Press release from CNW Group
Veresen Announces 2012 Second Quarter Results and Updated 2012 Guidance
Wednesday, August 08, 2012
/NOT FOR DISTRIBUTION TO UNITED STATES NEWSWIRE SERVICES OR FOR DISSEMINATION IN THE UNITED STATES/
CALGARY, Aug. 8, 2012 /CNW/ - Veresen Inc. ("Veresen" or the "Company") (TSX: VSN) announced today its financial and operating results for the three months ended June 30, 2012.
Highlights for the second quarter of 2012 include:
Net income attributable to Common Shares of $7.2 million or $0.03 per
Distributable cash of $51.9 million or $0.26 per Common Share.
Cash from operating activities of $36.9 million.
On May 9, 2012, the 400 MW York Energy Centre was placed into commercial
service. Veresen completed construction of the York Energy Centre on
schedule and under budget. As a result of this success, Veresen
received a $3 million completion bonus.
On June 1, 2012, Veresen assumed operatorship of the Hythe/Steeprock
complex from Encana marking a significant milestone for the Company.
Veresen has developed and invested in systems and processes that will
support the continued growth of the Company's businesses.
- Veresen continues to evaluate options for exporting liquefied natural gas ("LNG") from Coos Bay, Oregon through the development of the Jordan Cove Energy Project. The Company is advancing this project through the state and federal regulatory process. Veresen is in discussions with various potential strategic partners, and is encouraged by the market interest in this project.
"By assuming operatorship of the Hythe/Steeprock complex and commissioning the York Energy Centre, Veresen achieved two very significant milestones during the second quarter," commented Stephen White, President and Chief Executive Officer. "Our employees worked hard to ensure the success of these events, and I want to thank them for their outstanding work and continuing commitment to the growth of our business."
Continued downward pressure on natural gas liquids prices during the second quarter of 2012, driven by pipeline capacity constraints and weakness in the ethane and propane supply/demand market, adversely impacted Veresen's second quarter results from its Aux Sable midstream business.
"Over the long term, we believe the fundamentals of the natural gas liquids market remain strong; however, we expect the current market dynamics will persist into 2013, and we've adjusted our 2012 guidance accordingly," noted Mr. White.
Three months ended
Six months ended
|($ Millions, except per Common Share amounts)||2012||2011||2012||2011|
|Net income (loss) before tax and non-controlling interest|
|Veresen - Corporate||(21.4)||(16.2)||(43.4)||(31.4)|
|Net (income) loss attributable to non-controlling interest||-||0.1||(0.1)||-|
|Preferred Share dividends||(3.3)||-||(3.3)||-|
|Net income attributable to Common Shares||7.2||17.1||15.5||27.6|
|Per Common Share ($)||0.03||0.10||0.08||0.17|
For the second quarter of 2012, Veresen generated net income attributable to Common Shares of $7.2 million or $0.03 per Common Share compared to $17.1 million or $0.10 per Common Share for the same period last year. The decrease in net income primarily reflects reduced NGL fractionation margins. Second quarter earnings reflect a $4.5 million increase in development expenditures to advance the Company's Jordan Cove Energy Project and power projects. The decrease in per Common Share earnings also reflects the impact of additional Common Shares issued, primarily to fund the Hythe/Steeprock acquisition.
For Alliance, equity income for the second quarter of 2012 was $20.7 million compared to $21.4 million for the same period last year. As expected, lower returns due to a declining investment base and lower income tax recoveries led to the decrease.
AEGS generated $5.9 million in earnings before interest, taxes, depreciation and amortization ("EBITDA1") and $1.3 million in net income before tax for the second quarter of 2012. Results were comparable with the same period last year.
Veresen's independent midstream business generated $16.9 million in EBITDA for the second quarter of 2012, which was primarily comprised of the fee commitments earned from Encana Corporation and are consistent with expectations.
Net income before tax for the second quarter of 2012 was $5.9 million before corporate financing costs, which are classified in the corporate segment of Veresen's business.
