Financial Report - Veresen Inc.

Financial Highlights
Hythe/Steeprock generated $13.7 million and $57.4 million in EBITDA for the three months ended December 31, 2012 and the period
February 9 to December 31, 2012, respectively. These amounts are primarily comprised of the fee commitments under the MSA.
At December 31, 2012, our primary customer had a cumulative volume deficiency relative to its commitments that could result in a
maximum $2.8 million of foregone processing value in excess of the committed fee stream in the next 12 months. We have received
the funds associated with these volumes and deferred the recognition of $2.8 million of revenues until the customer either applies
these deficiency volumes against future excess volumes or the 12-month carry forward period expires, whichever occurs first. The
$2.8 million deferred revenue represents a cumulative amount for the period February 9 to December 31, 2012, and was recorded
in the fourth quarter upon the finalization of our revenue recognition policy for Hythe/Steeprock. No carry-forward scenario will
result in our receiving fees below the minimum committed fee stream.
Net Income before tax for the three months ended December 31, 2012 and the period February 9 to December 31, 2012 was $4.3 million
and $23.3 million, respectively, before corporate financing costs, which are classified in the corporate segment of our business.
Depreciation and accretion expense for the fourth quarter was $9.4 million which is in line with the third quarter.
Opportunities and Developments
Major Turnaround
In late May 2013, the Hythe plant is scheduled to have a major turnaround wherein we will inspect and perform maintenance on
equipment. Portions of the facility are expected be out of service for up to 16 days. Planning the turnaround began shortly after we
assumed operatorship of the facilities. Our objective is to plan and execute the turnaround in a manner that ensures safety of all
stakeholders and mitigates risks and additional costs associated with extended facility down-time. To manage these risks, we have
retained many of the staff who have participated in previous turnarounds at Hythe and Steeprock. The majority of the costs associated
with the turnaround will be recoverable from our primary customer under the MSA.
Facility Debottleneck and Optimization
As operator of Hythe and Steeprock, we have identified a number of potential opportunities to increase production through the
facilities. We continue to develop these projects and solicit interest from producers in the area, including current customers. We
will be implementing key tie-ins for a Hythe debottleneck during the 2013 plant turnaround, which will eliminate the need for facility
down-time if and when expansion projects are undertaken.
Aux Sable
Pursuant to a long-term NGL Sales Agreement with BP Products North America Inc., Aux Sable sells all production from its Channahon
Facility to BP. In return, BP pays Aux Sable a fixed annual fee and a percentage share of net margins in excess of the fixed fee. The
percentage share of net margins varies and depends upon specified thresholds being reached. In addition, BP compensates Aux Sable
for all associated operating and maintenance costs, as well as growth and maintenance capital expenditures costs related to the
Channahon Facility, subject to certain limits in the case of capitalized costs.
In late 2009 and in 2010, Aux Sable advanced its strategy of attracting new sources of liquids-rich natural gas for the Channahon
Facility by acquiring the newly constructed Septimus Gas Plant, located in the Montney region of British Columbia, by constructing the
Septimus Pipeline, and by acquiring an expansion to the Septimus Gas Plant that more than doubled its initial capacity to 60 mmcf/d.
Aux Sable receives take-or-pay fees for both the plant and the pipeline under long-term contracts.
In addition to the Septimus projects, Aux Sable continues to focus on a number of initiatives to ensure the optimal level of rich gas is
delivered into the Alliance pipeline for recovery of NGLs at the Channahon Facility. These activities have largely been focused on the
Montney region in northwest Alberta and northeast British Columbia, and in the Bakken region in North Dakota and Saskatchewan. In
July 2011, Aux Sable acquired the Palermo Conditioning Plant and the Prairie Rose Pipeline in the Bakken region of North Dakota. Aux
Sable earns processing and pipeline transportation fees from these assets, and retains a margin on the NGLs recovered. The acquisition
represented a significant step forward in Aux Sable’s pursuit of its strategic growth objectives in the Bakken, which include owning
key infrastructure assets that will lead to increased deliveries of liquids-rich natural gas to the Channahon Facility. Aux Sable is also
expanding its rail off-load capacity at the Channahon Facility in order to provide fractionation services for U.S. shale gas producers.
Aux Sable has also entered the off-gas processing business. In 2010, Aux Sable entered into a long-term off-gas processing agreement
with a third party to secure a feedstock source for its Heartland off-gas facility, located in Fort Saskatchewan, Alberta. Heartland
commenced commercial operations in September 2011 and is capable of processing up to 20 mmcf/d of off-gas, producing hydrogen,
ethane and a propane-plus mix. All of the products from the facility are sold to the contract counterparty under the long-term agreement.
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