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Veresen Says $715M Approved For Tower Complex in Montney Shale

Veresen Inc. said the Cutbank Ridge Partnership (CRP), a joint venture of Encana Corp. (60%) and Mitsubishi Corp. (40%), has approved the company's proposed $715 million Tower rich natural gas processing plant in the Montney Shale in northeast British Columbia (BC).

Meanwhile, the Calgary-based operator is forecasting distributable cash is expected to range from 94 cents/share to US$1.08/ share in 2016, compared with 99 cents to $1.07 for 2015. Based on an annualized dividend of $1.00/share for 2016, Veresen said the corresponding payout ratio would range from 93-106%.

During a guidance presentation on Monday, the company said it has $1 billion in capital projects, including Tower, under construction and expected to come online by 2018. Veresen has a 49% working interest (WI) in the Tower complex, which would have 200 MMcf/d of rich gas processing capacity and up to 20,000 b/d of condensate and natural gas liquids. The facility, which would process rich gas from the Montney Shale, would be south of Fort St. John and is expected to be in service by 4Q2017.

Veresen Midstream, a 50/50 partnership with Kohlberg Kravis Roberts & Co. (KKR), is funding 55-60% of Tower's construction costs through its existing $1.275 billion credit facility, which the company said is largely undrawn. The balance would be contributed over time by Veresen and KKR.

Once completed, Tower would be Veresen Midstream's second-largest gas processing facility. The largest, the $860 million Sunrise Gas Plant (49% WI), is under construction and is to have 400 MMcf/d of capacity. Sunrise is also expected to be in service by 4Q2017. The CRP sanctioned the Sunrise plant last October.

Veresen said the CRP "has also proposed to add an incremental 200 MMcf/d of compression and 400 MMcf/d of refrigeration capacity to the Saturn compressor site, converting this site into a 400 MMcf/d gas plant. A final investment decision for this project is expected in early 2016."

Veresen CEO Don Althoff said Veresen Midstream is the second-largest independent gatherer and processor in the Montney, but with the addition of Sunrise, Tower, and an expansion of the existing Saturn Gas Plant, the midstream unit could triple processing capacity by the end of 2018. That would provide "strong cash flow and earnings growth for Veresen," Althoff said.

"The strategic initiatives Veresen executed in 2014 and 2015 have established a growth platform that is the largest in the company's history. Our $1 billion of growth projects under construction are fully funded with existing sources and our dividend reinvestment program, and will provide meaningful per-share cash flow growth in the 2018 timeframe."

Another capital project included in the $1 billion budget is the $130 million expansion of extraction and fractionation facilities at the Aux Sable Liquids Products LP facilities in Channahon, IL (see Shale DailyNov. 4, 2014). Veresen owns 42.7% of Aux Sable with partners Enbridge Inc. (42.7%) and Williams Partners LP (14.6%).

Construction of a $140 million ethane storage facility near Burstall, Saskatchewan, is expected to be completed by 3Q2018, Veresen (100% WI) said.

Veresen acquired two natural gas processing facilities in northeast BC from Encana in late 2011 -- Hythe (176 MMcf/d of sour gas processing and 340 MMcf/d of sweet gas processing), and Steeprock (198 MMcf/d) (see Daily GPIDec. 8, 2011). Veresen and Encana also agreed to a long-term midstream services agreement averaging 370 MMcf/d. The facilities are connected to the Alliance and TransCanada pipeline systems.

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