  • Veresen successfully completed a common share offering, raising gross proceeds of approximately $285 million .

"In the first quarter of 2014, we achieved a significant milestone with the receipt of a non-FTA export license for our Jordan Cove LNG project," said Don Althoff , President and CEO of Veresen. "While there is still a lot of work ahead of us, having this export license in hand gives our LNG project first mover advantage on the west coast of North America to serve premium Asian markets."

"Maintaining our financial strength and flexibility is a key priority for Veresen. With our recent equity offering and through asset sales, we have bolstered our financial position as we advance our permitting and commercial discussions for Jordan Cove. Proceeds from this offering will also be used to fund our growth capital projects and reduce borrowings under our bank revolver."

FINANCIAL HIGHLIGHTS   Three months ended
March 31
($ Millions, except per Common Share amounts)     2014 2013
Net income (loss) before tax        
Pipeline     31.5 24.8
Midstream     33.9 11.4
Power     (3.7) 1.0
Veresen - Corporate     (28.7) (26.9)
      33.0 10.3
Gain on sale of assets     14.3 -
Tax expense     (11.9) (6.9)
Net income     35.4 3.4
Preferred Share dividends     (4.1) (2.2)
Net income attributable to Common Shares     31.3         1.2
        Per Common Share ($)     0.16 0.01

_________________________
1 This is not a standard measure under GAAP and may not be comparable to similar measures used by other entities. See the reconciliation of distributable cash to cash from operating activities in the tables attached to this news release.

Financial Performance

For the three months ended March 31, 2014 , Veresen generated net income attributable to Common Shares of $31.3 million or $0.16 per Common Share compared to $1.2 million or $0.01 per Common Share for the same period last year. The increase in earnings was primarily driven by an unprecedented widening of the Chicago-AECO natural gas price differential and gains on asset sales.

The Midstream business generated net income of $33.9 million before tax for the three months ended March 31, 2014 compared to $11.4 million for the same period in 2013. The majority of this increase was generated by Aux Sable entities which hold transportation capacity on the Alliance pipeline. These entities captured value from the significant widening of the Chicago-AECO natural gas price differential caused by extreme cold weather in the U.S. Midwest this winter.

In February 2014 , Veresen sold its Culliton Creek run-of-river development project and its 50% interest in Alton Natural Gas Storage, a proposed underground salt cavern facility, generating a combined pre-tax gain of $14.3 million .

First quarter results also reflect an increase in Pipeline earnings from Alliance, primarily due to higher negotiated depreciation rates and contributions from the Tioga Lateral pipeline, and lower Power earnings due to a fair value loss on the interest rate hedge for the York Energy Centre.

Distributable Cash   Three months ended
March 31
($ Millions, except per Common Share amounts)                                  2014           2013
Pipeline     41.0 38.5
Midstream     42.7 27.2
Power     7.1 9.8
Veresen - Corporate     (17.0) (18.5)
Taxes     (4.1) (0.2)
Preferred Share dividends     (4.1) (2.2)
Distributable Cash (1)     65.6 54.6
      Per Common Share ($)     0.33 0.27
(1)  See the reconciliation of distributable cash to cash from operating activities in the tables attached to this news release.

For the three months ended March 31, 2014 , Veresen generated distributable cash of $65.6 million or $0.33 per Common Share compared to $54.6 million or $0.27 Common Share for the same period in 2013. Higher distributable cash reflects increased contributions from the Pipeline and Midstream businesses, partially offset by higher taxes and Preferred Share dividends, and lower contributions from the Power business.

Overview of Business Segments

Pipelines

Alliance continues to be in active negotiations with prospective and existing shippers with respect to re-contracting its pipeline capacity post-2015. The signing of binding Precedent Agreements will be timed with the Rich Gas Premium ("RGP") agreements that Aux Sable is negotiating with the producer community. Alliance expects to file its application with the National Energy Board for approval of its proposed new services, and related tolls and tariffs, by mid-2014.

