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Press release from CNW Group

Veresen announces 2011 second quarter results and updated 2011 guidance

Thursday, July 28, 2011

Veresen announces 2011 second quarter results and updated 2011 guidance12:38 EDT Thursday, July 28, 2011/NOT FOR DISTRIBUTION TO UNITED STATES NEWSWIRE SERVICES OR FOR DISSEMINATION IN THE UNITED STATES/CALGARY, July 28, 2011 /CNW/ - Veresen Inc. ("Veresen" or the "Company") (TSX: VSN) announced today its financial and operating results for the second quarter of 2011.Highlights for the second quarter include:Net income attributable to Common Shares of $17.7 million or $0.11 per Share.Distributable cash of $48.7 million or $0.30 per Share.Cash from operating activities of $51.0 million.An affiliate of Aux Sable executed an agreement with a subsidiary of EOG Resources, Inc. to purchase the Stanley Condensate Recovery Plant and the Prairie Rose Pipeline located in the Bakken region of North Dakota. The acquisition closed on July 1, 2011.Alliance Pipeline L.P. ("Alliance") announced plans to develop a pipeline and associated facilities in North Dakota to transport liquids-rich natural gas. Hess Corporation has entered into a precedent agreement with Alliance for service on the proposed 130-kilometre (80-mile) lateral pipeline, which would connect production from Hess's gas processing facility in Tioga, ND to the Alliance mainline for onward shipment to the Chicago market hub.Construction of Aux Sable's Heartland off-gas facility in Fort Saskatchewan, Alberta continues to progress on budget and on schedule, with the plant expected to be operational this summer.Construction of the 400 MW gas-fired York Energy Centre in Ontario is progressing very well and the project is on budget and on schedule, with commercial operations expected to begin in the spring of 2012.Veresen acquired the remaining 50 percent ownership interest in Culliton Creek, a run-of-river project in British Columbia, bringing the Company's total interest to 100 percent.Subsequent to the end of the second quarter, Veresen was awarded contracts for the Grand Valley III (40 MW) and St. Columban I and II (18 MW and 15 MW, respectively) wind projects under the Ontario Power Authority's renewable feed-in-tariff ("FIT") program."During the second quarter, we made progress on several strategic growth initiatives including two key transactions in the Bakken area of North Dakota," said Stephen White, Veresen's President and Chief Executive Officer. "Aux Sable's acquisition of the Stanley Gas Plant and the Prairie Rose Pipeline, and Alliance's plan to develop the Tioga lateral pipeline and associated facilities, demonstrate our commitment to expand our services and presence in liquids-rich resource plays. These transactions position us to fully utilize and leverage our existing infrastructure assets, and capture future opportunities to provide high-value services to producers and end users."FINANCIAL HIGHLIGHTS               Three months endedJune 30Six months endedJune 30($ Thousands, except per Share amounts)2011201020112010Revenues     Pipelines (1)97,789100,585196,300200,983 Midstream56,53845,09895,29682,729 Power33,90622,20365,26644,151 Veresen - Corporate-791379 188,233167,965356,875327,942Net income (loss) before tax and      non-controlling interest     Pipeline23,15524,58446,79949,163 Midstream25,80120,94434,17430,334 Power(1,789)(3,180)(1,341)(1,800) Veresen - Corporate(16,500)(17,329)(32,242)(34,557) 30,66725,01947,39043,140Tax expense(12,795)(6,600)(18,141)(10,647)Net income attributable tonon-controlling interest(183)-(514)-Net income attributable toCommon Shares17,68918,41928,73532,493 Per Share ($)0.110.130.180.23(1) Net of intersegment eliminations.Veresen's operating businesses delivered solid financial performance during the second quarter of 2011. For the three months ended June 30, 2011, Veresen generated net income attributable to Common Shares of $17.7 million or $0.11 per Share compared to $18.4 million or $0.13 per Share for the same period in 2010. The increase in pre-tax earnings has been offset by higher taxes, which result from the Company's conversion from a limited partnership to a corporate structure on January 1, 2011. Further, net income per Share reflects the additional shares Veresen issued over the past 12 months to fund the Company's growth