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Press release from CNW Group

Veresen Announces 2013 First Quarter Results and Updates Guidance

Wednesday, May 08, 2013

Veresen Announces 2013 First Quarter Results and Updates Guidance

16:22 EDT Wednesday, May 08, 2013

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

CALGARY, May 8, 2013 /CNW/ - Veresen Inc. ("Veresen" or the "Company") (TSX: VSN) announced today its financial and operating results for the three months ended March 31, 2013.

First quarter highlights include:

  • Distributable cash1 of $54.6 million or $0.27 per Common Share.
  • Net income attributable to Common Shares of $1.2 million or $0.01 per Common Share.
  • Cash from operating activities of $37.4 million.
  • Solid financial results from Veresen's recent Canadian midstream and power growth initiatives.
  • Natural gas liquids (NGL) market conditions continued to be under pressure, resulting in lower earnings and cash flows from Veresen's U.S. midstream business.

"Growth in our fee-for-service business has increased cash flows and has offset the impact of continued weak NGL market conditions," said Don Althoff, President and CEO. "Growth in predictable cash flow generating assets continues to be our priority."

__________________________________
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
March 31
($ Millions, except per Common Share amounts)                     2013 2012(1)
Net income (loss) before tax and non-controlling interest                        
Pipeline                     24.8 24.1
Midstream                     11.4 12.8
Power                     1.0 2.8
Veresen - Corporate                     (26.9) (24.0)
                      10.3 15.7
Tax expense                     (6.9) (6.1)
Net income attributable to non-controlling interest                     - (0.1)
Net income                     3.4 9.5
Preferred Share dividends                     (2.2) -
Net income attributable to                        
  Common Shares                     1.2         9.5
  Per Common Share ($)                     0.01 0.05
(1)   Comparative figures for the three months ended March 31, 2012 have been
revised. See Veresen's March 31, 2013 consolidated financial statements.
     

Financial Performance

For the first quarter of 2013, Veresen generated net income attributable to Common Shares of $1.2 million or $0.01 per Common Share compared to $9.5 million or $0.05 per Common Share for the same period in 2012. Earnings from Veresen's operating business segments were generally consistent quarter over quarter, while corporate costs increased in comparison to the same period last year.

First quarter Midstream earnings decreased slightly compared to the same period last year, as earnings from the Hythe/Steeprock complex, a stable, fee-for-service asset, substantially offset reduced earnings from Aux Sable's margin-based business. The continued oversupply of ethane and high levels of propane inventory in Aux Sable's market region, and a 40% increase in natural gas prices in the US Gulf Coast resulted in lower realized NGL fractionation margins from the Aux Sable midstream business. Aux Sable reinjected ethane for a significant period in the first quarter of 2013.

York Energy Centre and Grand Valley wind farm, commissioned in May and March 2012, respectively, made solid contributions to earnings from Veresen's Power business, although the effect of these increases were offset by a lower unrealized fair value gain recorded in the first quarter compared to the same period last year.

First quarter results also reflect higher corporate administrative costs incurred to support Veresen's growth activities, higher project development expenditures, and higher interest expense related to debt incurred to finance the Hythe/Steeprock acquisition.

In the first quarter of 2013, Veresen revised an accounting practice related to Alliance's rate regulated operations, which has no impact on Veresen's cash flows for any period, nor is it reflective of any change in the underlying financial or operating condition of the Company.

The Company's interpretation of the relevant accounting standard was researched in 1999, agreed upon with the Company's auditors, and has been applied consistently since then. The Company wasrecently advised by PWC LLP that, in their view, its interpretation was no longer appropriate. As such, the Company has revised its previously reported financial results. The details of this revision are presented in Veresen's first quarter 2013 consolidated financial statements.

Distributable Cash

                           
                      Three months ended
March 31
($ Millions, except per Common Share amounts)                          2013 2012
Pipeline                     38.5 36.6
Midstream                     27.2 22.6
Power                     9.8 2.5
Veresen - Corporate                     (18.5) (16.2)
Taxes                     (0.2) (2.8)
Preferred Share dividends                     (2.2) (1.1)
Distributable Cash (1)                     54.6 41.6
Per Common Share ($)                     0.27 0.23
(1) See the reconciliation of distributable cash to cash from operating activities in the tables attached to this news release.