Midstream

As part of Veresen's ongoing commitment to asset integrity and reliability, Veresen has scheduled a maintenance turnaround at the Steeprock natural gas processing plant in British Columbia which will commence in June 2014 . During the first quarter, Veresen completed detailed planning for the turnaround, which will see the Steeprock plant shut down for up to 16 days. The majority of the costs associated with the turnaround will be recoverable under Veresen's Midstream Services Agreement with Encana Corporation.

Aux Sable continues to work with producers within an economic radius of the Alliance pipeline to provide options and value for natural gas and natural gas liquids ("NGLs") to reach large and liquid U.S. markets. Aux Sable holds a number of RGP agreements with producers that will enhance the value of the producers' NGLs. A number of these RGP agreements have terms that extend beyond 2014. Discussions to this point have largely focused on those producers not yet connected to the Alliance pipeline who are developing new liquids-rich fields in the Montney and Duvernay which are expected to come on-stream in and after 2016.

In the first quarter of 2014, Aux Sable signed RGP agreements with Encana Corporation and Phoenix Duvernay Gas (a joint venture participant of Encana). These agreements provide for up to 195 mmcf/d of rich gas supply from the emerging Duvernay shale play for connection to a receipt zone in Alberta , starting in July 2014 and continuing through to 2020.

Power

Construction of the Dasque-Middle run-of-river project in northwest British Columbia is progressing. This project is expected to be in-service in the fourth quarter of 2014. Construction of the Company's 33 MW St. Columban Wind Project commenced, with commercial in-service expected in the first half of 2015. The Company's 40 MW Grand Valley III Wind Project continues to advance through the regulatory process.

Jordan Cove LNG Development Project

Veresen received a conditional order from the U.S. DOE to export LNG from the proposed Jordan Cove LNG terminal to those countries that do not have FTA status with the United States . Under the DOE order, Jordan Cove is permitted to export natural gas to meet Jordan Cove's initial LNG capacity production of 6 million tonnes per annum ("mtpa"). Commercial LNG production is targeted for early 2019. The DOE authorization is for a term of 20 years, commencing on the date of first export. In the first quarter of 2014, Veresen also received authorization from the DOE to import natural gas from Canada to serve the proposed Jordan Cove LNG terminal.

From a regulatory perspective, the next critical path item for the project is authorization from the U.S. Federal Energy Regulatory Commission ("FERC") to commence construction. Veresen is making progress with the FERC and the Company is confident it will obtain this critical permit.  Veresen is currently waiting for the FERC to issue Jordan Cove a Draft Environmental Impact Statement.

Veresen continues to work to secure long-term arrangements to produce LNG for international customers and negotiations with several potential off-take customers are advancing.

Veresen is advancing its analysis of the optimal ownership interest for the Company in Jordan Cove, with the objective of maximizing shareholder value while managing the risk profile of a project of this magnitude. Receipt of the DOE non-FTA export license greatly enhances the value of the project, and Veresen believes it is well-positioned to capture this value for its shareholders.

Business Development

In April 2014 , Veresen and NOVA Chemicals Corporation ("NOVA Chemicals") entered into an agreement to explore the joint development and ownership of a greenfield salt cavern storage facility near Burstall, Saskatchewan . The facility would initially be designed for ethane storage in support of NOVA Chemicals' operations and be connected via pipeline to Veresen's Alberta Ethane Gathering System.

Corporate

On April 3, 2014 , Veresen issued 17,250,000 common shares at a price of $16.50 per share. The gross proceeds from the offering were approximately $285 million . Net proceeds will be used to fund the development costs for the Jordan Cove project, other capital expenditures and reduce indebtedness.

Organizational Changes

David Pope , Executive Vice President, Chief Commercial Officer, has decided to return to retirement following eight months with the Company, where he advised and guided Veresen with respect to certain commercial activities. Veresen thanks David for his contributions and wishes him all the best in his retirement.

To align with Veresen's strategic business priorities, the Company has made the following organizational changes: Darren Marine has joined Veresen as Senior Vice President, Business Joint Ventures to oversee the Company's ownership in Alliance/ Aux Sable and steward the Alliance re-contracting process; Chris Rousch moves from managing the Company's independent midstream operations to leading the midstream, pipeline and power business development team as Vice President, Business Development; Vern Wadey will continue to drive Veresen's business development efforts for Jordan Cove as Vice President, Jordan Cove LNG; and Jesse Marble has assumed the role of Vice President, Strategic Planning.

