Veresen Announces 2015 Second Quarter Results and Updated Guidance
(firmenpresse) - CALGARY, ALBERTA -- (Marketwired) -- 08/05/15 -- Veresen Inc. ("Veresen" or the "Company") (TSX: VSN) announced today financial and operating results for the three and six months ended June 30, 2015.
Q2 Highlights
"Overall, we performed well in the second quarter with the majority of our businesses generating solid financial performance. The exception was Aux Sable, our only business with commodity price exposure, which continued to see its profitability eroded by declining NGL margins," said Don Althoff, President and Chief Executive Officer.
"We made significant progress in the quarter in finalizing the re-contracting of the Alliance pipeline, including receiving approval of the new customer service offerings from both the NEB and the FERC. With these contracts now in place, both of our long haul natural gas pipeline systems, Alliance and Ruby, will continue to provide Veresen with material, long-term, stable cash flows."
Mr. Althoff added, "We also made great strides in our Veresen Midstream business with the start-up of the Saturn compressor station in the Montney region. We expect Veresen Midstream to invest in excess of $3 billion in the Montney over the next three years with new development projects, along with the build-out of associated gathering pipelines and Veresen Midstream's acquisition of infrastructure from Encana and CRP earlier this year."
Veresen has presented adjusted net income attributable to Common Shares to enhance the comparability of its earnings. Adjusted net income represents net income adjusted for specific significant items which do not reflect the Company's underlying operations.
For the quarter ended June 30, 2015, Veresen generated adjusted net income attributable to Common Shares of $11.9 million or $0.04 per Common Share compared to an adjusted net loss of $2.5 million or $0.01 per Common Share for 2014. Earnings reflect increases in Veresen's Pipeline business, and lower earnings from Veresen's Midstream and Power businesses, relative to the same period last year. Veresen's 50% interest in the Ruby Pipeline contributed an incremental $27.9 million, while Alliance also contributed higher adjusted earnings.
In the second quarter of 2015, adjusted earnings from the Midstream segment decreased compared to the same period last year, reflecting low natural gas liquids margins as a result of low propane prices, and the sale of 50% of Veresen's Hythe/Steeprock midstream business through the Veresen Midstream transaction.
For the three months ended June 30, 2015, Veresen generated a net loss attributable to Common Shares of $11.6 million or $0.04 per Common Share compared to a net loss of $2.4 million or $0.01 per Common Share for the same period last year.
For the second quarter, the Veresen Midstream business includes a provision of $15.7 million associated with potential adjustments related to Aux Sable's customer obligations.
Veresen and its jointly-controlled businesses periodically enter into interest rate hedges to manage interest rate exposures. In the second quarter of 2015, results from Veresen's Power business include the impact of the revaluation of the York Energy Centre interest rate hedge resulting in a pre-tax $4.7 million gain compared to a pre-tax loss of $3.4 million in the same period last year. Veresen's 2014 second quarter results reflect the receipt of a $3.9 million retroactive adjustment related to the York Energy Centre's power purchase agreement with the Ontario Power Authority.
The extraordinary after-tax loss of $10.3 million represents a one-time non-cash net effect of Alliance's de-recognition of certain regulatory assets and liabilities. As Alliance received regulatory approval from the NEB and FERC to advance its new service offering, it will be exposed to potential variability in certain future costs and throughput volumes. As such, the majority of Alliance's operations no longer meet all of the criteria required for the continued application of rate regulated accounting under US GAAP, thereby requiring the de-recognition of these regulatory balances as of June 30, 2015.
In the second quarter of 2015, Veresen generated distributable cash of $65.0 million or $0.22 per Common Share compared to $63.7 million or $0.29 Common Share for the same period in 2014. Increased cash flows generated by Veresen's Pipeline businesses were partially offset by reduced cash flows from the Aux Sable Midstream business and the Power business.
Second quarter Pipeline distributable cash includes $27.9 million in preferred interest dividends from the Ruby pipeline. Alliance generated an additional $2.0 million in the second quarter of 2015, largely driven by the effects of a weaker Canadian dollar.
Overall, the effect of the Veresen Midstream transaction has been neutral to distributable cash, as the reduced contribution from Hythe/Steeprock, resulting from the change in ownership, has been offset by reduced Corporate administration and interest costs.