During the second quarter of 2012, Aux Sable's results were negatively impacted by unfavourable NGL market conditions, driven by the continued oversupply of ethane in Aux Sable's market region and high levels of propane inventory. As a result, Aux Sable realized lower fractionation margins than during the same period last year. Aux Sable reinjected ethane for a period in the second quarter and sold forward a portion of its propane volumes for realization in the fourth quarter of this year in order to mitigate the impact of the adverse market conditions.
For the three months ended June 30, 2012, Veresen recorded $15.8 million of equity income from Aux Sable, representing a $9.8 million decrease compared to the same period last year. For the second quarter of 2012, EBITDA, included in Aux Sable equity income, was $18.5 million, a $9.0 million decrease compared to the same period of last year.
Second quarter 2012 EBITDA from Veresen's Power business, as determined on a proportionately consolidated basis (see footnote 1), was $18.3 million, a $3.3 million increase compared to the same period last year. The increase reflects initial contributions of $3.0 million and $1.0 million from the recently commissioned York Energy Centre, and Grand Valley I and II wind farm, respectively. Power EBITDA for the second quarter of 2012 also includes a $3.0 million completion bonus which Veresen received due to successfully commissioning the York Energy Centre within schedule and under budget. These increases in EBITDA were partially offset by a $1.7 million increase in project development spending compared to the same period last year, due primarily to the continued advancement of the Culliton Creek run-of-river project and the St. Columban and Grand Valley III wind projects, and a $1.8 million increase in power-corporate administrative costs.
Net loss before tax and non-controlling interest was $4.1 million for the second quarter of 2012, compared to a net loss of $2.5 million for the same period last year. The increase in EBITDA discussed above was offset by higher depreciation and interest associated with the York Energy Centre and Grand Valley I and II wind farm, and a $1.3 million increase in the fair value loss related to York Energy Centre's interest rate hedge compared to the same period last year.
For the three months ended June 30, 2012, corporate net expenses before taxes were $5.2 million higher than the same period last year. The increase reflects higher corporate administrative and interest costs, primarily associated with building an independent midstream business underpinned by the Hythe/Steeprock acquisition, and higher project development spending related to the Company's Jordan Cove Energy Project. Administrative costs include $1.3 million of one-time expenses which relate to the integration of Hythe/Steeprock operations.
|Three months ended June 30||Six months ended June 30|
|($ Millions, except per Common Share amounts)||2012||2011||2012||2011|
|Veresen - Corporate||(15.6)||(12.6)||(31.8)||(25.1)|
|Preferred Share dividends||(2.2)||-||(3.3)||-|
|Distributable Cash (1)||51.9||48.7||93.5||85.4|
|Per Common Share ($)||0.26||0.30||0.49||0.53|
|Cash from Operating Activities||36.9||43.4||66.3||77.0|
|(1)||See the reconciliation of distributable cash to cash from operating activities in the Non-GAAP Financial Measures section of Company's second quarter 2012 MD&A in the tables attached to this news release.|
For the second quarter of 2012, Veresen generated distributable cash of $51.9 million compared to $48.7 million for the same period last year. The increase reflects a significant $16.9 million contribution from the Hythe/Steeprock complex, partially offset by a $12.9 million decrease in distributions from Aux Sable compared to the same period last year. Also offsetting the increase were higher corporate costs, mainly administrative and interest costs associated with Veresen's growth initiatives.
On a per Common Share basis, distributable cash was $0.26, a $0.04 decrease compared to the same period last year. In addition to the variances described above, distributable cash per Common Share decreased as a result of Common Shares issued over the past 12 months to finance Veresen's growth initiatives dominated by the acquisition of the Hythe/Steeprock complex.
For the second quarter of 2012, Veresen generated $36.9 million of cash from operating activities compared to $43.4 million for the same period last year. The decrease reflects lower distributions received from Aux Sable and higher Corporate administrative and interest costs, partially offset by new cash flows from the Hythe/Steeprock complex and receipt of the York Energy Centre completion bonus.
This is not a standard measure under GAAP and may not be comparable to
similar measures used by other entities. See the section entitled
"Non-GAAP Financial Measures" contained in Veresen's June 30, 2012
Management's Discussion & Analysis.