For the first quarter of 2013, Veresen generated distributable cash of $54.6 million or $0.27 per Common Share up from $41.6 million or $0.23 per Common Share for the same period last year. Distributable cash reflects an additional $8.1 million contribution from Hythe/Steeprock, and a $7.3 million increase from Veresen's Power business, primarily comprised of contributions from the York Energy Centre and the Grand Valley power facilities, and the release of operating funds generated by East Windsor Cogeneration previously held in reserve. These increases were partially offset by a $3.5 million decrease in distributions from Aux Sable, driven by lower fractionation margins; higher costs associated with Veresen's growth initiatives, mainly corporate administrative and interest costs, and dividends on the Company's Preferred Shares issued in February 2012. Taxes were lower than the comparative period in 2012 due to lower U.S.-based earnings from Veresen's U.S. midstream business.

Overview of Business Segments

Pipelines

Alliance is in active negotiations with existing and prospective shippers with respect to proposed new service offerings for contracting of the pipeline beyond 2015. Alliance's objective is to sign precedent agreements in 2013, after which one or more open seasons will be conducted to determine additional shipper interest.

Construction of Alliance's 127-km (79-mile) Tioga Lateral Pipeline and associated facilities in North Dakota is proceeding, with commercial in-service expected in the third quarter of 2013. Initial design capacity of the Tioga Lateral is 106 million cubic feet per day (mmcf/d). Alliance has a long-term firm transportation agreement with an anchor shipper for 61.5 mmcf/d of capacity. The Tioga Lateral will transport liquids-rich gas from the anchor shipper's processing facility to an interconnection point on the Alliance pipeline for onward shipment to Aux Sable's Channahon facility.

Midstream

During the first quarter, Veresen continued detailed planning for the scheduled major turnaround at the Hythe plant in late May 2013. Portions of the facility are expected to be out of service for up to 16 days. During the plant turnaround, Veresen will implement key tie-ins for a debottleneck at the Hythe plant which will eliminate the need for facility down-time if, and when, expansion projects are undertaken. As operator, Veresen's objective is to plan and execute the turnaround in a manner that ensures the safety of all stakeholders and mitigates risks and additional costs associated with extended facility down-time. The majority of the costs associated with the turnaround will be recoverable under Veresen's Midstream Services Agreement.

Aux Sable continues to work with producers within an economic radius of the Alliance pipeline to provide options and value for natural gas and NGLs to reach large and liquid U.S. markets. Aux Sable holds a number of rich gas premium ("RGP") agreements with producers that will enhance the value of the producers' NGLs. In the first quarter of 2013, Aux Sable executed additional RGP agreements with Canadian producers which are expected to result in increased volumes of liquids-rich natural gas for processing and fractionation at Aux Sable's Channahon facility beyond 2015.

Power

Veresen is advancing a number of contracted construction and development projects within its renewable power business. The Company is constructing the Dasque-Middle run-of-river hydro facility located in northwest British Columbia. This project has experienced delays due to challenges in progressing the civil works and commercial in-service has now moved into 2014. The 13-MW Whitecourt waste heat facility, currently being constructed by NRGreen (50% owned by Veresen), is proceeding as planned and is expected to be placed into service in the third quarter of 2013.

Veresen has a number of renewable power projects currently under development including Grand Valley III, St. Columban I and II and Culliton Creek. Upon receipt of the respective regulatory approvals, anticipated in 2013, Veresen will make final investment decisions regarding each development project.

LNG Development Project

Veresen has advanced engineering and permitting activities to allow the export of liquefied natural gas from Coos Bay, Oregon through the development of the Jordan Cove Energy Project and the Pacific Connector Gas Pipeline. Jordan Cove and Pacific Connector each initiated the Federal Energy Regulatory Commission's ("FERC") pre-filing process under the National Environmental Policy Act, which will lead to completion and submission of formal FERC applications later this month. Veresen continues to engage in discussions with potential strategic partners to secure a long-term arrangement to produce LNG for international customers.

