Veresen Announces $920 Million Investment in the Montney with Strategic Acquisition of Canadian Midstream Assets and Acquisition

abarrelfullabarrelfull wrote on 19 Dec 2011 07:08
Tags: canada deals encana gas midstream montney pipeline shale veresen

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Veresen Inc. ("Veresen") (TSX: VSN) is pleased to announce today that, through a wholly-owned subsidiary, it has entered into agreements with Encana Corporation ("Encana") (TSX, NYSE: ECA) to acquire the Hythe/Steeprock midstream gas gathering and processing complex for $920 million. These assets are located in the Cutbank Ridge region of Alberta and British Columbia. Natural gas and natural gas liquids in the region are produced from the prolific Montney, Cadomin and other geological formations.

The Hythe/Steeprock complex includes two natural gas processing plants with combined functional capacity of 516 MMcf/d as well as approximately 40,000 hp of compression and 370 km of gas gathering lines. The Hythe plant processes both sour and sweet natural gas, while the Steeprock plant is a sour gas processing facility.

In connection with the transaction, Veresen and Encana have entered into a long-term Midstream Services Agreement under which Encana will provide a competitive, long-term, take-or-pay throughput commitment averaging 370 MMcf/d, representing 72 percent of the functional capacity of the Hythe/Steeprock complex.

Veresen will become the operator of the two interconnected gas processing plants following a transition period between Veresen and Encana. Veresen expects to retain all operational employees at the processing plants. Encana will be the contract operator of the compression and gas gathering system acquired by Veresen. This will allow Encana to coordinate its drilling program and natural gas production in the area with requisite development of the Hythe/Steeprock gathering system.

"This transaction establishes a high-quality, independent natural gas midstream business for Veresen which we expect will generate attractive returns and make a significant contribution to our cash flow," said Stephen White, President and Chief Executive Officer. "The Hythe/Steeprock complex is strategically located in the heart of a high-growth region focused on Montney drilling, and is underpinned by a competitive, long-term gathering and processing fee agreement with an outstanding producer partner in Encana."

"In an active and highly-competitive midstream landscape, we remain focused on our strategy of growing our business through the selective development and acquisition of contracted, high-quality, long-life infrastructure assets that generate stable cash flows. This acquisition is aligned with our business model and offers strength, stability and growth over the long term."

Mr. White added, "Concurrent with this transaction, we are pleased to announce we have entered into a $303 million bought deal financing which, together with our strong balance sheet and sources of credit, will successfully fund this acquisition."

This transaction is expected to close in the first quarter of 2012 and is subject to normal closing conditions, including receipt of normal course approval under the Competition Act. A small portion of the assets are subject to National Energy Board ("NEB") regulation, and closing for the transaction related to these assets will occur at a later point when NEB approval is obtained.

Acquisition Highlights

Key investment highlights of the Hythe/Steeprock complex acquisition are as follows:

High-Quality Assets

  • Establishes an independent midstream business for Veresen in an area focused on the high-growth Montney zone, one of North America's most prolific, low-cost natural gas and NGL plays.
  • High-quality, of-scale facilities including the Steeprock gas plant (198 MMcf/d sour), the Hythe gas plant (340 MMcf/d sweet, 176, MMcf/d sour), approximately 40,000 hp of sweet and sour compression, and 370 km of gathering lines.
  • Connections to the Alliance and TransCanada pipeline systems.

Contracted Cash Flow

  • Long-life energy infrastructure assets with contracted, stable, fee-for-service cash flow.
  • Investment grade counterparty.
  • No exposure to commodity price fluctuations.
  • Strong Financial Performance/Impact
  • Minimum average annual committed gathering and processing fees over the first five years of over $72 million, net of operating and maintenance costs; potential for additional fees from non-committed or third party volumes.
  • The transaction is immediately accretive to distributable cash per share, with accretion increasing over time.
  • With this transaction, Veresen estimates its Canadian tax horizon will be extended to approximately 2019.

High Growth Potential

  • Cutbank Ridge is one of Encana's key resource plays with more than 1 million acres of land and in excess of 500 MMcf/d of production.
  • Total recoverable natural gas in proximity to the Hythe/Steeprock complex, including Encana and third party gas, has been estimated by GLJ Petroleum Consultants ("GLJ"), independent qualified reserves evaluators, to be 26 tcf of best estimate contingent resources.
  • Based on GLJ's assessment of best estimate of contingent resources, regional gas production could increase by approximately 2 billion cubic feet per day over the next 20 years, providing significant midstream infrastructure expansion opportunities for Veresen.

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