initiatives.Veresen's financial results for the three months ended June 30, 2011 reflect positive progress in the execution of the Company's growth strategy. In particular, Aux Sable's focus on attracting liquids-rich natural gas from the prolific shale regions of the Montney and the Bakken drove increased net income from Veresen's midstream business. Higher heat content natural gas, coupled with continued strong NGL market conditions, resulted in the recognition of $27.4 million in margin-based lease revenues for the second quarter of 2011, up from $22.1 million for the same period last year.Veresen's power business also generated strong earnings from operations. Adjusted earnings before interest, depreciation, amortization and other non-cash charges from Veresen's power business (Adjusted EBITDA - Power)increased to $15.0 million for the second quarter of 2011 compared to $8.2 million for the same period last year. The Company's recently acquired run-of-river hydro facilities achieved excellent second quarter results due to very high water flows at each location. Adjusted EBITDA - Power also reflects increased contributions from Veresen's gas-fired power facilities and district energy systems. These increases were more than offset by non-cash fair value losses related to held-for-trading financial instruments, and increased development costs, primarily associated with Veresen's run-of-river and wind power projects, depreciation, and interest costs related to higher debt levels. (See reconciliation of Adjusted EBITDA - Power to Power net income before tax and non-controlling interest in the tables attached to this news release.)Earnings from Veresen's pipeline business, comprised of Alliance and AEGS, decreased by $1.4 million primarily due to the ongoing reduction in equity returns on Alliance's investment base and, to a lesser extent, the effect of the stronger Canadian dollar.Corporate costs for the three-month period ended June 30, 2011 decreased by $0.8 million compared to the same period last year. Reduced spending on non-power development projects and lower foreign exchange losses offset higher administrative costs, and higher interest costs.Distributable Cash (1)      Three months endedJune 30 Six months endedJune 30($ Thousands, except per Share amounts) 20112010 20112010Pipeline 36,45833,881 76,26667,842Midstream 27,55723,583 35,77334,370Power 9,1402,669 13,8644,451Veresen - Corporate (12,639)(9,971) (25,051)(19,331)Taxes (11,825)(886) (15,464)(6,347)  48,69149,276 85,38880,985 Per Share ($) 0.300.34 0.530.57Cash from operating activities 50,97841,062 116,931107,329(1) This item is not a standard measure under GAAP and may not be comparable to similar measures presented by other entities. See reconciliation of distributable cash to cash from operating activities in the schedules attached to this news release. For more information about non-GAAP measures used by Veresen, see the section entitled "Non-GAAP Financial Measures" contained in Veresen's June 30, 2011 Management's Discussion & Analysis.Distributable cash for the three months ended June 30, 2011 was $48.7 million or $0.30 per Share, compared to $49.3 million or $0.34 per Share for the same period in 2010, reflecting:contributions from Veresen's recently acquired run-of-river hydro facilities and the Company's increased ownership in East Windsor Cogeneration. Veresen's other gas-fired power facilities and district energy systems also performed very well during the second quarter, generating higher distributable cash relative to the same periods last year;higher margin-based lease revenues being recognized, due to higher heat content natural gas being delivered to Aux Sable's Channahon Facility and continued strong NGL market conditions. Midstream distributable cash also includes distributions generated from Aux Sable's infrastructure assets in the Montney region;Alliance's collection and distribution of a non-renewal charge. In January 2011, Alliance began collecting a non-renewal charge on the US portion of its pipeline system, representing an exit fee for shippers who did not elect to extend their transportation contracts beyond December 1, 2015; andhigher corporate administrative and interest costs, and increased cash taxes compared to the same period last year. In addition to higher taxable earnings from Aux Sable, the period-over-period cash tax increase