veresen announces second quarter financial results and ... · financial overview three months ended...

Veresen Announces Second Quarter Financial Results and Increased 2017 Guidance CALGARY, Alberta, August 2, 2017 – Veresen Inc. (“Veresen”) (TSX: VSN) today announced its second quarter operating and financial results.

“Veresen continued to deliver strong business performance during the second quarter while we work towards closing the combination with Pembina,” said Don Althoff, President and CEO of Veresen. “We expect distributable cash for the year will be well ahead of our initial expectations as a result of supportive fundamentals at both Alliance and Aux Sable. At Veresen Midstream, we continue to secure additional investment opportunities and the construction of our major growth projects remains ahead of schedule and below budget.” Financial and Operational Highlights

Generated distributable cash in the second quarter of $100 million ($0.32 per Common Share), an increase over the $94 million ($0.30 per Common Share) in the second quarter of 2016

Invested $336 million ($157 million net to Veresen) in growth capital within Veresen Midstream during the quarter, including $233 million ($109 million net to Veresen) for the construction of the Sunrise, Tower and Saturn Phase II processing facilities

Increased full year 2017 distributable cash guidance mid-point by 12% to $1.26 per Common Share on the strength of Alliance’s performance, an improved outlook for NGL margins at Aux Sable, as well as management’s continued confidence in the strength of the underlying business

Continued to close the sale of power assets during the second quarter such that approximately two thirds of the previously announced $1.18 billion in total proceeds has been received to date, with the expectation that the company will successfully close the sale of its remaining power facilities in the third quarter

Agreement to Combine with Pembina During the quarter, Veresen entered into a plan of arrangement with Pembina Pipeline Corporation

(“Pembina”), under which Pembina will acquire all the issued and outstanding common shares of Veresen in exchange for $18.65 in cash or 0.4287 of a common share of Pembina, subject to maximum consideration of approximately 99.5 million Pembina common shares and $1.523 billion in cash. At announcement, the offer represented a 22.5% premium to Veresen’s last closing price

Subsequent to the end of the quarter, Veresen shareholders, at Special Meetings of Veresen's common and preferred shareholders, voted to approve the previously announced plan of arrangement, with greater than 99 percent of each of Veresen common shares and preferred shares voted at the meeting being in favor. Additionally, the Court of Queen’s Bench of Alberta approved the plan of arrangement between Pembina and Veresen

Closing of the transaction remains subject certain regulatory and government approvals and other customary closing conditions, including final acceptance of the Toronto Stock Exchange and approval under the Canadian Competition Act. Pembina and Veresen currently expect the transaction will close late in the third quarter or early in the fourth quarter

Veresen expects the combined entity will bolster the delivery of the existing strategy through an integrated business across the energy infrastructure value chain with a robust portfolio of secured projects to drive meaningful per share growth. The combined platform offers compelling customer service offering enhancements, as well as integration and investment potential, exceeding what Veresen could deliver on a stand-alone basis. The combined entity will also offer an attractive cash dividend underpinned entirely by fee-based cash flows at a lower payout ratio with a stronger balance sheet

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Financial Overview Three Months Ended June 30

($ Millions, except per Common Share amounts) 2017 2016

Adjusted net income attributable to Common Shares(1) 24 11

Per Common Share ($) 0.08 0.04

Net income attributable to Common Shares 150 9

Per Common Share ($) 0.48 0.03

Distributable Cash(1) Pipeline 92 85 Midstream 22 21 Power 10 11 Veresen – Corporate (17) (16)Preferred Share dividends (7) (7)Total Distributable Cash 100 94 Per Common Share ($) 0.32 0.30

(1) Adjusted net income attributable to Common Shares and Distributable Cash are non-GAAP measures. See the reconciliations to GAAP measures in tables attached to this news release.

Veresen generated adjusted net income attributable to Common Shares of $24 million or $0.08 per Common Share in the second quarter, driven by the continued strength of the pipeline business, increased contributions from the midstream segment and reduced project development spending.

Distributable cash for the second quarter was $100 million or $0.32 per Common Share, compared to $94 million or $0.30 per Common Share for the same period last year. This was driven by increased distributions from Alliance.