2013 Guidance Update

While ethane and propane inventories in Aux Sable's market region appear to be levelling off, the Company does not anticipate a meaningful change in prices for the remainder of 2013. As a result, Veresen has narrowed its 2013 distributable cash guidance range to $0.97 to $1.15 per Common Share, from the previous range of $0.92 to $1.19 per Common Share. The midpoint remains at $1.06 per Common Share. Further details concerning 2013 guidance can be found in the "Invest" section of Veresen's web site at www.vereseninc.com.

Conference Call and Webcast

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

Dial-in: 1 (888) 231-8191 or 1 (647) 427-7450 Conference ID 50463846

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

A replay of the call will be available at approximately 10:00 am MT (12 pm ET) on May 9, 2013 by dialing 1-855-859-2056 and 1-416-849-0833. The access code is 50463846, followed by the pound sign. The replay will expire at midnight (ET) on May 16, 2013.

MD&A, Financial Statements and Notes

Management's Discussion and Analysis ("MD&A") and consolidated financial statements provide a detailed explanation of Veresen's financial results for the first quarter ended March 31, 2013 compared to the first quarter ended March 31, 2012 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 gas gathering and processing 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.

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 new service offerings; the timing of completion of construction and start-up of the Dasque-Middle hydro project, the Tioga Lateral Pipeline and the Whitecourt waste heat facility; Veresen's ability to realize its growth objectives; the availability of financing for current capital projects and new investment opportunities; the timing of regulatory approvals for Grand Valley III and St. Columban I and II; and the ability of each of its businesses to generate distributable cash in 2013.  The risks and uncertainties that may affect the operations, performance, development and results of Veresen's businesses include, but are not limited to, the following factors: the ability of Veresen to successfully implement its strategic initiatives and achieve expected benefits; levels of oil and gas exploration and development activity; the status, credit risk and continued existence of contracted customers; the availability and price of capital; the availability and price of energy commodities; the availability of construction services and materials; fluctuations in foreign exchange and interest rates; Veresen's ability to successfully obtain regulatory approvals; changes in tax, regulatory, environmental, and other laws and regulations; competitive factors in the pipeline, midstream and power  industries; operational breakdowns, failures, or other disruptions; and the prevailing economic conditions in North America.  Additional information on these and other risks, uncertainties and factors that could affect Veresen's operations or financial results are included in its filings with the securities commissions or similar authorities in each of the provinces of Canada, as may be updated from time to time.  Readers are also cautioned that the foregoing list of factors and risks is not exhaustive.  The impact of any one risk, uncertainty or factor on a particular forward-looking statement is not determinable with certainty as these factors are independent and management's future course of action would depend on its assessment of all information at that time.  Although Veresen believes that the expectations conveyed by the forward-looking information are reasonable based on information available on the date of preparation, no assurances can be given as to future results, levels of activity and achievements.  Undue reliance should not be placed on the information contained herein, as actual result achieved will vary from the information provided herein and the variations may be material.  Veresen makes no representation that actual results achieved will be the same in whole or in part as those set out in the forward-looking information.  Furthermore, the forward-looking statements contained herein are made as of the date hereof, and Veresen does not undertake any obligation to update publicly or to revise any forward-looking information, whether as a result of new information, future events or otherwise. Any forward-looking information contained herein is expressly qualified by this cautionary statement.

Certain financial information contained in this news release may not be standard measures under Generally Accepted Accounting Principles ("GAAP") in the United States and may not be comparable to similar measures presented by other entities.  These measures are considered to be important measures used by the investment community and should be used to supplement other performance measures prepared in accordance with GAAP in the United States.   For further information on non-GAAP financial measures used by Veresen see Management's Discussion and Analysis, in particular, the section entitled "Non-GAAP Financial Measures" contained in the annual Management Discussion and Analysis, filed by Veresen with Canadian securities regulators.

Veresen Inc.      
       