Current tax is higher in the second quarter of 2015, primarily due to the impact of a weaker Canadian dollar on U.S.-based taxes. The issuance of Series E Preferred Shares in the second quarter of 2015 resulted in higher Preferred Share dividends.
Business Segment Highlights
Alliance
As of June 2015, Alliance successfully re-contracted all of its available firm receipt capacity. As such, Alliance closed the Firm Receipt Service and Firm Full Path Service components of the Precedent Agreement process it used to re-contract its pipeline system.
The NEB approved Alliance's new services and associated terms and conditions, as well as the firm tolls allowing Alliance to move forward with its new customer contracts and services. Key elements of the NEB's decision include:
As part of the decision, the NEB ordered Alliance to submit two filings: a compliance filing illustrating the distributions ("baseline distributions") that would result from its Notional Revenue Requirement and a depreciation study. The NEB also directed Alliance to contribute any distributable amounts that exceed the baseline distribution amounts to a reserve account, where they will be retained until Alliance files a depreciation study with the NEB.
To derive its Notional Revenue Requirement, Alliance built in the assumption of a reasonable level of distributions and, therefore, Veresen expects that little, if any, distributable amounts will be contributed to the reserve account. Alliance will ensure that its depreciation study is filed in a timely manner to mitigate the risk of any distributable cash being held in the reserve account.
On June 30, 2015, the FERC issued an Order in response to Alliance's application seeking approval of tariff changes to facilitate its proposed new service offering. The FERC Order accepted the tariffs as filed, and all the proposed tariff provisions that support Alliance's new service offering will go into effect on December 1, 2015 as requested.
The Order also directs a hearing be held to consider Alliance's proposals to eliminate Authorized Overrun Service and interruptible transportation revenue crediting, and to not adjust its Firm Transportation Service recourse rate. The FERC's review of the recourse rate will not impact the negotiated rates underpinning the currently executed Precedent Agreements. When establishing a hearing, it is common practice for the FERC to seek a decision recommendation from an administrative law judge before deciding any rate-related issues to be addressed.
Alliance is currently reviewing the aspect of the Order that attaches a refund obligation to the implementation of the revised tariff provisions and may file a request to re-hear that condition. The FERC also directed Alliance to provide more data to support Alliance's proposed changes to its gas quality specifications.
Midstream
Veresen Midstream
Veresen Midstream is owned equally by Veresen and affiliates of Kohlberg Kravis Roberts & Co. L.P. ("KKR"). Within Veresen Midstream's footprint in the Dawson Creek area of British Columbia, development activity continues to be strong, driven by very low supply costs for Montney gas production in the region.
Veresen Midstream's 200 million cubic feet per day ("mmcf/d") Saturn compressor station was placed in service in the second quarter, ahead of schedule and significantly under budget at an anticipated final cost of approximately $155 million. The Cutbank Ridge Partnership ("CRP"), a partnership between Encana Corporation ("Encana") and Cutbank Dawson Gas Resources Ltd., a subsidiary of Mitsubishi Corporation, is proceeding to a final investment decision for the 400 mmcf/d Sunrise gas plant in the summer of 2015 and for the 200 mmcf/d Tower gas plant in the fall of 2015. Approximately $170 million (100%) has been invested in these two projects to June 30, 2015.
CRP has also proposed a project to Veresen Midstream to add an incremental 200 mmcf/d of compression and 400 mmcf/d of refrigeration capacity to the Saturn compressor site, effectively converting this site into a 400 mmcf/d gas plant. A final investment decision for this project could be made in late 2015 or early 2016, with an in-service date in mid-2018.
These projects, along with the build-out of associated gathering pipelines and Veresen Midstream's acquisition of infrastructure from Encana and CRP earlier this year, are expected to collectively represent investments in excess of $3 billion (100%) over the next three years.
Aux Sable
Veresen's Aux Sable Midstream business operations continued to be challenged by an oversupplied market. United States Gulf Coast propane plus margins weakened in the second quarter of 2015 as continued supply growth from liquids-rich shale gas production has exceeded new demand. Ethane margins in the Gulf Coast improved slightly in the second quarter with ethane prices holding steady while gas prices declined. Elevated ethane inventory levels from the first quarter have been worked down with all major ethylene units currently in operations, lending support for ethane prices during the second quarter.
