Veresen Announces 2014 Second Quarter Results and Updates Guidance

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

CALGARY, Aug. 6, 2014 /CNW/ - Veresen Inc. ("Veresen" or the "Company") (TSX: VSN) announced today financial and operating results for the three months ended June 30, 2014.

Highlights

  • Veresen generated distributable cash[1] of $63.7 million ($0.29 per Common Share) in the second quarter of 2014 compared to $49.2 million ($0.25 per Common Share) in the second quarter of 2013.
  • Veresen recorded a net loss attributable to Common Shares of $2.4 million ($0.01 net loss per Common Share) in the second quarter of 2014 compared to net income attributable to Common Shares of $11.5 million ($0.06 net income per Common Share) in the second quarter of 2013.
  • Cash from operating activities was $47.9 million in the second quarter of 2014 compared to $55.0 million in the second quarter of 2013.
  • In July, Jordan Cove LNG achieved a key regulatory milestone with the receipt of the Notice of Schedule for the environmental review of the LNG terminal and related pipeline from the Federal Energy Regulatory Commission ("FERC").
  • Alliance Pipeline filed an application with the National Energy Board ("NEB") for regulatory approval of the tolls and tariff provisions required for Alliance to implement its proposed new services.

"We continue to make good progress in advancing our key strategic initiatives, including the re-contracting of the Alliance Pipeline and development of Jordan Cove LNG. During the first half of 2014, we also completed key financing activities to bolster our financial strength and flexibility," said Don Althoff, President and CEO.

"The filing of Alliance Pipeline's revised toll and tariff application with the NEB, is an important milestone in the re-contracting process. Signing of Precedent Agreements with producers and shippers is ongoing as we move through the regulatory process with the NEB."

Don Althoff added, "With the receipt of our Notice of Schedule from the FERC for our Jordan Cove LNG project, we now have a line of sight to obtaining our Final Environmental Impact Statement, and I'm confident we will obtain this critical permit."

___________________________
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 Highlights

Three months ended
June 30

Six months ended
June 30

($ Millions, except per Common Share amounts)

2014

2013

2014

2013

Net income (loss) before tax





Pipeline

30.0

27.5

61.5

52.3

Midstream

8.7

15.6

42.6

27.0

Power

1.7

9.5

(2.0)

10.5

Veresen – Corporate

(40.6)

(26.6)

(69.3)

(53.5)


(0.2)

26.0

32.8

36.3

Gain on sale of assets

-

-

14.3

-

Tax recovery (expense)

1.9

(12.3)

(10.0)

(19.2)

Net income

1.7

13.7

37.1

17.1

Preferred Share dividends

(4.1)

(2.2)

(8.2)

(4.4)

Net income (loss) attributable to Common Shares

(2.4)

11.5

28.9

12.7


Per Common Share ($)

(0.01)

0.06

0.14

0.06

Financial Performance

For the three months ended June 30, 2014, Veresen recorded a net loss attributable to Common Shares of $2.4 million or $0.01 net loss per Common Share compared to net income of $11.5 million or $0.06 per Common Share for the same period last year. The decrease in earnings was primarily driven by higher project development spending related to Jordan Cove LNG, lower midstream earnings, and the revaluation of the York Energy Centre interest rate hedge.

Higher project development spending in the second quarter of 2014 reflects Veresen's efforts to further advance Jordan Cove LNG following its receipt of a conditional order from the U.S. Department of Energy to export liquefied natural gas to those countries that do not have Free Trade Agreement status with the U.S.  As Veresen has continued to de-risk this project, the Company has dedicated additional resources towards its commercial, engineering and financing activities and, as anticipated, development spending has increased accordingly.

The Midstream business generated net income of $8.7 million before tax for the three months ended June 30, 2014 compared to $15.6 million for the same period in 2013. Hythe/Steeprock generated consistent earnings relative to the comparative period, while Aux Sable's results were negatively impacted by lower NGL margins resulting from higher gas prices.

A revaluation of the York Energy Centre interest rate hedge resulted in an $11.7 million reduction in second quarter Power earnings compared to the same period last year. Partially offsetting this reduction was the receipt of a $3.9 million retroactive adjustment related to York Energy Centre's power purchase agreement with the Ontario Power Authority.

Second quarter 2014 results also reflect an increase in Pipeline earnings from Alliance, primarily due to higher negotiated depreciation rates and contributions from the Tioga Lateral pipeline.