Consolidated Statement of Financial Position      
       
 (Canadian $ Millions; number of shares in Millions; unaudited)  March 31, 2013   December 31, 2012 (1)
       
Assets      
       
Current assets      
  Cash and short-term investments  22.3   16.1
  Restricted cash 4.4   5.8
  Distributions receivable 39.7   39.9
  Receivables 70.7   72.6
  Other 14.1   11.5
  151.2   145.9
       
Investments in jointly-controlled businesses 821.5   807.0
Rate-regulated asset 40.9   43.8
Pipeline, plant and other capital assets 1,439.7   1,443.8
Intangible assets  449.0   455.0
Other assets 64.6   65.5
  2,966.9   2,961.0
       
Liabilities      
Current liabilities      
  Payables 50.7   63.4
  Dividends payable  12.9   12.9
  Current portion of long-term senior debt 11.9   11.7
  75.5   88.0
       
Long-term senior debt  1,289.5   1,247.6
Subordinated convertible debentures  86.2   86.2
Deferred taxes 268.4   262.0
Other long-term liabilities 44.6   46.2
  1,764.2   1,730.0
       
Shareholders' Equity      
Share capital       
  Preferred shares 195.2   195.2
  Common shares (198.7 and 197.8 outstanding at March 31, 2013 and
    December 31, 2012, respectively) 
1,815.1   1,804.3
Additional paid-in capital 4.3   4.3
Cumulative other comprehensive loss (155.5)   (164.8)
Accumulated deficit (656.5)   (608.1)
  1,202.6   1,230.9
Non-controlling interest 0.1   0.1
  1,202.7   1,231.0
  2,966.9   2,961.0
(1) Comparative figures as at December 31, 2012 have been revised. See Veresen's March 31, 2013
consolidated financial statements.
         

     
Veresen Inc.    
     
Consolidated Statement of Income    
  Three months ended March 31
 (Canadian $ Millions, except per Common Share amounts; unaudited)  2013 2012 (1)
     
Equity income  28.4 35.5
Operating revenues 71.6 55.0
Operations and maintenance (31.7) (26.3)
General, administrative and project development (20.6) (18.5)
Depreciation and amortization (22.4) (16.5)
Interest and other finance (15.5) (13.0)
Foreign exchange and other 0.5 (0.5)
Net income before taxes and non-controlling interest 10.3 15.7
Current taxes  (1.0) (2.8)
Deferred taxes (5.9) (3.3)
Net income before non-controlling interest  3.4 9.6
Non-controlling interest  - (0.1)
Net income 3.4 9.5
Preferred Share dividends (2.2) -
Net income attributable to Common Shares 1.2 9.5
     
Net income per Common Share    
  Basic and diluted  0.01 0.05
(1) Comparative figures for the three months ended March 31, 2012 have been revised. See Veresen's March 31, 2013 consolidated financial statements.

 

   
               
Consolidated Statement of Comprehensive Income               
               
            Three months ended March 31
 (Canadian $ Millions; unaudited)            2013 2012 (1)
               
Net income before non-controlling interest           3.4 9.6
Other comprehensive income (loss)              
  Cumulative translation adjustment              
    Unrealized foreign exchange gain (loss) on translation           9.3 (2.8)
Other comprehensive income (loss)           9.3 (2.8)
Comprehensive income before non-controlling interest           12.7 6.8
Comprehensive income attributable to non-controlling interest           - (0.1)
Comprehensive income           12.7 6.7
Preferred Share dividends           (2.2) -
Comprehensive income attributable to Common Shares           10.5 6.7
(1) Comparative figures for the three months ended March 31, 2012 have been revised. See Veresen's
March 31, 2013 consolidated financial statements.
   

 

               
Veresen Inc.              
               
Consolidated Statement of Cash Flows              
            Three months ended March 31
(Canadian $ Millions; unaudited)            2013 2012 (1)
               