Power
The Power business performed in line with expectations; however, lower water flows at Veresen's run-of-river hydro facilities, and weaker demand for energy and steam at the Company's gas-fired and district energy systems primarily due to moderate temperatures, impacted overall performance relative to the same period last year.
The 20 MW Dasque-Middle run-of-river facility, located in northwest British Columbia, was placed into commercial service on May 21, 2015 and the 33 MW St. Columban wind farm commenced full operations in July 2015 and is currently awaiting formal certification from the Ontario Power Authority.
Veresen has started on-site construction of the 40 MW Grand Valley Phase III wind project (75% interest) and it is expected to be in-service in late 2015.
Jordan Cove LNG Development Project
Jordan Cove LNG and Pacific Connector Gas Pipeline received a revised notice of schedule for environmental review of the project from the FERC. The new schedule indicates that the final Environmental Impact Statement ("EIS") will now be issued on September 30, 2015.
With the update in the FERC schedule, Veresen has updated its project schedule for its key work streams for the Jordan Cove LNG and Pacific Gas Connector Pipeline projects. Based on the new FERC schedule, which provides for a final FERC certificate for the projects on or before December 29, 2015, and the status of the projects' other State of Oregon permits, Veresen expects to obtain a FERC "Notice to Proceed" in mid-2016, leading to a final investment decision thereafter. Similarly, on the commercial front, Veresen expects that negotiations currently underway with potential customers will extend through to the end of 2015 and possibly into early 2016.
Veresen is taking advantage of the revised FERC schedule by continuing to optimize project costs and schedule, and value engineering opportunities, as well as leveraging the lower oil price environment and slowdown in global energy projects.
In July 2015, Jordan Cove LNG received its final license from the NEB, following Governor in Council approval in Canada authorizing Jordan Cove LNG to export natural gas from Canada to the United States.
EFG Update
The Court of Appeal for Ontario denied Veresen's appeal of a portion of the decision issued earlier this year by an Ontario court in respect of an option held by Energy Fundamentals Group Inc. ("EFG") to acquire up to 20% of Veresen's equity interest in the Jordan Cove LNG terminal. Veresen will not appeal this matter further.
2015 Guidance Updated
Veresen updated its 2015 distributable cash to be in the range of $0.95 to $1.14 per Common Share, reflecting a $0.02 per Common Share narrowing on each end of the range. The Company expects fractionation margins at Aux Sable to continue to be weak in the second half of the year; however, the impact should be largely offset by the effect of the weaker Canadian dollar. Further details regarding Veresen's 2015 guidance can be found on the home page of the Company's web site at .
Conference Call and Webcast
Veresen will host a conference call and webcast on August 6, 2015 at 10:00 am MT (12:00 pm ET) to discuss its results.
Dial-in: 1 (877) 291-4570 or 1 (647) 788-4919 Conference ID 86204940
The link to the conference call webcast is available on Veresen's website.
A replay of the call will be available at approximately 1:00 pm MT (3:00 pm ET) on August 6, 2015 by dialing 1-800-585-8367 and 1-416-6214642. The access code is 86204940, followed by the pound sign. The replay will expire at midnight (ET) on August 20, 2015.
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 three and six months ended June 30, 2015 compared to the same periods last year and should be read in conjunction with this news release. These documents are available at and at .
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 owns assets in western Canada, an ownership interest in Aux Sable, 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 and Cumulative Redeemable Preferred Shares, Series C 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 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 Alliance to implement, and the financial impact of new service offerings; the timing of completion and the capital cost of the Aux Sable expansion; the cos, timing of the approval and construction of the Veresen Midstream facilities; the timing of the commercial service of the Grand Valley Phase III wind project; the timing for regulatory approvals, an updated capital cost estimate and final investment decision for Jordan Cove LNG and Pacific Connector Gas Pipeline, Veresen's ability to negotiate long term service agreements with off-take 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 2015. 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.
Contacts:
Veresen Inc.
Dorreen Miller
Director, Investor Relations
(403) 213-3633
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Datum: 05.08.2015 - 21:24 Uhr
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