Distributable Cash




Three months ended

 June 30

          Six months ended

                          June 30

($ Millions, except per Common Share amounts)

2014

2013

2014

2013

Pipeline

40.6

37.9

81.6

76.4

Midstream

27.0

23.7

69.7

50.9

Power

17.8

7.1

24.9

16.9

Veresen – Corporate

(15.0)

(15.8)

(32.0)

(34.3)

Current tax

(2.6)

(1.5)

(6.7)

(1.7)

Preferred Share dividends

(4.1)

(2.2)

(8.2)

(4.4)

Distributable Cash (1)

63.7

49.2

129.3

103.8


Per Common Share ($)

0.29

0.25

0.62

0.52

(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 June 30, 2014, Veresen generated distributable cash of $63.7 million or $0.29 per Common Share compared to $49.2 million or $0.25 Common Share for the same period in 2013. Higher distributable cash reflects increased contributions from each of Veresen's Pipeline, Midstream and Power businesses, partially offset by higher taxes and Preferred Share dividends.

Overview of Business Segments

Pipelines

In the second quarter of 2014, Alliance Pipeline filed an application with the NEB for regulatory approval of the tolls and tariff provisions required to implement Alliance's proposed new services commencing December 1, 2015. The NEB application is a key milestone for Alliance as it reflects a move to a new business model under new natural gas transportation agreements. Regulatory approval will allow Alliance to offer its customers a menu of new services and competitive tolls replacing the 15-year service contracts that expire November 30, 2015.

Alliance's new services offering reflects extensive market consultation and includes full-path and segmented receipt and delivery services, a new Canadian trading pool, and a revised hydrocarbon dewpoint specification. Alliance plans to file a regulatory application with the FERC in 2015 to revise its U.S. tariff.

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 RGP agreements that Aux Sable is negotiating with the producer community.

Midstream

Veresen's maintenance turnaround at the Steeprock natural gas processing plant in British Columbia was completed on budget and on schedule in June 2014. Turnaround activities were performed in a manner consistent with Veresen's ongoing commitment to the health and safety of its employees and contractors, and safeguarding of the environment. The majority of the costs associated with the turnaround will be recovered 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 several RGP agreements with producers that will enhance the value of the producers' NGLs.

In June 2014, Aux Sable executed an additional long-term RGP agreement with 7G. The agreement significantly increases the volumes originally agreed to by the companies in February 2013. Under this new long-term agreement, volumes of liquids-rich natural gas are expected to ramp up to 500 mmcf/d. These supplies will be processed at Aux Sable's extraction and fractionation facilities located in Channahon, Illinois.

Power

Construction of the Dasque-Middle run-of-river project in northwest British Columbia is proceeding as planned and it is expected to be in-service in the fourth quarter of 2014. Construction of the 33 MW St. Columban wind project is progressing, with commercial in-service expected in the first half of 2015. The 40 MW Grand Valley III wind project continues to advance through the regulatory process. Testing and commissioning of the 13 MW Whitecourt waste heat facility is ongoing and the facility is expected to be in service by the fourth quarter of 2014.

Jordan Cove LNG

In July 2014, Jordan Cove LNG and the associated Pacific Connector Gas Pipeline received their collective Notice of Schedule for environmental review from the FERC. Receipt of this schedule is an important milestone in the regulatory process. FERC's schedule calls for a final EIS to be issued on February 27, 2015. Based on this schedule, Veresen has reviewed and updated its project timeline and expects to make a final investment decision in mid-2015. With a four-year construction period, commercial LNG production is targeted for mid- to late-2019. Once the FERC issues Jordan Cove LNG its Draft Environment Impact Statement, a public hearing process is initiated.

Veresen continues to be in active negotiations to secure long-term arrangements to produce LNG for international customers. Veresen's objective is to execute binding agreements this year for all of Jordan Cove LNG's initial capacity of 6 million tonnes per annum.

Veresen also continues to negotiate the engineering, procurement and construction contract with a joint venture formed by Kiewit and Black & Veatch for the design and construction the LNG terminal. Veresen expects the EPC contract to be completed in late 2014, following which a Class 1 cost estimate and schedule will be generated by the contractor.

In the second quarter of 2014, Veresen engaged Macquarie Capital as its financial advisor for the Jordan Cove LNG project.

2014 Guidance Update

Veresen has narrowed its guidance for 2014 distributable cash to be in the range of $1.02 per Common Share to $1.20 per Common Share, with a midpoint of $1.11 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 August 7, 2014 at 9:00 am MT (11:00 am ET) to discuss its results.