2014 Guidance Update

Veresen has narrowed its 2014 distributable cash to be in the range of $0.97 per Common Share to $1.20 per Common Share. The midpoint remains at $1.09 per Common Share. Further details concerning 2014 guidance can be found in the "Invest" section of Veresen's web site at www.vereseninc.com.

Conference Call and Webcast

Veresen will host a conference call and webcast on May 7, 2014 at 7:00 am MT (9:00 am ET) to discuss its results.

Dial-in: 1 (888) 231-8191 or 1 (647) 427-7450 Conference ID 31519358

The link to the conference call webcast is available on Veresen's website by selecting "Invest" and then "Events & Presentations".

A replay of the call will be available at approximately 10:00 am MT ( 12 pm ET ) on May 7, 2014 by dialing 1-855-859-2056 and 1-416-849-0833. The access code is 31519358, followed by the pound sign. The replay will expire at midnight (ET) on May 14, 2014 .

MD&A, Financial Statements and Notes

Management's Discussion and Analysis ("MD&A") and consolidated financial statements provide a detailed explanation of Veresen's financial results for the first quarter ended March 31, 2014 compared to the first quarter ended March 31, 2013 and should be read in conjunction with this news release. These documents are available at www.vereseninc.com and at www.sedar.com.

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 two pipeline systems, the Alliance Pipeline and the Alberta Ethane Gathering System; a midstream business which includes ownership interests in a world-class natural gas liquids extraction facility near Chicago , the Hythe /Steeprock complex, and other natural gas and NGL processing energy infrastructure; and a power business with a portfolio of assets in Canada and the United States . Veresen is also actively developing a number of greenfield projects and, in the normal course of its business, regularly evaluates and pursues acquisition and development opportunities.

Veresen's Common Shares, Series A Preferred Shares, Series C Preferred Shares and 5.75% convertible unsecured subordinated debentures, Series C due July 31, 2017 are listed on the Toronto Stock Exchange under the symbols "VSN", "VSN.PR.A", "VSN.PR.C" and VSN.DB.C", respectively. For further information, please visit www.vereseninc.com.

Forward-Looking Information

Certain information contained herein relating to, but not limited to, Veresen and its businesses 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, statements with respect to: the ability of Aux Sable and Alliance to implement new service offerings; the timing of completion of construction and start-up of the Dasque-Middle hydro project and the St. Columban Wind Project; the estimated capital cost and timing of the final investment decision of the Jordan Cove Energy Project, Veresen's ability to negotiate long-term service agreements with offtake customers for LNG; Veresen's ability to realize its growth objectives; the availability of financing for current capital projects and new investment opportunities; and the ability of each of its businesses to generate distributable cash in 2014.  The risks and uncertainties that may affect the operations, performance, development and results of Veresen's businesses include, but are not limited to, the following factors: the ability of Veresen to successfully implement its strategic initiatives and achieve expected benefits; levels of oil and gas exploration and development activity; the status, credit risk and continued existence of contracted customers; the availability and price of capital; the availability and price of energy commodities; the availability of construction services and materials; fluctuations in foreign exchange and interest rates; Veresen's ability to successfully obtain regulatory approvals; changes in tax, regulatory, environmental, and other laws and regulations; competitive factors in the pipeline, midstream and power  industries; operational breakdowns, failures, or other disruptions; and the prevailing economic conditions in North America . 

Additional information on these and other risks, uncertainties and factors that could affect Veresen's operations or financial results are included in its filings with the securities commissions or similar authorities in each of the provinces of Canada , as may be updated from time to time.  Readers are also cautioned that the foregoing list of factors and risks 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 result 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. 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 .   For further information on 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.


Veresen Inc.      
       
