Acquisition of 50% Interest in the Ruby Pipeline · Acquisition of 50% Interest in the Ruby...
Transcript of Acquisition of 50% Interest in the Ruby Pipeline · Acquisition of 50% Interest in the Ruby...
Acquisition of 50% Interest in the Ruby Pipeline
September 22, 2014
A final base shelf prospectus containing important information relating to the securities described in this document has been filed with the
securities authorities in each of the provinces of Canada. A copy of the final base shelf prospectus, any amendment to the final base shelf
prospectus and any applicable shelf prospectus supplement that has been filed, is required to be delivered with this document. This document
does not provide full disclosure of all material facts relating to the securities offered. Investors should read the final base shelf prospectus,
any amendment and any applicable shelf prospectus supplement for disclosure of those facts, especially risk factors relating to the securities
offered, before making an investment decision.
Forward-Looking Information
Certain information contained herein relating to, but not limited to, Veresen and its businesses, and the Ruby acquisition,
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 “will”, "may", "estimate",
"anticipate", "believe", "expect", “potential”, "plan", "intend", "target", "project", "forecast" or similar words suggesting future
outcomes or outlook. Forward-looking statements in this presentation include, but are not limited to, statements with respect to
annual distributions in respect of the Preferred Interest, expected returns and contributions to cash flow from the Ruby acquisition,
future markets from the Ruby pipeline, future growth prospects of Ruby, and the ability of Veresen to recognize synergies between
Ruby and the Jordan Cove LNG project, the timing of closing of the Ruby acquisition, and Veresen’s forecast of 2014 distributable
cash, annual dividend payment and dividend payout ratio. The forward-looking information included herein involves significant
risks, uncertainties and other factors. Such risks, uncertainties and other factors include, but are not limited to, risks relating to
closing of the Ruby acquisition, the potential for undisclosed liabilities associated with the Ruby acquisition and realizing the
expected benefits from the Ruby acquisition. Additional information on risks, uncertainties and factors that could affect the
foregoing forward-looking information and/or Veresen's operations or financial results is 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 such additional information 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 results 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, except as required by applicable laws. Any forward-looking information contained
herein is expressly qualified by this cautionary statement.
All dollar amounts contained in this news release are in Canadian dollars unless otherwise specified.
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Transaction Overview
Acquisition of 50% convertible preferred interest (the “Preferred Interest”)
in the Ruby pipeline system (“Ruby”) for US$1.425 billion from
Global Infrastructure Partners
Unique opportunity to acquire a large interest in a long-haul natural gas
pipeline with strong market fundamentals
Attractive strategic and financial attributes
Stable, long-term contracted cash flows with significant expected growth
Preferred Interest structure provides strong downside protection while
retaining full upside potential
Transaction expected to close in Q4 2014
The Ruby acquisition is consistent with our strategy of leveraging our existing
platform and providing gas connectivity from competitive supply regions to high
value markets, and provides a strategic link to our Jordan Cove LNG Project.
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In-service Date July 28, 2011
Pipeline Length 680 miles
Pipeline Diameter 42”
Current Capacity ~1.5 bcf/d (1) (2)
Build Cost US$3.7 billion (3)
Compression 4 mainline stations; 155,000 horsepower
Ship-or-Pay Contracts 1.1 bcf/d firm contracts
(71% of current capacity)
Remaining Contract Terms Weighted average of ~9 years
Operator Kinder Morgan Inc.
50% Partner El Paso Pipeline Partners (4)
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Ruby Pipeline – The Details
Newly-built, large-scale, natural gas transmission system extending
westward from the Opal hub in Wyoming to the Malin hub in Oregon
(1) Average annual capacity
(2) Incremental capacity of 0.5 bcf/d is achievable through the addition of compression
(3) Includes allowance for funds used during construction (“AFUDC”)
(4) Affiliate of Kinder Morgan Inc.