Dial-in: 1 (888) 231-8191 or 1 (647) 427-7450 Conference ID  72391260

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 12:00 pm MT (2:00 pm ET) on August 7, 2014 by dialing 1-855-859-2056 and 1-416-849-0833. The access code is 72391260, followed by the pound sign. The replay will expire at midnight (ET) on August 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 second quarter ended June 30, 2014 compared to the second quarter ended June 30, 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 LNG 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) 



June 30, 2014

December 31, 2013






Assets





Current assets






Cash and short-term investments



219.5

26.6


Restricted cash



5.8

3.7


Distributions receivable



46.3

46.2


Receivables



88.0

62.9


Other



12.1

11.3




371.7

150.7






Investments in jointly-controlled businesses 



822.4

857.7

Rate-regulated asset



29.0

34.7

Pipeline, plant and other capital assets 



1,488.9

1,438.1

Intangible assets 



413.3

430.7

Other assets



61.2

61.5




3,186.5

2,973.4






Liabilities





Current liabilities






Payables



66.6

55.0


Dividends payable



13.6

13.2


Current portion of long-term senior debt



211.2

212.4




291.4

280.6






Long-term senior debt



958.1

975.1

Subordinated convertible debentures 



85.3

86.2

Deferred tax liabilities



272.5

277.3

Other long-term liabilities 



48.6

48.5




1,655.9

1,667.7






Shareholders' Equity





Share capital






Preferred shares



341.4

341.4


Common shares (220.3 and 201.5 outstanding at June 30, 2014 and



2,147.4

1,848.6



December 31, 2013, respectively)





Additional paid-in capital



4.3

4.3

Cumulative other comprehensive loss



(131.4)

(134.0)

Accumulated deficit



(831.1)

(754.6)




1,530.6

1,305.7




3,186.5

2,973.4

Veresen Inc.










Consolidated Statement of Income






Three months ended June 30

Six months ended June 30

 (Canadian $ Millions, except per Common Share amounts; unaudited) 

2014

2013

2014

2013






Equity income 

27.1

41.2

79.3

69.6

Operating revenues

89.3

89.8

181.3

161.4

Operations and maintenance

(44.8)

(47.0)

(95.0)

(78.7)

General, administrative and project development

(32.5)

(21.2)

(55.4)

(41.8)

Depreciation and amortization

(24.8)

(22.3)

(48.9)

(44.7)

Interest and other finance

(14.3)

(15.6)

(28.8)

(31.1)

Foreign exchange and other

(0.2)

1.1

0.3

1.6

Gain on sale of assets

-

-

14.3

-

Net income (loss) before tax 

(0.2)

26.0

47.1

36.3

Current tax

(4.2)

(2.4)

(9.9)

(3.4)

Deferred tax

6.1

(9.9)

(0.1)

(15.8)

Net income 

1.7

13.7

37.1

17.1

Preferred Share dividends

(4.1)

(2.2)

(8.2)

(4.4)

Net income (loss) attributable to Common Shares

(2.4)

11.5

28.9

12.7






Net income (loss) per Common Share






Basic and diluted

(0.01)

0.06

0.14

0.06


























Consolidated Statement of Comprehensive Income 






Three months ended June 30

Six months ended June 30

 (Canadian $ Millions; unaudited) 

2014

2013

2014

2013






Net income

1.7

13.7

37.1

17.1

Other comprehensive income (loss)






Cumulative translation adjustment






Unrealized foreign exchange gain (loss) on translation

(17.9)

15.4

2.6

24.7

Other comprehensive income (loss)

(17.9)

15.4

2.6

24.7

Comprehensive income (loss)

(16.2)

29.1

39.7

41.8

Preferred Share dividends

(4.1)

(2.2)

(8.2)

(4.4)

Comprehensive income (loss) attributable to Common Shares

(20.3)

26.9

31.5

37.4



 

Veresen Inc.