Alliance continues to engage shippers in discussions to develop new services, including new receipt facilities and services that are complementary to the current transportation service agreements. Veresen expects Alliance to increase the number of receipt point connections on its pipeline system based on its close proximity to natural gas production areas, including the liquids-rich plays in the Montney, Duvernay and Bakken regions. Additional receipt points on the pipeline system have provided new liquids-rich gas sources. Discussions with shippers continue to focus on new services beyond 2015.
Alliance's transportation deliveries for the second quarter of 2012 averaged 1.536 bcf/d, up slightly from 1.519 bcf/d for the same period last year.
AEGS toll volumes for the second quarter of 2012 were 270.2 mbbls/d compared to 287.8 mbbls/d for the same period last year. Two major petrochemical plants served by AEGS performed planned turnarounds in the second quarter of 2012, resulting in lower ethane deliveries. Reduced toll volumes did not impact earnings due to the take-or-pay nature of AEGS' transportation contracts.
On June 1, 2012, Veresen successfully assumed operations of the Hythe/Steeprock complex from Encana, representing a significant milestone for the Company. Transition and integration activities were executed as planned, resulting in a smooth and orderly transfer of operatorship.
During the second quarter of 2012, fee volumes at the Hythe/Steeprock complex averaged 397 mmcf/d, which is comprised of the minimum volume commitment under the Midstream Services Agreement with Encana, and 23 mmcf/d of natural gas from third party producers.
Veresen is actively engaged in discussions with other producers in the prolific Montney shale gas region for the provision of midstream services using the balance of capacity of the complex. Response from the producer community to date has been positive.
For the three months ended June 30, 2012, Aux Sable processed 97.8% of the natural gas delivered by Alliance, which compares favourably to 94.4% for the same period last year.
Aux Sable assumed operations of the Palermo Conditioning Plant and Prairie Rose Pipeline in North Dakota on July 1, 2011. Receipts into Prairie Rose averaged 82 mmcf/d during the second quarter of 2012. The average heat content of the natural gas delivered to the Alliance interconnection at Bantry, ND for the year-to-date was approximately 1330 btu/ft3, indicative of the high heat content of the liquids-rich natural gas stream being delivered out of the Bakken. In comparison, the average heat content of western Canadian natural gas delivered on the Alliance system is approximately 1090 btu/ft3.
Aux Sable sold 66.3 mbbls/d of NGLs during the second quarter of 2012 compared to 69.8 mbbls/d for the same period last year. Average ethane volumes decreased to 35.8 mbbls/d for the second quarter of 2012 from 40.2 mbbls/d for the same period last year. Propane plus volumes were 32.2 mbbls/d compared to 34.6 mbbls/d. The decreased ethane sale volumes are attributable to reinjection due to uneconomic margins in the second quarter of 2012.
Propane plus sales volumes were 30.5 mmbls/d for the second quarter of 2012, up slightly from 29.6 mbbls/d for the same period last year due to higher butane activity in 2012. In April and May 2012, Aux Sable hedged the pricing of certain propane plus volumes by entering into forward sales contracts which will settle in the fourth quarter of 2012.
On May 9, 2012, the York Energy Centre was placed into commercial service. Construction of the York Energy Centre commenced in September 2010 with an aggregate budgeted capital cost of $338 million (100%) and the project was completed on schedule and under budget. From May 9 to June 30, 2012, the York Energy Centre produced 11,352 MWh of electricity.
Veresen's gas-fired and district energy systems performed generally in line with expectations during the second quarter of 2012. The Company's San Gabriel gas-fired facility located in California experienced a brief unplanned outage in late May which will result in increased maintenance expenditures over the balance of 2012.
During the second quarter, the first two phases of the Grand Valley wind farm performed in line with expectations. Veresen's B.C. run-of-river facilities benefited from the melting winter snow pack and high precipitation, which led to high water flows. At Glen Park, power production decreased in the second quarter of 2012 relative to the same period last year due to a lack of precipitation in the northeastern U.S. region. Power production at Veresen's waste heat facilities was also lower in the second quarter of 2012 compared to the same period last year due to maintenance at the respective host compressor units.
Aux Sable is focused on a number of initiatives to enhance its competitive position and deliver liquids rich gas into the Alliance pipeline for recovery at the Channahon Facility. In early July 2012, Aux Sable Canada LP entered into a new 10-year rich gas premium agreement with a Montney-based producer.