Key Investment Highlights
Synergistic to Jordan Cove LNG
Long-term Contracted Asset Supporting Stable Cash Flow
Attractive Convertible Preferred Structure
Strong and Growing Financial Performance and Impact
Significant Opportunity for Additional Long-term
Contracting and Expansion
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Long-Term Contracted Asset Supporting Stable
Cash Flow
High-quality, long-term ship-or-pay
contracts for ~1.1 bcf/d, representing
71% of total current capacity, provide
stable base cash flows
Strong mix of investment grade
shippers
90% of contracted volumes are with
highly-rated investment grade
shippers
Pacific Gas and Electric Company is
anchor shipper, representing 34% of
contracted capacity
Weighted average remaining contract
term of ~nine years
Enhances Veresen’s portfolio of
contracted pipeline assets providing
diversification into a high value market
in the U.S.
Credit Rating Profile of Current Shippers
by Contracted Volume
NR2%
<BBB8%
BBB29%
A61%
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Major Shippers
J. Aron &
Company
-
50
100
150
200
250
300
350
400
450
500
Pipelines Midstream Power Ruby
Strong and Growing Financial Performance and Impact
Veresen will receive US$91 million of preferred distributions annually based on the
Preferred Interest structure
Immediately accretive to distributable cash per share
Limited maintenance capital and a low cost structure enhance free cash flow
Estimated after-tax return on equity in the low teens based on current toll structure and
expected volumes
Significant future cash flow growth potential upon conversion to common equity following
additional contracting and/or de-leveraging
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Distributable Cash Inflows ($ millions)
(1) Non-GAAP measure; see MD&A
(2) Before Veresen corporate costs (G&A, finance costs, cash taxes)
(3) Based on midpoint of guidance published August 6, 2014
(4) Assumes 50% ownership of Ruby for the entire 2014 fiscal year
(3)
Pipelines
Midstream
Power
Ruby (4)
2010 2011 2012 2013 2014
(1) (2)
Synergistic to Jordan Cove LNG
Ruby provides direct access to the U.S. West Coast through the proposed Pacific
Connector Gas Pipeline which would supply the proposed Jordan Cove LNG terminal
Provides significant future upside associated with Jordan Cove LNG
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Attractive Convertible Preferred Structure
Preferred Interest structure provides strong
downside protection while preserving
upside
Preferred distributions are payable prior to
any distributions on common equity
Contractual debt amortization will
substantially de-lever Ruby over the initial
shipper contract term while Veresen earns
its preferred distribution
Preferred Interest can convert to a 50%
common equity interest in Ruby at
Veresen’s option
Contracting of an incremental ~250 mmcf/d
of long-term firm capacity at rates generally
consistent with current contracts activates
an automatic conversion of the Preferred
Interest to common equity
50/50 joint control governance provides
alignment of interests with experienced
operating partner
Illustrative Ruby Cash Flows
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Partner
Common
Distribution
Debt
Service
Veresen
Preferred
Distribution
($91 MM)
EBITDA
Toll Revenue
Toll Revenue
EBITDA
Partner
Common
Distribution
(50%)
Veresen
Common
Distribution
(Converted)
Debt
Service
O&M and
G&A
Future* Today
O&M and
G&A
*Illustration of potential future cash flow assuming Veresen converts into 50%
common equity and Ruby is fully contracted; no expansion assumed
Significant Opportunity for Additional Long-term
Contracting and Expansion
Opportunity to participate in significant cash
flow growth from contracting the remaining
29% of capacity
Current average capacity of ~1.5 bcf/d is
expandable to 2 bcf/d through the addition of
compression
Attractive market dynamics in higher growth
areas including California, Oregon,
Washington and northern Nevada
Ruby provides western U.S. natural gas
consumers with critical supply diversity
Shifting market dynamics including the
potential development of U.S. West Coast LNG
support Ruby’s continued and growing
long‐term utilization
71%
100%
~130%
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Contracted,
1.1 bcf/d
Available for
Contracting,
~450 mmcf/d
Expansion
through
Compression
~500 mmcf/d
Capacity Utilization
Ruby Acquisition – An Attractive Value Proposition
Rare opportunity to acquire a large interest in a core U.S.
pipeline asset
Consistent with Veresen’s strategy of leveraging our existing
platform of businesses
Preferred Interest provides stable current base cash flow while
retaining the opportunity to participate in full future upside
A strategic link to the Pacific Gas Connector Pipeline and
Jordan Cove LNG, providing significant future upside potential
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