Proportionate Consolidation(1)

Three Months Ended Pipeline Midstream June 30, 2017 Veresen Aux ($ millions) Alliance(2) Ruby(3) AEGS Midstream(4) Sable Power Corporate(5) Total

EBITDA 75 49 8 17 9 14 (9) 163

Interest (12) (13) (1) (4) (2) (8) (40)Principal Repayment (16) (12) (1) (1) (1) (31) Maintenance Capex (3) (3) Other 9 6 5 (1) (1) (7) 11 Distributable Cash 56 30 6 17 5 10 (24) 100

Long-term Debt 694 688 75 931 2 40 1,011 3,441

Growth Capital 157 10 167

(1) This table contains non-GAAP measures. Balances for Veresen’s jointly controlled businesses represent Veresen’sproportional share based on Veresen’s ownership interest, and includes consolidation adjustments. See thereconciliation of distributable cash to cash from operating activities attached to this news release.

(2) Approximately 54% of Alliance EBITDA was earned in C$. “Other” represents funds distributed from available liquidity.(3) Ruby EBITDA presented as a 50% proportionate share with benefit of preferred distribution structure reflected in “other”. (4) Veresen Midstream ownership structure provides for Veresen to receive approximately 60% of the cash distributions

from the Partnership while Veresen is entitled to approximately 47% of net income in 2017.(5) Corporate EBITDA and growth capital do not include $26 million of Jordan Cove project development spending expensed

during the quarter. Corporate “other” relates to preferred share dividends. Corporate growth capital is presented on anincurred basis and includes $10 million of Burstall investment during the quarter.

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Business Segment Overview

Volumes by Segment Q2 2017 Q1 2017 Q4 2016 Q3 2016 Q2 2016

Pipeline

Alliance (bcf/d) Firm 1.335 1.356 1.248 1.338 1.320 Seasonal Firm 0.092 0.216 0.136 0.153 0.144 Priority Interruptible Transportation Service and Interruptible Transportation

0.091 0.100 0.051 0.053 0.095

Total Canadian Volumes 1.518 1.672 1.435 1.544 1.559 U.S. Bakken Volumes 0.144 0.096 0.112 0.138 0.139 Total Deliveries into Channahon 1.662 1.768 1.547 1.682 1.698

Ruby (bcf/d) 0.520 0.714 0.609 0.698 0.555

AEGS (mbbls/d) 290 286 306 298 287

Midstream Veresen Midstream (mmcf/d)

Hythe / Steeprock 380 381 385 385 385Dawson 622 715 722 670 724

Total Veresen Midstream 1,002 1,096 1,107 1,055 1,109

Aux Sable (mbbls/d) 95 89 80 65 91

Pipeline

Alliance

Throughput volumes on Alliance remained strong in the second quarter of 2017. Total deliveries into Channahon of 1.662 bcf/d were slightly lower than the 1.698 bcf/d delivered in the second quarter of 2016. During the quarter, Alliance undertook a four day required shutdown on a portion of the pipeline due to slope movement caused by spring runoff and heavy rains near the Wapiti River, approximately 25 kilometers southwest of Grande Prairie, Alberta. During the required shutdown, Alliance completed an excavation and inspection of the affected pipeline segment and confirmed that there were no integrity concerns. Alliance declared force majeure under its agreements with firm shippers, resulting in a minimal impact on revenues for the quarter.

Distributable cash from Alliance in the second quarter of 2017 of $56 million was an increase from the $51 million for the second quarter of 2016 and a seasonal decrease from the $62 million in the first quarter of 2017. Relative to the comparable quarter in 2016, distributable cash in the second quarter of 2017 was higher as a result of lower general and administrative and operating costs as well as the distribution of incremental cash flow using Alliance’s available liquidity, which offset slightly lower revenues. Lower distributable cash in the second quarter of 2017 relative to the first quarter of the year was a result of seasonally lower throughput volumes driving reduced revenues, which was partly offset by a larger distribution of incremental cash from available liquidity in the second quarter.