Veresen continues to advance its portfolio of power projects, which are primarily focused on hydro and wind renewable power generation. Construction of the Dasque-Middle run-of-river project is continuing according to plan and Culliton Creek is in the permitting process. Veresen's St. Columban I and II and Grand Valley III wind projects, which have existing Ontario FIT contracts, are in the approval process, with construction expected to commence in late 2012 and 2013, respectively.
Veresen continues to evaluate options for exporting LNG from Coos Bay, Oregon through the development of the Jordan Cove Energy Project. The Company is continuing to advance this strategic project through the regulatory process with the Federal Energy Regulatory Commission. In parallel with this process, Veresen's business development team continues to advance discussions with a number of potential strategic partners to secure a long-term arrangement to process and transport LNG to end users in Asia. Veresen is encouraged by market interest in this project.
Updated 2012 Guidance
Today, Veresen updated its guidance for 2012 distributable cash to be in the range of $1.00 to $1.15 per Common Share, with a midpoint of $1.08 per Common Share, down from previous guidance issued May 1, 2012 of $1.05 to $1.35 per Common Share. The updated range primarily reflects a reduced forecast for ethane and propane plus margins due to the continued oversupply of ethane in the United States midcontinent and high propane inventory levels. Further details regarding Veresen's 2012 guidance can be found in the "Investor Information" section of Veresen's web site - www.vereseninc.com.
Conference Call and Webcast
A conference call and webcast to discuss the results will be held on August 8, 2012 at 2:30 pm MT (4:30 pm ET).
Dial-in: 1 (888) 231-8191 or 1 (647) 427-7450
Conference ID: 12719564
The link to the conference call webcast is available on Veresen's website under Investor Information, Presentations and Webcasts.
A replay of the call will be available from 4:30 pm MT (6:30 pm ET) on August 8, 2012 by dialing 1-855-859-2056 and 1-416-849-0833. The passcode is 12719564, followed by the pound sign. The replay will expire at midnight (ET) on August 15, 2012. The webcast will be archived for one year.
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 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.
Veresen's common shares, Series A 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" and VSN.DB.C", respectively. For further information, please visit www.vereseninc.com.
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 successfully implement new services; the ability of Aux Sable to realize upon the extraction agreement in northeastern Alberta, the timing to complete construction of the Dasque-Middle project; the timing of construction of the Culliton Creek, St. Columban and Grand Valley III power projects; the Company's ability to realize its growth objectives; and the ability of each of its businesses to generate distributable cash in 2012. 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: Veresen's ability to successfully integrate the operations of the Hytle/Steeprock complex; 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.
|Consolidated Statement of Financial Position|
|(Canadian $ Millions; unaudited)||June 30, 2012||December 31, 2011|
|Cash and short-term investments||28.3||21.9|
|Due from jointly-controlled businesses||1.7||25.5|
|Investments in jointly-controlled businesses||939.0||934.1|
|Pipeline, plant and other capital assets||1,417.6||768.7|
|Due from jointly-controlled businesses||48.9||3.6|
|Payables and accrued payables||68.3||62.2|
|Subscription receipts payable||-||348.6|
|Current portion of long-term senior debt||11.4||11.2|
|Long-term senior debt||1,162.6||754.4|
|Subordinated convertible debentures||86.2||86.2|
|Other long-term liabilities||49.5||35.0|
|Additional paid-in capital||4.3||-|
|Cumulative other comprehensive loss||(153.9)||(159.2)|
|Distributable Cash (1)|
|Three months ended June 30||Six months ended June 30|
|(Canadian $ Millions, except where noted; unaudited)||2012||2011||2012||2011|