reflects the effect of Veresen's use of tax losses in the second quarter of 2010, made available through corporate restructuring, which significantly lowered cash taxes in that period.While distributable cash for the second quarter of 2011 approximated amounts generated for the same period last year, distributable cash per Share decreased due to additional Shares being issued over the past 12 months to fund the Company's various growth initiatives.Veresen generated $51.0 million of cash from operating activities for the second quarter of 2011 compared to $41.1 million for the same period last year. The increase is due to higher operating cash flows from Veresen's midstream business, reflecting higher margin-based lease revenues generated, and from our pipeline business, reflecting increased recoveries from shippers and changes in non-cash operating working capital. These increases were partially offset by higher cash outflows for corporate tax payments, interest and administrative costs, and lower cash inflows from Veresen's power operating activities, reflecting changes in non-cash operating working capital.OPERATING RESULTSPipelinesAlliance's transportation deliveries for the three months ended June 30, 2011 averaged 1.519 billion cubic feet per day, compared to 1.582 bcf/d for the same period last year. Alliance's ability to offer higher Authorized Overrun Service levels has been reduced due to maintenance work. The lower volumes have not impacted firm transportation service or earnings.Toll volumes for AEGS for the second quarter of 2011 were 287.8 thousand barrels per day, up slightly from 283.1 mbbls/d for the same period last year.MidstreamDuring the three months ended June 30, 2011, Aux Sable processed 94 percent of the natural gas delivered by Alliance, down slightly from the same period last year due to a planned maintenance outage in May 2011. Planning is well underway for Aux Sable to conduct scheduled major maintenance and inspection work on its de-ethanization facilities at Channahon, Illinois. This work is planned for the third quarter of 2011 and is expected to take three weeks. Aux Sable has developed an approach to this work that will allow it to recover propane plus products from two-thirds of the natural gas delivered by Alliance during this maintenance period.Aux Sable sold 69.9 mbbls/d of NGLs during the three months ended June 30, 2011, compared to 74.6 mbbls/d for the same period in 2010.  Average ethane volumes increased to 40.2 mbbls/d during the second quarter of 2011, from 39.4 mbbls/d in the same period last year. The increased ethane sales volumes reflect the impact of higher heat content in the natural gas and higher ethane recoveries, which more than offset the effects of the May 2011 maintenance outage and lower volumes delivered by Alliance. The latter two factors, along with the impact of higher propane inventories at period-end, resulted in lower propane plus sales volumes during the second quarter of 2011, which decreased to 29.7 mbbls/d from 35.2 mbbls/d for the same period last year.PowerDuring the three months ended June 30, 2011, Veresen's power facilities performed as expected. No significant operational issues were experienced at the Company's power facilities during the second quarter of 2011. As expected, due to higher river flows, power generated by Veresen's run-of-river facilities improved significantly in the second quarter of 2011 compared to the first quarter of 2011.Construction of the 400 MW gas-fired York Energy Centre is progressing very well and the project is on budget and on schedule, with commercial operations expected to begin in spring 2012.Pending receipt of final government approval, Veresen is ready to start construction at its Dasque-Middle run-of-river project, a 20 MW project located near Terrace, British Columbia. The estimated capital cost for this project is $73 million, which Veresen intends to fund by drawing on its Revolving Credit Facility. Veresen expects this project will be completed and in-service in late 2012 or early 2013.In Ontario, Veresen is also advancing its plans to construct the first two phases of the Grand Valley wind project, in which the Company holds a 75 percent ownership interest. As part of the Ontario Power Authority's Renewable Energy Standard Offer Program and FIT Program, Grand Valley was awarded 9 MW and 11 MW