“Veresen has delivered very strong operational and financial results over the course of 2016, with particularly impressive performance from Alliance,” said Don Althoff, President and CEO of Veresen. “We expect to sustain this momentum throughout 2017. We will continue to deliver on our strategy, with several key milestones in the coming year, including entering into an agreement for the sale of the power business in the first quarter and bringing the first two processing facilities currently under construction at Veresen Midstream into service towards the end of the year.”
2017 Budget Highlights:
- Strong performance is expected to continue, underpinning a dividend that remains entirely supported by distributable cash generated from existing take-or-pay and fee-for-service contracts
- Capital program of approximately $475 to $525 million to advance Veresen’s inventory of $1.3 billion of projects under construction, with the Tower and Sunrise processing facilities to be placed into service towards the end of the year
- Remain fully funded, with no requirement to access equity or debt capital markets to finance projects currently under construction, supporting the company’s objective of growing distributable cash per share
The strong performance from the business in 2016 is expected to be sustained through 2017. A wide AECO – Chicago gas price basis differential as well as constraints on alternative egress options out of western Canada are expected to continue to drive strong demand for Alliance’s service over the coming year. Alliance has begun working with shippers to extend firm capacity contract length beyond the current average of four years to capture the value of its ability to transport liquids-rich natural gas to the premium Chicago market and to provide greater long-term visibility for the business.
Veresen Midstream, Ruby and AEGS will also continue to provide steady sources of cash flow in 2017 through their fixed distributions. Within Veresen Midstream, cash flows under the existing take-or-pay agreement at Hythe/Steeprock and throughput volumes at existing Dawson gathering and compression facilities are expected to remain consistent year over year.
The company expects throughput volumes on Ruby to remain well below contracted amounts of approximately 1.1 bcf/d as a result of AECO’s competitiveness into Malin Hub relative to sourcing from Opal Hub. Veresen remains confident that investment grade shippers on Ruby represent sufficient volumes to meet Veresen’s preferred distribution.
The company expects NGL margins to improve slightly, which would result in a modest contribution from Aux Sable in 2017. Aux Sable’s NGL Sales Agreement with BP provides the opportunity to benefit from a recovery in NGL margins, while continuing to provide downside protection.
Veresen remains positioned for meaningful near term growth with an inventory of over $1.3 billion of projects under construction that are expected to generate an incremental $135 to $160 million of annual run-rate EBITDA net to Veresen. The company will continue to advance these projects in 2017 through a capital program of approximately $475 to $525 million, with approximately 95% of the investment at Veresen Midstream.
A significant portion of the capital at Veresen Midstream will be used to advance the construction of the three processing facilities sanctioned to date, with the Tower and Sunrise processing facilities expected to be in service towards the end of 2017. In aggregate, the Tower and Sunrise facilities will add 600 mmcf/d of processing capacity, more than doubling Veresen Midstream’s existing capacity. Following an initial ramp-up period, these two facilities are expected to generate combined annual run-rate EBITDA of $75 to $95 million net to Veresen. The Saturn Phase II processing facility is expected to be in service in mid-2018.
Veresen Midstream anticipates that additional capital projects will be sanctioned in the near term by Cutbank Ridge Partnership and Encana given the need for increased liquids-rich gas handling and processing capacity.
Veresen will advance the construction of the Burstall ethane storage project in 2017 with $20 to $30 million of capital investment anticipated through the year. The company expects Burstall will be in service by late 2018, generating over $15 million in EBITDA on an annual basis.
Jordan Cove LNG Project and Pacific Connector
Veresen will continue to advance the Jordan Cove LNG export terminal and Pacific Connector natural gas pipeline, with Veresen’s Board of Directors having approved a 2017 project development budget of approximately US$30 million. The focus will remain on securing additional agreements for the long-term sale of natural gas liquefaction capacity at the export terminal as well as obtaining the requisite regulatory permits for both the terminal and the pipeline. The project development budget will continue to be reviewed by Veresen’s Board of Directors throughout the year to ensure that project development spend is tied to progress on commercial and regulatory milestones.
Balance Sheet and Funding Strategy
The company remains in a strong financial position to execute its 2017 capital program, with a clear strategy in place to fully fund the projects currently under construction without accessing the capital markets. As part of this strategy, an additional $650 million of new credit facilities were put in place within Veresen Midstream in September. In November, Veresen issued $350 million in senior unsecured medium term notes to facilitate the repayment of $300 million in senior unsecured medium term notes that mature in March 2017.
The process to divest the power business is advancing, and Veresen continues to expect to enter into binding sale agreements in the first quarter of 2017, with the divestiture closing in the first half of the year. Proceeds from the sale will initially be directed to repay debt outstanding on the revolving credit facility and will subsequently be used to fully fund the equity component of the growth capital program, including equity contributions of $325 to $375 million into Veresen Midstream in 2017.
Veresen expects distributable cash in 2017 to be in the range of $1.00 to $1.14 per common share, assuming a sale of the power business at the end of the second quarter. Based on an annualized dividend of $1.00 per common share, the corresponding payout ratio would range from 88% to 100%. Importantly, Veresen expects the dividend will remain fully supported by distributable cash from its take-or-pay and fee-for-service businesses.
Veresen reaffirmed its 2016 distributable cash guidance of $1.12 per common share to $1.16 per common share. Further details concerning both 2016 and 2017 guidance can be found on the home page of Veresen’s web site at www.vereseninc.com.