Consolidated Statement of Financial Position      
       
       
 (Canadian $ Millions; number of shares in Millions; unaudited)  March 31, 2014   December 31, 2013
       
Assets      
Current assets      
  Cash and short-term investments  36.7   26.6
  Restricted cash  4.6   3.7
  Distributions receivable 46.4   46.2
  Receivables  76.7   62.9
  Other  13.5   11.3
  177.9   150.7
       
Investments in jointly-controlled businesses  858.6   857.7
Rate-regulated asset 31.7   34.7
Pipeline, plant and other capital assets  1,468.2   1,438.1
Intangible assets  421.9   430.7
Other assets 60.8   61.5
  3,019.1   2,973.4
       
Liabilities      
Current liabilities      
  Payables 56.3   55.0
  Dividends payable 13.2   13.2
  Current portion of long-term senior debt 212.6   212.4
  282.1   280.6
       
Long-term senior debt 999.1   975.1
Subordinated convertible debentures  86.2   86.2
Deferred tax liabilities 286.5   277.3
Other long-term liabilities  47.1   48.5
  1,701.0   1,667.7
       
Shareholders' Equity      
Share capital      
  Preferred shares 341.4   341.4
  Common shares (202.2 and 201.5 outstanding at March 31, 2014 and  1,859.6   1,848.6
    December 31, 2013, respectively)      
Additional paid-in capital 4.3   4.3
Cumulative other comprehensive loss (113.5)   (134.0)
Accumulated deficit (773.7)   (754.6)
  1,318.1   1,305.7
  3,019.1   2,973.4

 


Veresen Inc.    
     
Consolidated Statement of Income    
    Three months ended March 31
(Canadian $ Millions, except per Common Share amounts; unaudited)  2014 2013
     
Equity income   52.2  28.4
Operating revenues  92.0  71.6
Operations and maintenance  (50.2)  (31.7)
General, administrative and project development  (22.9)  (20.6)
Depreciation and amortization  (24.1)  (22.4)
Interest and other finance  (14.5)  (15.5)
Foreign exchange and other  0.5  0.5
Gain on sale of assets  14.3  - 
Net income before tax   47.3  10.3
Current tax  (5.7)  (1.0)
Deferred tax  (6.2)  (5.9)
Net income   35.4  3.4
Preferred Share dividends  (4.1)  (2.2)
Net income attributable to Common Shares  31.3  1.2
     
Net income per Common Share    
  Basic and diluted  0.16  0.01
     
     
     
Consolidated Statement of Comprehensive Income     
    Three months ended March 31
(Canadian $ Millions; unaudited)  2014 2013
     
Net income 35.4 3.4
Other comprehensive income    
  Cumulative translation adjustment    
     Unrealized foreign exchange gain on translation 20.5 9.3
Other comprehensive income  20.5 9.3
Comprehensive income  55.9 12.7
Preferred Share dividends (4.1) (2.2)
Comprehensive income attributable to Common Shares 51.8 10.5

 

 

   
Veresen Inc.    
     
Consolidated Statement of Cash Flows    
    Three months ended March 31
(Canadian $ Millions; unaudited)  2014 2013
     
Operating    
   Net income before non-controlling interest  35.4  3.4
   Equity income   (52.2)  (28.4)
   Distributions from jointly-controlled businesses  64.2  46.5
   Depreciation and amortization  24.1  22.4
   Foreign exchange and other non-cash items  (0.5)  (1.4)
   Deferred tax   6.2  5.9
   Gain on sale of assets  (14.3)  - 
   Changes in non-cash working capital  (17.9)  (11.0)
   45.0  37.4
Investing    
   Proceeds from sale of assets  18.7  - 
   Investments in jointly-controlled businesses  (5.3)  (22.4)
   Return of capital from jointly-controlled businesses 11.2  - 
   Pipeline, plant and other capital assets  (40.6)  (9.1)
   Restricted cash  (0.9)  (2.5)
   Other  (0.3)  - 
   (17.2)  (34.0)
Financing    
   Restricted cash -  3.9
   Long-term debt repaid  (2.2)  (2.0)
   Net change in credit facilities  26.3  44.0
   Common Share dividends paid  (39.5)  (38.8)
   Preferred Share dividends paid  (4.1)  (2.2)
   Repayments from jointly-controlled businesses  0.4  0.3
   Other  1.3  (2.5)
   (17.8)  2.7
     
Increase in cash and short-term investments  10.0  6.1
Effect of foreign exchange rate changes on cash and short-term investments  0.1  0.1
Cash and short-term investments at the beginning of the period  26.6  16.1
Cash and short-term investments at the end of the period  36.7  22.3
 
 

 
 

Veresen Inc.    
     