Shipper demand for Seasonal Firm service for the balance of the year and into the first quarter of 2018 has been robust, and IT sales also remain strong. Demand continues to be driven largely by a wide AECO – Chicago gas price basis differential, and is augmented by Alliance’s high rate of availability which provides alternative transportation services to shippers when there are outages or curtailments on other egress options out of western Canada. Demand is also driven by Alliance’s unique capability to transport liquids

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out of the basin. Seasonal Firm has been realizing a premium to Firm or IT service, resulting in higher weighted average tolls. These market dynamics are expected to continue to underpin strong throughput volumes on Alliance over the near- and medium-term. In response to strong shipper interest, Alliance is in discussions with shippers to extend the term of existing contracts and continues to advance the engineering, commercial and regulatory preparations required to support a potential expansion of the pipeline’s capacity by approximately 0.5 bcf/d through additional compression. Alliance anticipates launching a binding open season for the potential expansion of the pipeline’s capacity by the first half of 2018, with a target in-service date in late 2020. Successful re-contracting of the current capacity remains an important step towards advancing a potential expansion of the pipeline’s capacity and re-evaluating the optimal capital structure at Alliance. Ruby Volumes on Ruby in the second quarter continued to be impacted by low western Canadian natural gas pricing and a weak Canadian dollar, which improved AECO’s competitiveness into Malin Hub relative to sourcing from Opal Hub. Volumes in the second quarter were seasonally lower than in the first quarter of 2017 and were slightly lower than the second quarter of the prior year as a result of increased hydro power generation displacing natural gas power generation in the pacific northwest, leading to additional Canadian natural gas volumes reaching Malin Hub. Veresen’s perpetual, cumulative preferred distribution from Ruby provides the company with US$91 million per year and is underpinned by long-term take-or-pay contracts with predominantly investment grade shippers. Variance in Veresen’s distributable cash is only as a result of fluctuating foreign exchange rates. The preferred interest can be converted into a common interest at Veresen’s election or if additional firm volumes are contracted at terms similar to those held by existing shippers, which would effectively fill the pipeline and, upon conversion to a common equity interest, hold Veresen’s distribution whole relative to the current preferred amount. AEGS Both volumes and distributable cash from AEGS remain very stable. AEGS is a critical part of the infrastructure supporting the petrochemical industry in Alberta, with distributable cash underpinned by long-term take-or-pay contracts. The existing agreements have been in place since 1998 and expire at the end of 2018. Midstream Veresen Midstream At Veresen Midstream, the Veresen-operated facilities ran at nearly 100% plant reliability in the second quarter. Volumes at Hythe / Steeprock remain in-line with expectations under the existing take-or-pay contract, and include some volumes from third party producers. During the second quarter, Veresen Midstream performed a scheduled two-week turnaround of the Hythe gas processing plant. The scheduled turnaround was completed three days ahead of schedule, below budget and will not impact Veresen Midstream’s revenue under the existing take-or-pay agreement. Volumes at Dawson are consistent with expectations as additional infrastructure currently under construction is required to facilitate increases in throughput ahead of the Tower and Sunrise gas processing

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facilities coming into service later this year. During the second quarter, Veresen Midstream provided Veresen with approximately $17 million in distributable cash. Veresen’s share of EBITDA for the quarter of $17 million was in-line with the last several quarters. EBITDA from Dawson will grow as additional gathering lines, compression, liquids handling and gas plants are brought into service, while operating costs continue to be consistent with expectations. In May, the South Central Liquids Hub was placed into service ahead of schedule and approximately 15% below budget. The South Central Liquids Hub will allow the existing gathering system in the area to handle development anticipated to occur over the next several years and can be expanded in the future to meet CRP’s long-term liquids handling needs as well as provide services to third party producers in the area. Subsequent to the end of the second quarter, Cutbank Ridge Partnership (“CRP”) sanctioned South Central Liquids Hub Phase II, which will double throughput capacity and provide pipeline connectivity for condensate directly to a third party pipeline system and produced water to a Veresen Midstream disposal facility. South Central Liquids Hub Phase II is expected to be in service in the first quarter of 2018 at a capital cost of $70 million ($33 million net to Veresen). Construction of the three processing facilities is ahead of schedule and is trending under budget, with more than 75% of capital incurred to date. The company expects the combined cost of the processing facilities currently under construction to be approximately $2.5 billion (approximately $1.2 billion net to Veresen), with the Sunrise and Tower plants expected to be in-service in the fourth quarter of 2017 and the Saturn Phase II plant in-service by early 2018. When all three facilities are operational, Veresen Midstream will have 1.5 bcf/d of gas processing capacity in operation and will be a dominant player in the core of the Montney, one of North America’s most prolific and competitive liquids-rich resource plays. Once commissioned, these facilities are expected to generate incremental run-rate EBITDA between $250 million to $300 million (approximately $120 million to $140 million net to Veresen), based on target volumes. Veresen continues to expect that incremental sanctioned capital for gathering pipelines, natural gas processing and liquids handling in this region will amount to $200 million to $400 million per year for Veresen Midstream over the next several years. Since the start of the year, approximately $165 million ($78 million net to Veresen) of capital projects have been sanctioned by CRP and Encana leading to over $265 million ($125 million net to Veresen) of capital projects currently under construction within Veresen Midstream in addition to the three gas plants. During the second quarter, $336 million ($157 million net to Veresen) of capital was invested by Veresen Midstream, including $233 million ($109 million net to Veresen) of expenditures for the Sunrise, Tower and Saturn Phase II processing facilities. Since Veresen Midstream was formed in early 2015, a total of $3.6 billion (approximately $1.7 billion net to Veresen) in capital projects including those acquired on closing of the transaction have been sanctioned under the agreement with CRP and Encana to fund up to $5 billion of new infrastructure. At the end of the second quarter of 2017, approximately $775 million of these capital projects were in service. Aux Sable Propane plus and ethane margins during the second quarter of 2017 were slightly lower than in the first quarter but remained above the cyclical lows of the past two years. Under Aux Sable’s NGL Sales Agreement with BP, the sharing of margins is determined on an annual basis, which results in the deferred recognition and distribution of margins generated in the earlier part of the year. As a result, distributable