Consolidated Statement of Cash Flows






Three months ended June 30

Six months ended June 30

(Canadian $ Millions; unaudited) 

2014

2013

2014

2013






Operating






Net income

1.7

13.7

37.1

17.1


Equity income

(27.1)

(41.2)

(79.3)

(69.6)


Distributions from jointly-controlled businesses

52.9

45.5

117.1

92.0


Depreciation and amortization

24.8

22.3

48.9

44.7


Foreign exchange and other non-cash items

3.7

0.6

3.2

(0.8)


Deferred tax

(6.1)

9.9

0.1

15.8


Gain on sale of assets

-

-

(14.3)

-


Changes in non-cash working capital

(2.0)

4.2

(19.9)

(6.8)


47.9

55.0

92.9

92.4

Investing






Proceeds from sale of assets

-

-

18.7

-


Investments in jointly-controlled businesses

(7.4)

(13.5)

(12.7)

(35.9)


Return of capital from jointly-controlled businesses

-

-

11.2

-


Pipeline, plant and other capital assets

(39.9)

(15.0)

(80.5)

(24.1)


Restricted cash

(1.2)

(0.4)

(2.1)

(2.9)


Other

(0.2)

0.1

(0.5)

0.1


(48.7)

(28.8)

(65.9)

(62.8)

Financing






Restricted cash

-

-

-

3.9


Long-term issued, net of issue costs

198.7

-

198.7

-


Long-term debt repaid

(54.1)

(3.8)

(56.3)

(5.8)


Net change in credit facilities

(188.8)

23.0

(162.5)

67.0


Common Shares issued, net of issue costs

272.9

-

272.9

-


Common Share dividends paid

(40.6)

(38.8)

(80.1)

(77.6)


Preferred Share dividends paid

(4.1)

(2.2)

(8.2)

(4.4)


Repayments from jointly-controlled businesses

0.4

0.4

0.8

0.7


Other

-

0.6

1.3

(1.9)


184.4

(20.8)

166.6

(18.1)






Increase in cash and short-term investments

183.6

5.4

193.6

11.5

Effect of foreign exchange rate changes on cash and short-term investments

(0.8)

0.1

(0.7)

0.2

Cash and short-term investments at the beginning of the period

36.7

22.3

26.6

16.1

Cash and short-term investments at the end of the period

219.5

27.8

219.5

27.8







Veresen Inc.










Distributable Cash






Three months ended June 30

Six months ended June 30

(Canadian $ Millions, except where noted; unaudited) 

2014

2013

2014

2013






Pipeline

40.6

37.9

81.6

76.4

Midstream

27.0

23.7

69.7

50.9

Power

17.8

7.1

24.9

16.9

Veresen-Corporate

(15.0)

(15.8)

(32.0)

(34.3)

Current tax

(2.6)

(1.5)

(6.7)

(1.7)

Preferred Share dividends

(4.1)

(2.2)

(8.2)

(4.4)

Distributable cash  (1)

63.7

49.2

129.3

103.8






Distributable cash per Common Share ($) (2)

0.29

0.25

0.62

0.52






Dividends paid/payable(3)

55.0

49.8

105.4

99.4






Dividends paid/payable per Common Share ($) 

0.25

0.25

0.50

0.50






(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 June 30, 2014 the

average number of Common Shares outstanding for this calculation was 220,042,623 (2013 – 199,282,658)

and 225,909,932 (2013 – 205,189,167) on a basic and diluted basis, respectively. For the six months ended

June 30, 2014 the average number of Common Shares outstanding for this calculation was 211,013,298

(2013 – 198,844,197) and 216,899,856 (2013 – 204,750,705) on a basic and diluted basis, respectively.

The number of Common Shares outstanding would increase by 5,842,274 (2013 – 5,906,508) Common

Shares if the outstanding Convertible Debentures on June 30, 2014 were converted into Common Shares.

(3)


Includes $14.0 million and $25.0 million of dividends for the three and six months ended June 30, 2014, respectively

(2013 - $11.0 million and $21.8 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 June 30

Six months ended June 30

(Canadian $ Millions; unaudited) 

2014

2013

2014

2013






Cash from operating activities

47.9

55.0

92.9

92.4

Add (deduct):






Project development costs (4)

21.0

9.1

30.3

15.8


Change in non-cash working capital

1.4

(4.5)

21.5

8.3


Principal repayments on senior notes

(2.9)

(3.0)

(5.9)

(5.8)


Maintenance capital expenditures

(1.2)

(1.8)

(3.8)

(3.8)


Distributions earned greater (less) than distributions received (5)

-

(4.2)

(0.7)

(0.3)


Preferred Share dividends

(4.1)

(2.2)

(8.2)

(4.4)


Current tax on Preferred Share dividends

1.6

0.8

3.2

1.6






Distributable cash

63.7

49.2

129.3

103.8






(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 and six months ended June 30, 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.

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