Distributable Cash    
    Three months ended March 31
(Canadian $ Millions, except where noted; unaudited)  2014 2013
     
Pipeline  41.0  38.5
Midstream  42.7  27.2
Power  7.1  9.8
Veresen-Corporate  (17.0)  (18.5)
Current tax  (4.1)  (0.2)
Preferred Share dividends  (4.1)  (2.2)
Distributable cash  (1)  65.6  54.6
     
Distributable cash per Common Share ($) (2)  0.33  0.27
     
Dividends paid/payable (3)  50.4  49.6
     
Dividends paid/payable per Common Share ($)   0.25  0.25
(1) Distributable cash is not a standard measure under generally accepted accounting principles in the United States and may
not be comparable to similar measures presented by other entities. Distributable cash represents the cash available to Veresen
for distribution to common shareholders after providing for debt service obligations, Preferred Share dividends, and any maintenance
and sustaining capital expenditures. Distributable cash does not include distribution reserves, if any, available in jointly-controlled
businesses, project development costs, or transaction costs incurred in conjunction with acquisitions. Project development costs are
discretionary, non-recoverable costs incurred to assess the commercial viability of greenfield business initiatives unrelated to the
Company's operating businesses. The Company considers transaction costs to be part of the consideration paid for an acquired
business and, as such, are unrelated to the Company's operating businesses. Distributable cash is an important measure used by
the investment community to assess the source and sustainability of Veresen's cash distributions and should be used to supplement
other performance measures prepared in accordance with generally accepted accounting principles in the United States. See the
following table for the reconciliation of distributable cash to cash from operating activities.
(2) The number of Common Shares used to calculate distributable cash per Common Share is based on the average number of Common
Shares outstanding at each record date.  For the three months ended March 31, 2014 the average number of Common Shares
outstanding for this calculation was 201,983,974 (2013 - 198,405,736) and 207,889,729 (2013 - 204,312,244) on a basic and diluted
basis, respectively. The number of Common Shares outstanding would increase by 5,904,798 (2013 - 5,906,508) Common Shares if the
outstanding Convertible Debentures on March 31, 2014 were converted into Common Shares.
(3) Includes $10.9 million of dividends for the three months ended March 31, 2014, respectively (2013 - $10.8 million) satisfied through the
issuance of Common Shares under the Company's Premium DividendTM (trademark of Canaccord Genuity Corp.) and Dividend
Reinvestment Plan.



Veresen Inc.    
     
Reconciliation of Distributable Cash to Cash from Operating Activities    
    Three months ended March 31
(Canadian $ Millions; unaudited)  2014 2013
     
Cash from operating activities  45.0  37.4
Add (deduct):    
   Project development costs (4)  9.3  6.7
   Change in non-cash working capital   20.1  12.8
   Principal repayments on senior notes  (3.0)  (2.8)
   Maintenance capital expenditures   (2.6)  (2.0)
   Distributions earned greater (less) than distributions received (5)  (0.7)  3.9
   Preferred Share dividends  (4.1)  (2.2)
   Current tax on Preferred Share dividends  1.6 0.8
     
Distributable cash  65.6  54.6
(4) Represents costs incurred by the Company in relation to projects where the recoverability of such costs has not yet been established. 
Amounts incurred for the three months ended March 31, 2014 relate primarily to the Jordan Cove LNG terminal project, the Pacific
Connector Gas Pipeline project, and various power development projects.
(5) Represents the difference between distributions declared by jointly-controlled businesses and distributions received.

SOURCE Veresen Inc.

View photo

.
Contact:

Dorreen Miller, Director, Investor Relations
Phone: (403) 213-3633
Email: investor-relations@vereseninc.com

Rates

View Comments (0)