contracts for phases I and II, respectively, each with 20-year terms. Veresen has received the necessary permit approvals and plans to begin construction in August 2011. Commercial in-service is projected for the second quarter of 2012. Veresen's share of the estimated capital cost for Grand Valley I and II is $44 million. The Company intends to fund these projects by drawing on its Revolving Credit Facility.Corporate and Business DevelopmentVeresen is focused on a number of initiatives that will fully utilize and leverage the existing infrastructure capabilities of the Alliance pipeline and Aux Sable's Channahon Facility. Veresen's strategy for growing its midstream business is predicated on its plans to buy, build and/or commercially contract energy infrastructure assets. During the second quarter, Aux Sable successfully executed on this strategy with the acquisition of the Prairie Rose Pipeline and the Stanley Gas Plant in the Bakken shale oil play of North Dakota. This acquisition provides Aux Sable with a strategic infrastructure position to provide producer services to attract very rich Bakken natural gas to the Channahon Facility by way of the Prairie Rose and Alliance pipelines.Veresen's strategy also includes the development of targeted gas gathering pipelines to increase connected gas supplies, as well as trucking both NGLs and flare gas to the Stanley Gas Plant. As a result of rapid oil exploration activity in this region and the current early-stage level of gas gathering pipelines, a significant amount of associated natural gas is being flared. Aux Sable is advancing plans to capture this gas and bring it to market which will result in significant economic and environmental benefits for the region and for producers. Aux Sable is also expanding its rail off-load capacity at the Channahon facility for shale-based unfractionated NGLs.During the second quarter, Alliance announced plans to develop a pipeline and associated facilities in North Dakota. If constructed, Alliance's Tioga lateral pipeline will allow production from Hess' gas processing facility, the largest plant in the Bakken, to connect with the Alliance mainline for onward shipment to the Chicago market. Alliance plans to hold an open season this summer to identify further shipper transportation needs.The Bakken is a dynamic region with many opportunities. As Veresen, Aux Sable and Alliance continue to execute their collective strategies, Veresen believes this strategic infrastructure position will add substantial value and be beneficial for the long-term recontracting of the Alliance pipeline and for rich liquids supply at Channahon. Moreover, Alliance is well-positioned to redesign its suite of services to capture the market opportunities that lie ahead across the entire Alliance system, which reaches the significant basins in the Bakken/Three Forks and Montney regions.Veresen is also advancing its portfolio of power development projects which are primarily focused on hydro and wind renewable power generation. During the second quarter, Veresen acquired the remaining 50 percent ownership interest in Culliton Creek, a British Columbia run-of-river project, bringing the Company's total interest to 100 percent. Veresen is advancing this project through the permitting process and construction is expected to commence in the fourth quarter of 2011.Veresen continues to explore alternative uses for the proposed Jordan Cove Energy Project and Pacific Connector Gas Pipeline. A number of natural gas producers have expressed interest in converting Jordan Cove from an import facility to a liquefaction and LNG export facility.Updated 2011 Guidance Veresen has updated its guidance for 2011 distributable cash to be in the range of $1.11 per Share to $1.35 per Share, up from previous guidance issued May 12, 2011, of $1.05 per Share to $1.30 per Share. The increased midpoint in the Company's guidance range primarily reflects strong year-to-date performance from its midstream business and new sources of distributable cash from its midstream growth initiatives. These factors have been partially tempered by the continuing strength in the Canadian dollar. Further details concerning 2011 guidance can be found in the "Investor Information" section of Veresen's web site - www.vereseninc.com.Conference CallA conference call to discuss Veresen's 2011 second quarter results will be held on Thursday, July 28, 2011 at 1:30 pm MT (3:30 pm ET). The call can be accessed at 1 (888) 231-8191 or 1 (647) 427-7450 conference ID 84170925.A replay will be available shortly thereafter at 1-855-859-2056 and 1-416-849-0833. The access code is 84170925 (followed by the pound sign).About VeresenVeresen is a publicly traded dividend paying corporation based in Calgary, Alberta, that owns and operates energy infrastructure assets across North America.  