Veresen to divest power assets
Veresen Inc. plans to shift away from power generation in favour of tightening its focus on midstream natural gas assets, a decision that comes as the company’s proposal to build a west-coast LNG export facility remains snared in regulatory delays.
The company said Thursday it plans to sell the entirety of its power generation business, which amounts to roughly 14 per cent of its $4.5-billion asset base.
It said the details of a sale could be announced in the first quarter of 2017.
The decision is partly due to the flood of new investors that have entered the power generation sector in recent years, particularly in renewable energy sources such as wind or solar, causing a glut of cheap power supplies that have diminished the competitiveness of those developments
“We just do not believe it will offer the growth and returns to compete with the rest of our business,” Veresen president and CEO Don Althoff said in a conference call with analysts to discuss the company’s second-quarter results.
“So we don’t see a competitive advantage like we do in our midstream and our pipeline business where we can do brownfield expansions and keep out of unnecessarily uncompetitive bids.”
Veresen owns 12 power generation assets across Canada totalling 625 megawatts (MW). Two of those developments are gas-fired power facilities, while the rest are cleaner sources of energy such as hydro, wind power or waste heat conversion.
The sale of those assets will allow Veresen to pay down debts, which currently stands at five times its earnings before interest, taxes, depreciation and amortization, the company said.
It said it will now focus mainly on its existing and currently under construction midstream assets, including its natural gas and natural gas liquids pipelines.
The company is meanwhile awaiting a decision by a U.S. regulatory body over its plan to build the US$6-billion Jordan Cove LNG export facility on the Oregon coast. In March the Federal Energy Regulatory Commission (FERC) denied its proposal, citing a lack of committed shippers.
However, soon after the decision, Veresen secured Japanese buyers JERA Co. and ITOCHU Corp. for long-term shipping commitments on half of the project’s output capacity, which led the company to apply for a re-hearing for the project. It is still awaiting a final decision from the FERC.
Jordan Cove would have a starting capacity of one billion cubic feet per day, to be shipped out of a port in Coos Bay, Ore.
Christine Tezak, an analyst with Clear View Energy Partners LLC, said the biggest roadblock to building Jordan Cove could be securing permitting for the 373-kilometre Pacific Connector pipeline that will supply the project, operated under a consortium led by Williams Energy Inc.
The pipeline currently has contracts for 77 per cent of its capacity, but has met some resistance from locals.
“The question is are you really meeting the test of public need if you’ve proposed a larger pipeline and you’ve only got it 77 per cent subscribed,” Tezak says.
The U.S. is set to emerge as one of the world’s largest exporters of LNG, and has about 10 billion cubic feet of new export capacity currently under construction.