|Alliance distributions, prior to withholdings for capital expenditures and net of debt service||33.0||32.7||65.6||68.6|
|AEGS distributable cash, after non-recoverable capital expenditures and debt service||3.9||3.8||7.8||7.7|
|Hythe/ Steeprock distributable cash, after non- recoverable maintenance capital expenditures||16.9||-||26.4||-|
Aux Sable distributions, net of support payments, non-recoverable
expenditures and debt service
|Power distributable cash, after maintenance capital expenditures and debt service||7.3||9.1||9.8||13.9|
|General and administrative||(6.1)||(5.1)||(14.2)||(11.1)|
|Interest and other finance||(9.5)||(6.8)||(17.6)||(12.5)|
|Principal repayments on senior debt||-||(0.7)||-||(1.5)|
|Preferred Share dividends||(2.2)||-||(3.3)||-|
|Distributable cash (1)||51.9||48.7||93.5||85.4|
|Distributable cash per Common Share ($) (2)||0.26||0.30||0.49||0.53|
|Dividends paid/payable (3)||48.8||40.5||95.0||80.4|
|Dividends paid/payable per Common Share ($)||0.25||0.25||0.50||0.50|
|(1)||See "Non-GAAP Financial Measures" for reconciliation of distributable cash to cash flows from operating activities.|
The number of Common Shares used to calculate distributable cash per
Common Share is based on the average number of Common Shares
at each record date. For the three months ended June 30, 2012 the average number of Shares outstanding for this calculation was 195,474,685 (2011 -
162,050,250) and 201,381,193 (2011 - 167,957,784) on a basic and diluted basis, respectively. For the six months ended June 30, 2012, the average
number of Shares outstanding for this calculation was 190,065,393 (2011 - 160,860,523) and 195,972,018 (2011 - 166,768,057) on a basic and diluted basis,
respectively. The number of Common Shares outstanding would increase by 5,906,508 (2011 - 5,907,534) Common Shares if the outstanding Convertible
Debentures on June 30, 2012 were converted into Shares.
Includes $20.7 million and $57.8 million of dividends for the three and
six months ended June 30, 2012 (2011 - $30.9 million and $61.1 million,
satisfied through the issuance of Common Shares under the DRIP.
|Reconciliation of Distributable Cash to Cash Flow from Operating Activities|
|Three months ended June 30||Six months ended June 30|
|(Canadian $ Millions; unaudited)||2012||2011||2012||2011|
|Cash from operating activities||36.9||43.4||66.3||77.0|
|Project development costs (4)||6.4||2.8||12.2||5.2|
|Change in non-cash working capital||9.4||(3.4)||27.6||0.3|
|Principal repayments on senior notes||(3.5)||(2.8)||(5.6)||(5.5)|
|Maintenance capital expenditures||(2.5)||(0.5)||(3.4)||(0.9)|
|Distributions earned greater than distributions received (5)||5.2||9.2||(3.6)||9.3|
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, 2012 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.|
|Reconciliation of Proportionately Consolidated Power Business Results to US GAAP|
|Three months ended June 30, 2012||Three months ended June 30, 2011|
|(Canadian $ Millions)||
|Depreciation & amortization||(10.5)||2.0||(8.5)||(8.7)||0.2||(8.5)|
|Fair value gains (losses)||(6.1)||6.1||-||(4.8)||4.8||-|
|Foreign exchange and other||-||-||-||(0.1)||-||(0.1)|
|Equity income (loss)||-||(5.5)||(5.5)||-||(4.6)||(4.6)|
|Net income before taxes and|
|Six months ended June 30, 2012||Six months ended June 30, 2011|
|(Canadian $ Millions)||
|Depreciation & amortization||(19.3)||2.5||(16.8)||(17.6)||0.7||(16.9)|
|Fair value gains (losses)||(1.2)||1.2||-||(1.0)||1.0||-|
|Foreign exchange and other||(0.1)||0.1||-||(0.4)||0.3||(0.1)|
|Equity income (loss)||-||(0.2)||(0.2)||-||(0.8)||(0.8)|
|Net income before taxes and|
Under US GAAP, the Company accounts for each of York Energy, NRGreen and
Grand Valley using the equity method
due to its joint control of these entities. However, the Company believes the presentation of the Power business' earnings
on a proportionately consolidated line-by-line basis provides more insightful information. The Company and the investment
community use EBITDA on a proportionately consolidated basis to assess the performance of the Power business. The
following reconciles the results of its Power business.
SOURCE: Veresen Inc.
For further information:
Director, Investor Relations
Phone: 403 213 3633