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cash from Aux Sable of $5 million does not include $2 million of margin that was generated during the quarter. Distributable cash in the second quarter was slightly lower than the first quarter of the year due to lower margin revenues and slightly higher costs. Propane plus margins remain the largest profit driver at Aux Sable. While these margins have weakened somewhat from seasonal highs earlier in the year, based on current spot margins as well as indicative future pricing, the company expects the $11 million of margin generated in the first half of the year will be recognised and distributed later in the year. Veresen also expects that for the balance of the year, margin will be recognised and distributed in the quarter in which it is generated. Burstall Ethane Storage Facility Veresen continues to advance the construction of a one million barrel ethane storage facility located near Burstall, Saskatchewan, underpinned by a 20-year contract with NOVA Chemicals. During the second quarter, the National Energy Board approved the pipeline connecting Burstall to the existing ethane infrastructure in the region. Veresen has incurred over three-quarters of the cost of construction to date and anticipates spending in 2017 to be between $30 million to $40 million. Veresen expects that the construction of Burstall will be completed in late 2018. Jordan Cove LNG and Pacific Connector The company continues to advance the Jordan Cove LNG Project and related Pacific Connector natural gas pipeline. Approximately US$19 million of project development spend was incurred in the second quarter, with the majority of spend directed to position the project to make a formal FERC submission in the third quarter. Subsequent to the end of the quarter, Jordan Cove LNG selected KBJ, a joint venture partnership comprised of Kiewit Energy Group Inc., Black & Veatch Construction, Inc., and JGC US Projects, LLC, to provide engineering, procurement and construction services for the development of the Jordan Cove export terminal. During the second quarter, Jordan Cove LNG continued to advance discussions with additional off-takers. Based on the progress to date and the expectation that Jordan Cove LNG will achieve additional key milestones during the balance of the year, Veresen’s Board of Directors approved an additional US$32 million in project development spend for 2017. Increased 2017 Guidance Veresen has increased its 2017 distributable cash guidance by approximately 12% to a range of $1.21 per Common Share to $1.31 per Common Share. The increased guidance reflects higher than anticipated demand for Seasonal Firm and Interruptible service at Alliance, continued strength in NGL margins at Aux Sable as well as management’s continued confidence in the strength of the underlying business. The increased guidance range represents a payout ratio of approximately 76% to 83% of distributable cash, and implies full coverage of the dividend pro forma the sale of the power business. Further details concerning 2017 guidance can be found on the home page of Veresen's web site at www.vereseninc.com. Balance Sheet and Funding Strategy During the second quarter, the company closed the sale of certain power assets such that approximately two thirds of the previously announced $1.18 billion in total proceeds has been received to date. Veresen and its counterparties on the sale of the remaining power assets continue to make progress in securing all outstanding third party approvals and Veresen remains confident the company will successfully close the

