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New Jordan Cove LNG Filing Expected Soon, Veresen CEO Says

Veresen Inc.’s main focus is trained on completing a $7.3 billion combination with Pembina Pipeline, but the Calgary-based management team also is working to submit a revamped, more costly FERC application for the decade-old proposal to build the Jordan Cove liquefied natural gas (LNG) project along the Oregon coast.

CEO Don Althoff during the recent 2Q2017 conference call spent most of his time discussing the viability of the only currently active proposal for a U.S. West Coast LNG export project at Coos Bay, OR.

On the commercial front, he said, discussions with potential offtake buyers “are making good progress, and we are also seeing interest in the project from new parties," he said. Veresen in July signed an engineering, procurement and construction (EPC) turn-key agreement with KBJ, a joint venture between Kiewit Energy Group Inc., Black & Veatch Construction, Inc. and JGC US Projects, LLC to engineer and construct the terminal.

Veresen's ongoing efforts to mount a new filing to the Federal Energy Regulatory Commission, which last year rejected an earlier long-standing application, are "nearly complete, and we anticipate filing” during the third quarter, Althoff said.

“Most of the previously announced additional $32 million in board-approved 2017 funding for the project is aimed at supporting the new FERC filing.”

During a brief question-and-answer session with financial analysts, Althoff was asked to drill down on the EPC contract. It is the product of two years of engineering work and more recently the adoption of the "dual-fee" process, he said.

"We had two consortiums, one being KBJ, that went through the detailed process, and it took about nine months to complete,  design and come back with turn-key contracts," Althoff said. "We think this was a great time to go out to the market,” he said of the EPC contract. “The market is hungry for these types of projects right now."

While Veresen is satisfied with the outcome, Althoff did not put a value on the undertaking, noting that parts of the negotiating process are still ongoing.

"Due to the nature of the commercial discussions, we're keeping all that quiet while we continue to advance that work."

The design for Jordan Cove is "one of the lowest cost LNG projects in the world," while among the smaller scale ones at 1.4-1.5 million tons of LNG/liquefaction train annually.

Another analyst tried to get more information on the added costs of the new FERC application, but Althoff refused to be pinned down, although he did say that the application process now is much more comprehensive than requirements for the first one by Jordan Cove, which entailed about 40 pages. "The new application will be more like 400 pages," Althoff said.

Despite stagnant global spot prices for gas, Althoff thinks demand is perking up, and he thinks two export projects will be approved in the next 12 months.

Demand is growing much stronger in places like Bangladesh and South Korea or China where coal-fired power plant growth is slowing. "All of this is giving some momentum to the LNG market," he said, but he wouldn't speculate about when Veresen would find additional buyers for gas from Jordan Cove.

Althoff was asked about the recent cancellation of a competing North American LNG project in British Columbia, Pacific NorthWest. He conceded that could help Veresen’s Oregon project as the offtakers seek to replace their supplies.

"There were many large volumes in that project, so it could be helpful in bringing some additional buyers to our project," he said.

Veresen reported adjusted net income of $24 million (8 cents/share) in 2Q2017, compared with $11 million (4 cents) in the year-ago period.

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