Its common 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" and "VSN.DB.C", respectively.  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 extraction facility near Chicago and other gas energy infrastructure; and a power business with renewable and gas-fired facilities and development projects in Canada and the United States, and district energy systems in Ontario and Prince Edward Island.  Veresen and each of its pipeline, midstream and power businesses are also actively developing a number of greenfield projects.  In the normal course of its business, Veresen and each of its businesses regularly evaluate and pursue acquisition and development opportunities.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 to recognize margin-based lease revenues during the balance of 2011; the timing of maintenance and inspection work by Aux Sable; the timing of completion of construction for Aux Sable's Heartland off-gas facility, York Energy Centre, and the Dasque-Middle and Culliton Creek hydro projects; the timing of commencement of construction for the Dasque-Middle and Culliton Creek run-of-river projects; Veresen's ability to realize its growth objectives; and the ability of each of its businesses to generate distributable cash in 2011.  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 Canada 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 Canada.   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     ($ Thousands; unaudited)June 30, 2011December 31, 2010   Assets  Current assets   Cash and short-term investments153,29066,270 Restricted cash15,68110,572 Receivables101,41797,997 Other22,33526,080 292,723200,919   Long-term receivables310,766315,563Pipeline, plant and other capital assets2,483,8172,419,671Intangible assets171,250164,106Other assets6,55718,320 3,265,1133,118,579   Liabilities  Current liabilities   Payables106,974103,292 Transportation security deposits4,7664,912 Dividends payable2,8474,493 Current portion of long-term senior debt116,920124,047 231,507236,744   Long-term senior debt1,749,2861,596,234Subordinated convertible debentures82,70382,411Future taxes293,749295,459Other long-term liabilities52,14953,803 2,409,3942,264,651   Shareholders' Equity  Share capital1,331,4091,270,285Cumulative other comprehensive loss(69,874)(61,367)Cumulative net income692,194663,459Cumulative dividends(1,113,165)(1,032,767)Shareholders' equity attributable to Common Shares840,564839,610Non-controlling interest15,15514,318 855,719853,928 3,265,1133,118,579 Veresen Inc.           Consolidated Statement of Income and Cumulative Income        Three months ended June 30   Sixmonths ended June 30($ Thousands, except per Share amounts; unaudited)20112010 20112010      Revenues      Operating revenues187,364166,959 355,717326,472 Interest and other8691,006 1,1581,470 188,233167,965 356,875327,942Expenses      Operations and maintenance57,00048,795 116,319102,736 Depreciation and amortization37,81034,841 75,59868,626 Interest and other finance30,19927,672 59,02155,284 General, administrative and project development25,99523,624 54,19849,304 Foreign exchange and other6,5628,014 4,3498,852 157,566142,946 309,485284,802Net income before taxes and non-controlling interest30,66725,019 47,39043,140 Current taxes9,9571,040 13,7276,602 Future taxes2,8385,560 4,4144,045Net income before non-controlling interest17,87218,419 29,24932,493Net income attributable to non-controlling interest183- 514-Net income attributable to Common Shares17,68918,419 28,73532,493Cumulative net income at the beginning of the period674,505597,792 663,459583,718Cumulative net income at the end of the period692,194616,211 692,194616,211      Net income per Common Share      Basic and diluted0.110.13 0.180.23 Consolidated Statements of Comprehensive Income and Cumulative Other Comprehensive Income Three months ended June 30 SixMonths ended June 30($ Thousands; unaudited)20112010 