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sale of its entire power business in the third quarter. Proceeds from the sale will be initially directed to reduce debt outstanding and subsequently used to fully fund the remaining equity component of the approximately $1.4 billion of projects currently under construction with no need to access the capital markets. Additionally, the divestiture strengthens Veresen’s balance sheet, further underpinning the dividend and providing additional flexibility to fund incremental growth projects. At the end of the second quarter, approximately $1.1 billion of the aggregate cost of the $1.4 billion of capital projects had been incurred, with a remaining equity component of approximately $125 to $175 million to be funded based on target leverage of 55% to 60% debt in capital investments. The remaining debt has been fully secured within Veresen Midstream, with sufficient capacity on the corporate facility to complete construction at Burstall. As at June 30, 2017, Veresen’s $750 million revolving credit facility had approximately $485 million of available, undrawn capacity. The company expects that proceeds from closing the remainder of the power divestiture will be more than sufficient to fully repay outstanding balances on the revolving credit facility. Proportionate Consolidation of Debt – Amortization Schedule(1)

($ millions) H2

2017 2018 2019 2020 2021 2022+ Total

Fixed Term Pipeline

Alliance(2) 32 64 124 65 64 262 611 Ruby 48 190 57 57 28 308 688

AEGS 2 4 4 65 75

Total 82 258 185 187 92 570 1,374

Veresen Midstream(3) 2 42 59 400 4 397 904

Aux Sable 2 2

Corporate 150 200 350 50 750

Total Fixed Term 84 452 444 587 446 1,017 3,030

Revolving (Floating Rate) Alliance(2) 15 68 83

Veresen Midstream 27 27

Corporate 261 261

Total Floating Rate - - 15 356 - - 371

Total 84 452 459 943 446 1,017 3,401

Power 1 3 3 3 3 27 40

(1) This table contains non-GAAP measures. Balances for Veresen’s jointly controlled businesses represent Veresen’s proportional share based on Veresen’s ownership interest. This table includes consolidation adjustments and deferred financing fees, meaning that the values in this table may not be indicative of the face value of debt outstanding.

(2) Includes NRGreen. (3) Once the Sunrise, Tower and Saturn Phase II facilities currently under construction are in operation, Veresen intends to

refinance the Veresen Midstream expansion facility with non-amortizing debt. The company’s debt on a proportionate consolidation basis as at June 30, 2017 was $3.4 billion or approximately 5.1x proportionately consolidated EBITDA on a trailing 12 month basis of $678 million. Pro forma the reduction of debt from the sale of the power business, including $191 million in cash on the balance sheet at the end of the quarter and less associated trailing 12 month EBITDA of $86 million, proportionately consolidated debt would have been approximately 4.7x trailing twelve month EBITDA.

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Veresen expects that debt to EBITDA will be in the range of approximately 4.0x – 4.5x once the projects under construction are on-line. The company also believes it is prudent to consider distributable cash after the amortization of debt within each of the business, as significant value will remain in the assets after the debt is fully amortized. Conference Call & Webcast Details A conference call and webcast presentation will be held to discuss second quarter 2017 financial and operating results at 7:00am Mountain Time (9:00am Eastern Time) on Thursday, August 3, 2017. To listen to the conference call, please dial 478-219-0009 or 1-844-285-7148 (toll-free). This call will also be broadcast live on the Internet and may be accessed directly at the following URL: http://edge.media-server.com/m/p/5heeobh8 A presentation will accompany the conference call and will be available via the webcast. Alternatively, the presentation will be made available immediately prior to the conference call start time of 7:00am Mountain Time on Veresen's website at: http://www.vereseninc.com/invest/events-presentations. A digital recording will be available for replay two hours after the call's completion, and will remain available until August 5, 2017 10:00am Mountain Time (12:00pm Eastern Time). To listen to the replay, please dial 404-537-3406 or 1-855-859-2056 (toll-free) and enter Conference ID 50122520. The webcast will remain accessible for a 12 month period at the following URL: http://edge.media-server.com/m/p/5heeobh8 and a digital recording will also be available for replay on the company’s website. About Veresen Inc. Veresen is a publicly-traded dividend paying corporation based in Calgary, Alberta that owns and operates energy infrastructure assets across North America. Veresen is engaged in three principal businesses: a pipeline transportation business comprised of interests in the Alliance Pipeline, the Ruby Pipeline and the Alberta Ethane Gathering System; a midstream business which includes a partnership interest in Veresen Midstream Limited Partnership which owns assets in western Canada, and an ownership interest in Aux Sable, which owns a world-class natural gas liquids (NGL) extraction facility near Chicago, and other natural gas and NGL processing energy infrastructure; and a power business comprised of a portfolio of assets in Canada. Veresen is also developing Jordan Cove LNG, a 7.8 million tonne per annum natural gas liquefaction facility proposed to be constructed in Coos Bay, Oregon, and the associated Pacific Connector Gas Pipeline. In the normal course of business, Veresen regularly evaluates and pursues acquisition and development opportunities. Veresen's Common Shares, Cumulative Redeemable Preferred Shares, Series A, Cumulative Redeemable Preferred Shares, Series C, and Cumulative Redeemable Preferred Shares, Series E trade on the Toronto Stock Exchange under the symbols "VSN", "VSN.PR.A", "VSN.PR.C" and "VSN.PR.E", respectively. For further information, please visit www.vereseninc.com. Forward-looking Information Certain information contained herein relating to, but not limited to, Veresen and its businesses and the offering of the notes, constitutes forward-looking information under applicable securities laws. All statements, other than statements of historical fact, which address activities, events or developments that Veresen expects or anticipates may or will occur in the future, are forward-looking information. Forward-looking information typically contains statements with words such as "may", "estimate", "anticipate", "believe", "expect", "plan", "intend", "target", "project", "forecast" or similar words suggesting future outcomes or outlook. Forward-looking statements in this news release include, but are not limited to, statements with respect to: the timing of regulatory approvals and the timing of the closing of the transaction between Veresen and Pembina; the completion timing and cost estimates of major growth projects; the amount of distributable cash to be generated by Veresen in 2017; the outlook for NGL

