VERESEN INC (TSE: VSN)

Mike Chhabra
October 1st, 2015

BUSINESS OVERVIEW

Veresen Inc. Owns and operates energy infrastructure assets across North America. The
companys principal business segments are pipeline transportation, natural gas liquids,
and power generation.

Veresen Inc.
Ticker

1-Year Price/Volume
TSE: VSN

Market Cap. ($)

2.88B

Enterprise Value ($)

3.48B

Stock Price ($)

52-Week Range ($)
P/E

9.98
9.80 19.40
27.4x

EV/EBITDA

54.08x

Veresens Business Model

Growth by acquisition 14 major deals between 2009 2015.
Diversifying portfolio with recent entry into LNG processing and future global expansion.
Focus on infrastructure and avoidance of exploration risk. Tariffs are the main source of revenue.
Retaining investors by offering high dividend yield along with a dividend reinvestment plan
(DRIP).

SUMMARY OF OPERATIONS

All current operations in North America. Seeking global opportunity in LNG

Jordan Cove and Pacific Connector. Significant focus on green energy.

BUSINESS MODEL

Taking advantage of low interest rates to grow the business.

Acquisitions by cash offering.
Majority of small acquisitions.
Cash from operations and debt financing.

Acquisitions by combination of equity and debt offering.

Major expansion projects.
Issue of bonds and shares; high dividend yields to retain and attract investorsDRIP.

Issuing bonds at low interest rates to retire debt with high interest rates.
Early redemption of high interest debt.
Buyback of shares.

Acquire
Acquire related
infrastructure.

Integrate
Integration of
assets.

Operate
Operations focus
on lean
management.

INTERNAL ANALYSIS

Veresen Inc. has a management team with considerable amount of experience in the
energy industry, as well as a proven track record of success with acquisitions.

Strong Senior Management

President, CEO, and Board Member
Don Althoff has over 30 years of experience
In leadership roles in the energy sector.
All other executive/ board members come
from diverse background including energy,
financial institutions, and construction. Combined
experience over 100 years.

Notable Senior Executives.

Donald L Althoff President/CEO
Elizabeth G Spomer
Exec Vice President
Kevan S King
VP/Secy/Gen Counsel
Theresa Jang
VP:Finance/CFO
Thomas Day
VP:Operations
Dorreen Miller
Director:Investor Relations

History of Successful Acquisitions

2015

Dawson area gas storage and

compression assets

2014

Ruby Pipeline

2012

York Energy Centre Wind

Energy

2011

Hydroelectric projects - BC

2010

Acquired Pristine Power

2008

London Cogeneration facility

EXTERNAL ANALYSIS

Veresen Inc. has a management team with considerable amount of experience in the
energy industry, as well as a proven track record of success with acquisitions.

Growth in LNG Exports & Future of LNG

Environmental resistance for new pipelines.
Existing pipeline companies expected to remain over the next decade.
Asia gas demand rapidly increasingpositive outlook for Jordan Cove.

INVESTMENT THESIS

High dividend with possibility of capital gain.

50% ownership of Ruby pipeline in 2014.

Strategic fit with upcoming Jordan Cove LNG Terminal.

Jordan Cove & Pacific Connector Pipeline

Access to other geographical markets.
Diversification of portfolio. Transition from inorganic growth.
FERC environmental impact statement released on September 30th, 2015 Positive
Outlook.

Existing Assets

Attractive midstream assets with long-term contracts.

Power generation.
Stable cash flow.
Focus on infrastructure to avoid volatility.

VALUATION

Discounted Cash Flow Analysis

$ CAD MM
EBIAT
Depreciation

2015E
$49.0

2016E
$49.7

2017E
$50.2

2018E
$50.7

2019E
$51.2

48.8

49.6

50.0

50.5

51.1

Capex (Maintenance)

(15.3)

(15.5)

(15.6)

(15.8)

(16.0)

Unlevered FCF

$82.6

$83.8

$84.6

$85.5

$86.3

Discount Factor

0.96

0.88

0.81

0.75

0.69

$73.9

$68.7

$63.8

$59.3

Discounted FCF
WACC

$79.2
8.7%

2019E EBITDA

$121.3

Exit Multiple

16.0x

Terminal Value

$1,940.0

PV Terminal Value

$1,278.4

Total Equity Value

$3,444.0

Fair Value per Share

14.03

Current Share Price

9.98

An exit multiple of 16.0x was assumed;

this is in line with analyst predictions
for Veresen.

VALUATION

COMPARABLES ANALYSIS

RISKS & CATALYSTS

RISKS
Lack of experience in organic
growth.
Learning curve may be longer than
expected.
Geopolitical risk.
Govt. pressure on stringent pipeline
regulations

CATALYSTS
Demand for clean energy.
Jordan Cove LNG has a lot of
upside potential.
Absence of subsurface risk.
Less immune to greenhouse gas
effect.
Existing infrastructure with secured
contracted; provide stability in
short-medium term
Small leadership team, but very
experienced.
Primary focus on infrastructure.