20112010      Net income attributable to Common Shares17,68918,419 28,73532,493Other comprehensive income (loss), net of taxes      Cumulative translation adjustment       Unrealized foreign exchange gain (loss) on translation of self-sustaining foreign operations(5,666)18,671 (11,182)8,724          Cumulative translation adjustment reclassified to net income-2,143 8095,496  Gain (loss) on hedge of self-sustaining foreign operation-(3,636) -(3,138) Other1,863(1,404) 1,866(2,886) (3,803)15,774 (8,507)8,196Comprehensive income attributable to Common Shares13,88634,193 20,22840,689      Cumulative other comprehensive loss at the beginning of the period(66,071)(62,202) (61,367)(54,624)Other comprehensive income (loss), net of taxes(3,803)15,774 (8,507)8,196Cumulative other comprehensive loss at the end of the period(69,874)(46,428) (69,874)(46,428) Veresen Inc.           Consolidated Statement of Cash Flows      Three months ended June 30   Six months ended June 30($ Thousands; unaudited)20112010 20112010      Operating      Net income attributable to Common Shares17,68918,419 28,73532,493 Non-cash transportation revenue(1,260)1,031 3,7642,079 Depreciation, amortization and other non-cash items47,40039,362 81,70968,326 Unrealized foreign exchange loss(3,153)8,667 2189,138 Future taxes2,8385,560 4,4144,045 Non-controlling interest183- 514- Changes in non-cash working capital(12,719)(31,977) (2,423)(8,752) 50,97841,062 116,931107,329Financing      Long-term debt issued, net of issue costs10,099- 73,010- Long-term debt repaid(58,424)(36,553) (62,405)(38,034) Net change in credit facilities80,485(17,038) 134,35955,505 Dividends paid(10,058)(12,538) (20,921)(29,939) 22,102(66,129) 124,043(12,468)Investing      Acquisitions, net of cash acquired(700)- (100,661)(80,708) Pipeline, plant and other capital assets(20,880)(7,483) (48,351)(14,524) Restricted cash(2,731)7 (4,525)1,770 Other(86)(676) 5,623(2,456) Changes in non-cash investing working capital402(806) (5,168)(9,627) (23,995)(8,958) (153,082)(105,545)Increase (decrease) in cash and short-term investments49,085(34,025) 87,892(10,684)Effect of foreign exchange rate changes on cash and short-term investments(102)1,401 (872)895Cash and short-term investments at the beginning of the period104,30780,780 66,27057,945Cash and short-term investments at the end of the period153,29048,156 153,29048,156 Veresen Inc.           Distributable Cash (1)      Three months ended June 30 Six months ended June 30($ Thousands, except where noted; unaudited)20112010 20112010      Alliance distributions, prior to withholdings for capitalexpenditures and net of debt service32,68930,166 68,57660,592AEGS distributable cash, after non-recoverable capitalexpenditures and debt service3,7693,715 7,6917,250Aux Sable distributions, net of support payments,non-recoverable maintenance capital expenditures and debt service27,55723,583 35,77234,370Power distributable cash, after maintenance capitalexpenditures and debt service (2)9,1402,669 13,8644,451 73,15560,133 125,903106,663Corporate            General and administrative(5,101)(3,845) (11,076)(7,749)       Interest and other finance(6,812)(5,348) (12,499)(10,015)       Principal repayments on senior debt(726)(778) (1,476)(1,567) (12,639)(9,971) (25,051)(19,331)       Taxes(11,825)(886) (15,464)(6,347) (24,464)(10,857) (40,515)(25,678)      Distributable cash  (1)48,69149,276 85,38880,985      Distributable cash per Share ($) (3)0.300.34 0.530.57      Distributions paid/payable (4)40,49635,564 80,39870,576      Distributions paid/payable per Share ($) 0.250.25 0.500.5(1)Distributable cash is not a standard measure under generally accepted accounting principles in Canada and may not be comparable to similar measures presented by other entities.  Distributable cash represents the cash available to Veresen for distribution to shareholders after providing for debt service obligations and any capital expenditures that are not growth-oriented or recoverable but does not include distribution reserves, if any, held by Veresen's 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 new greenfield business initiatives unrelated to the Company's operating businesses.  We consider transaction costs to be part of the consideration paid for an acquired business and, as such, are unrelated to our operating businesses. (Effective January 1, 2011, GAAP requires transaction costs to be expensed.)  