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margins at Aux Sable; the confidence in the strength of the underlying business; the use of proceeds from, financial impact on Veresen and its ability to fund growth projects, and timing of completion of, the sale of Veresen’s power business; the results to be generated by, and the ability to deliver the existing strategy by the combination of Veresen and Pembina; expectation that market dynamics will continue to underpin strong throughput volumes at Alliance; the potential for re-contracting of Alliance and the corresponding impact on an expansion decision and the optimal capital structure; the anticipated timing of the launch of a binding open season on Alliance; the in-service date of a future expansion of Alliance; the ability of Ruby to support Veresen’s preferred distribution; the ability to recontract AEGS; expectations regarding incremental EBITDA from Dawson as additional infrastructure is brought into service; in-service dates of, cost of construction of, and amount of EBITDA to be generated by, the Sunrise and Tower gas plants, and the Saturn Phase II processing facility; the potential for Veresen Midstream to secure incremental capital projects; ability to recognize and distribute margin earned in the first half of the year later in the year; the in-service date of, and anticipated spending in 2017 on, the Burstall ethane storage facility; the expectation that Jordan Cove LNG will achieve additional key milestones during the balance of the year; the ability to fully cover the dividend pro forma the sale of the power business; the sources of equity and debt financing required to fund the capital of Veresen and Veresen Midstream; and debt to EBITDA levels once projects under construction are on-line. Readers are also cautioned that such additional information is not exhaustive. The impact of any one risk, uncertainty or factor on a particular forward-looking statement is not determinable with certainty as these factors are independent and management's future course of action would depend on its assessment of all information at that time. Although Veresen believes that the expectations conveyed by the forward-looking information are reasonable based on information available on the date of preparation, no assurances can be given as to future results, levels of activity and achievements. Undue reliance should not be placed on the information contained herein, as actual results achieved will vary from the information provided herein and the variations may be material. Veresen makes no representation that actual results achieved will be the same in whole or in part as those set out in the forward-looking information. Furthermore, the forward-looking statements contained herein are made as of the date hereof, and Veresen does not undertake any obligation to update publicly or to revise any forward-looking information, whether as a result of new information, future events or otherwise, except as required by applicable laws. Any forward-looking information contained herein is expressly qualified by this cautionary statement. Certain financial information contained in this news release may not be standard measures under Generally Accepted Accounting Principles ("GAAP") in the United States and may not be comparable to similar measures presented by other entities. These measures are considered to be important measures used by the investment community and should be used to supplement other performance measures prepared in accordance with GAAP in the United States. US GAAP requires us to equity account for our investments in jointly-controlled businesses. However, we have chosen to provide some information on our jointly-controlled businesses on a proportionate basis to assist the reader. For further information on other non-GAAP financial measures used by Veresen see Management’s Discussion and Analysis, in particular, the section entitled “Non-GAAP Financial Measures” contained in the annual Management Discussion and Analysis, filed by Veresen with Canadian securities regulators. For further information, please contact: Mark Chyc-Cies Vice President, Corporate Planning & Investor Relations Phone: (403) 213-3633 Email: [email protected]