Operating              
  Net income before non-controlling interest           3.4 9.6
  Equity income           (28.4) (35.5)
  Distributions from jointly-controlled businesses           46.5 54.7
  Depreciation and amortization           22.4 16.5
  Foreign exchange and other non-cash items           (1.4) (2.5)
  Deferred taxes            5.9 3.3
  Changes in non-cash working capital            (11.0) (16.7)
            37.4 29.4
Investing              
  Acquisitions, net of cash acquired            - (881.2)
  Investments in jointly-controlled businesses           (22.4) (15.9)
  Pipeline, plant and other capital assets           (9.1) (17.0)
  Restricted cash           (2.5) 0.4
  Other           - (0.2)
            (34.0) (913.9)
Financing              
  Restricted cash           3.9 347.1
  Short-term debt issued, net of issue costs           - 249.1
  Short-term debt repaid           - (250.0)
  Long-term debt issued, net of issue costs           - 347.8
  Long-term debt repaid           (2.0) (2.1)
  Net change in credit facilities           44.0 81.0
  Preferred Shares issued, net of issue costs           - 193.7
  Common Share dividends paid           (38.8) (9.1)
  Preferred Share dividends paid           (2.2) -
  Repayments from (advances to) jointly-controlled businesses           0.3 (21.5)
  Other           (2.5) (2.6)
            2.7 933.4
               
Increase in cash and short-term investments           6.1 48.9
Effect of foreign exchange rate changes on cash and short-term investments           0.1 -
Cash and short-term investments at the beginning of the period           16.1 21.9
Cash and short-term investments at the end of the period           22.3 70.8
(1) Comparative figures for the three months ended March 31, 2012 have been revised. See Veresen's March 31,
2013 consolidated financial statements.

 

               
Veresen Inc.              
               
Distributable Cash              
            Three months ended March 31
(Canadian $ Millions, except where noted; unaudited)            2013 2012
               
Alliance distributions, prior to withholdings for capital expenditures and net of debt service           33.9 32.6
AEGS distributable cash, after non-recoverable capital expenditures and debt service           4.6 4.0
Hythe/Steeprock distributable cash, after non-recoverable maintenance capital expenditures           17.6 9.5
Aux Sable distributions, net of support payments, non-recoverable maintenance capital expenditures and debt service           9.6 13.1
Power distributable cash, after maintenance capital expenditures and debt service            9.8 2.5
            75.5 61.7
Corporate              
  General and administrative           (8.5) (8.1)
  Interest and other finance           (10.0) (8.1)
            (18.5) (16.2)
  Taxes           (0.2) (2.8)
  Preferred Share dividends           (2.2) (1.1)
            (20.9) (20.1)
               
Distributable cash  (2)           54.6 41.6
               
Distributable cash per Common Share ($) (3)           0.27 0.23
               
Dividends paid/payable (4)           49.6 46.1
               
Dividends paid/payable per Common Share ($)            0.25 0.25
(2)   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.
(3)   The number of Common Shares used to calculate distributable cash per Common Share is based on the average number of
Common Shares outstanding at each record date.  For the three months ended March 31, 2013 the average number of Common
Shares outstanding for this calculation was 198,405,736 (2012 - 184,656,102) and 204,312,244 (2012 - 190,562,838) on a basic
and diluted basis, respectively. The number of Common Shares outstanding would increase by 5,906,508 (2012 - 5,906,508)
Common Shares if the outstanding Convertible Debentures on March 31, 2013 were converted into Common Shares.
(4)   Includes $10.8 million of dividends for the three months ended March 31, 2013 (2012 - $37.1 million) satisfied through the
issuance of Common Shares under the Company's Premium DividendTM and Dividend Reinvestment Plan (trademark of
Canaccord Genuity Corp.).
     
                   
                   
Veresen Inc.                
                 
Reconciliation of Distributable Cash to Cash from Operating Activities              
             
              Three months ended March 31
(Canadian $ Millions; unaudited)            2013   2012
                 
Cash from operating activities           37.4   29.4
Add (deduct):                
  Project development costs (5)           6.7   5.6
  Change in non-cash working capital            12.8   18.4
  Principal repayments on senior notes           (2.8)   (2.1)
  Maintenance capital expenditures            (2.0)   (0.9)
  Distributions earned greater (less) than distributions received (6)           3.9   (8.8)
  Preferred Share dividends           (2.2)   -
  Current tax on Preferred Share dividends           0.8   -
                 
Distributable cash           54.6   41.6
(5)   Represents costs incurred by the Company in relation to projects where the recoverability of such costs has not yet been
established.  Amounts incurred for the three months ended March 31, 2013 relate primarily to the Jordan Cove LNG
terminal project, the Pacific Connector Gas Pipeline project, and various power development projects.
(6)   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

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