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 Canada.  See the following table for the reconciliation of distributable cash to cash flow from operating activities..(2)In the case of Veresen's majority-owned power facilities, currently comprised of East Windsor Cogeneration LP and EnPower Green Energy Generation Limited Partnership, distributable cash is calculated based on our 75 percent ownership interests in each of these businesses.(3)The number of Shares used to calculate distributable cash per Share is based on the average number of Shares outstanding at each record date.  For the three months ended June 30, 2011, the average number of Shares outstanding for this calculation was 162,050,250 and 167,957,784 (2010 - 142,312,387 and 144,574,000) on a basic and diluted basis, respectively.  For the six months ended June 30, 2011, the average number of Shares outstanding for this calculation was 160,860,523 and 166,768,057 (2010 - 141,207,060 and 143,468,681) on a basic and diluted basis, respectively. The number of Shares outstanding would increase by 5,907,534 (2010 - 2,261,621) Shares if the outstanding Convertible Debentures as at June 30, 2011 were converted into Shares.(4)Includes $30.9 million and $61.1 million of distributions for the three and six months ended June 30, 2011, respectively, (2010 - $22.1 million and $42.2 million) satisfied through the issuance of Shares under the Company's Dividend Reinvestment Plan. Veresen Inc.           Reconciliation of Distributable Cash to Cash Flow from Operating Activities        Three months ended June 30   Six months ended June 30($ Thousands; unaudited)20112010 20112010      Consolidated cash from operating activities50,97841,062 116,931107,329Adjusted for: Cash (generated from) used for operating activities applicable to jointly held businesses (5)(13,523)1,877 (49,904)(42,996)Cash from operating activities applicable to wholly-owned businesses (6)37,45542,939 67,02764,333      Add (deduct) amounts applicable to wholly-owned businesses:      Project development costs (7)2,8623,152 5,2207,651 Change in non-cash working capital2,6382,985 10,2917,595 Principal repayments on senior notes(2,927)(1,448) (5,506)(2,894) Maintenance capital expenditures(545)(2,059) (936)(2,926) Distributions earned greater than distributions received (8)9,2083,707 9,2927,226      Distributable cash48,69149,276 85,38880,985(5) Represents cash from operating activities applicable to jointly held businesses which is not under our sole control and, consequently, is not included in distributable cash until distributions are declared by the jointly held businesses.(6) Net of aggregate support payments made to Alliance Canada Marketing and Sable NGL Services of $3.6 million and $6.4 million for the three and six months ended June 30, 2011 (2010 - $2.4 million and $5.1 million).(7) Represents costs incurred by the Company and its wholly-owned businesses in relation to projects where the recoverability of such costs has not yet been established.  Amounts incurred for the three and six months ended June 30, 2011 relate primarily to the Jordan Cove LNG terminal project, the Pacific Connector Gas Pipeline project, and various power development projects.(8) Represents the difference between distributions declared by jointly held businesses and distributions received.Reconciliation of Adjusted EBITDA - Power to Power net income before tax and non-controlling interest Three months ended June 30 Six months ended June 30($ Thousands; unaudited)20112010 20112010      Adjusted EBITDA - Power15,0328,240 25,22314,237Add (deduct):      One-time transaction costs (9)-- (1,847)- Fair value losses related to financial instruments and foreign exchange(4,973)(4,072) (1,475)(2,226) Depreciation and amortization(7,892)(5,524) (15,684)(10,188)Interest and other finance(3,956)(1,824) (7,558)(3,623)       Power net income before tax and non-controlling interest(1,789)(3,180) (1,341)(1,800)      (9)Represents transaction costs incurred in relation to our acquisition of Furry Creek and Clowhom. (See "New Accounting Standards - Accounting for Business Combinations.")  For further information: Stephen H. White President & CEO Phone: (403) 296-0140 Richard G. Weech    Senior Vice President, Finance & CFO Phone: (403) 296-0140 Email: investor-relations@vereseninc.com www.vereseninc.com