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VERESEN INC.Management’s Discussion and AnalysisThree and six months ended June 30, 2017

FINANCIAL AND OPERATING HIGHLIGHTS

Three months ended June 30 Six months ended June 30($ Millions, except where noted) 2017 2016 2017 2016Operating Highlights (100%)Pipeline

Alliance – billion cubic feet per day (1) 1.518 1.559 1.596 1.587Ruby – billion cubic feet per day 0.520 0.555 0.617 0.630AEGS – thousand barrels per day (2) 290 287 288 286

MidstreamHythe/Steeprock – million cubic feet per day (3) 380 385 381 386Dawson – million cubic feet per day 622 724 669 746Aux Sable – thousand barrels per day 95 91 92 80

Power – gigawatt hours (net) 139 184 251 366Financial ResultsEquity income and dividend income 82 71 171 152Operating revenues 16 12 28 24Adjusted net income attributable to Common Shares (4)(5) 24 11 61 27

Per Common Share ($) 0.08 0.04 0.20 0.09Net income attributable to Common Shares 150 9 197 16

Per Common Share ($) 0.48 0.03 0.63 0.05Cash from operating activities 86 66 157 114Distributable cash (4)(6) 100 94 204 175

Per Common Share ($) 0.32 0.30 0.65 0.57Dividends paid/payable (7) 78 76 157 152

Per Common Share ($) 0.25 0.25 0.50 0.50Capital expenditures (8) 13 24 32 30

June 30, 2017As at

Dec. 31, 2016Financial PositionCash and short-term investments 191 108Total assets 4,264 4,572Senior debt 1,086 1,207Shareholders’ equity 2,789 2,832

Common SharesOutstanding – as at period end (9) 313,652,781 313,628,855Average daily volume 1,536,249 1,050,015Price per Common Share – close ($) 18.34 13.11

1. Average daily volume for Alliance is based on the Canadian leg of the pipeline.2. Average daily volume for AEGS is based on toll volumes.3. Average daily volume for Hythe/Steeprock is based on fee volumes.4. This item is not a standard measure under US GAAP and may not be comparable to similar measures presented by other entities. See

section entitled “Non-GAAP Financial Measures” in this MD&A.5. We have provided a reconciliation of adjusted net income attributable to Common Shares to net income attributable to Common

Shares in the “Non-GAAP Financial Measures” section of this MD&A.6. We have provided a reconciliation of distributable cash to cash from operating activities in the “Non-GAAP Financial Measures” section

of this MD&A.

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7. Includes $50 million and $97 million of dividends satisfied through the issuance of Common Shares under our Premium DividendTM and Dividend Reinvestment Plan (trademark of Canaccord Genuity Corp.) for the three and six months ended June 30, 2016.

8. Capital expenditures for wholly-owned and majority-controlled businesses, as presented on the consolidated statement of cash flows.9. As at the close of markets on August 1, 2017 we had 313,652,781 Common Shares outstanding.

This MD&A, dated August 2, 2017, provides a review of the significant events and transactions that affected our performance during the three and six months ended June 30, 2017 relative to the same period last year. It should be read in conjunction with our consolidated financial statements and notes as at and for the three and six months ended June 30, 2017 and as at and for the year ended December 31, 2016, prepared in accordance with accounting principles generally accepted in the United States.

RECENT ACTIVITIESCombination with Pembina On May 1, 2017 we entered into an arrangement agreement (the “Transaction”) with Pembina Pipeline Corporation (“Pembina”) under which Pembina will acquire all of our issued and outstanding common shares in exchange for either (i) 0.4287 of a common share of Pembina or (ii) $18.65 in cash, subject to pro-ration based on maximum share consideration of 99.5 million Pembina common shares and maximum cash consideration of approximately $1.523 billion. At announcement, this offer represented a 21.8% premium to our 20-day weighted average price of $15.31 and a 22.5% premium to our last closing share price of $15.23. The Transaction was unanimously approved by the Boards of Directors of both companies.

On July 11, 2017, Veresen shareholders, at Special Meetings of Veresen's common and preferred shareholders, voted to approve the Transaction between Pembina and Veresen. Following the shareholder vote of approval on July 11, the Court of Queen's Bench of Alberta approved the Transaction. Closing of the Transaction remains subject to certain conditions, including certain regulatory and government approvals and other customary closing conditions. Veresen expects the Transaction will close late in the third quarter or early in the fourth quarter of 2017.

In anticipation of the combination with Pembina, we requested consent from the holders of our Medium Term Notes ("MTN") to align certain covenant and reporting requirements of our MTN program with similar requirements under Pembina's program. On June 30, 2017, we received sufficient consents to enact the requested changes upon closing of the transaction.

Power Asset SalesAs at June 30, 2017, we have closed the sale of our gas-fired, district energy and waste heat generation facilities, and Grand Valley 2 Limited Partnership for proceeds of $741 million less $354 million of project level financing and working capital adjustments. On August 1st, 2017, we closed the sale of Furry Creek Power Ltd. for proceeds of $20 million less $7 million of project level financing and working capital adjustments. The sales of our remaining facilities are expected to close in the third quarter subject to the receipt of all necessary approvals.

AllianceAlliance continues to produce consistent results, generating strong cash flows with robust demand for its seasonal and interruptible offerings, driven primarily by favourable market fundamentals and reduced takeaway capacity on other gas pipelines serving Western Canada.

In response to strong shipper interest, Alliance is in discussions with shippers to extend the terms of existing contracts and continues to advance the engineering, commercial and regulatory preparations required to support a potential expansion of the pipeline’s capacity by approximately 0.5 bcf/d through additional compression.

Alliance anticipates launching a binding open season for the potential expansion of the pipeline’s capacity by the first half of 2018, with a target in-service date in late 2020. Successful re-contracting of the current capacity remains an important step towards advancing a potential expansion of the pipeline’s capacity and re-evaluating the optimal capital structure at Alliance.

Veresen MidstreamIn May 2017, the South Central Liquids Hub was placed into service ahead of schedule and approximately 15% below budget. The South Central Liquids Hub will allow the existing gathering system in the area to handle development anticipated to occur over the next several years and can be expanded in the future to meet

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Cutbank Ridge Partnership's ("CRP") long-term liquids handling needs as well as provide services to third party producers in the area.

Subsequent to the end of the second quarter, CRP sanctioned South Central Liquids Hub Phase II, which will double throughput capacity and provide pipeline connectivity for condensate directly to a third party pipeline system and produced water to a Veresen Midstream disposal facility. South Central Liquids Hub Phase II is expected to be in service in mid-2018 at a capital cost of $70 million ($33 million net to Veresen).

During the second quarter, $336 million (100%) of capital was invested by Veresen Midstream, including $232 million (100%) of expenditures for the Sunrise, Tower and Saturn Phase II processing facilities. Construction of the three processing facilities are tracking ahead of schedule and below budget, with over 75% of capital incurred to date. Sunrise and Tower plants are expected to be in-service in the fourth quarter of 2017 and the Saturn Phase II plant in-service in the first quarter of 2018.

Burstall Ethane Storage FacilityConstruction continues on our wholly-owned one million barrel ethane storage facility located near Burstall, Saskatchewan, of which $110 million has been incurred as of June 30, 2017. During the second quarter, the National Energy Board approved the pipeline connecting Burstall to the existing ethane infrastructure in the region.

Jordan Cove LNG and Pacific Connector Gas Pipeline Development ProjectsWe continue to advance the Jordan Cove LNG Project and related Pacific Connector natural gas pipeline. Approximately US$19 million of project development spend was incurred in the second quarter, with the majority of spend directed to position the project to make a formal FERC submission in the third quarter. Subsequent to the end of the quarter, Jordan Cove LNG selected a joint venture partnership comprised of Kiewit Energy Group Inc., Black & Veatch Construction, Inc., and JGC US Projects, LLC (collectively “KBJ”) to provide engineering, procurement and construction (“EPC”) for the development of the Jordan Cove export terminal.

During the second quarter, Jordan Cove LNG continued to advance discussions with additional off-takers. Based on progress to date and the expectation that Jordan Cove LNG will achieve additional key milestones during the balance of the year, Veresen’s Board of Directors approved an additional US$32 million in project development spend for 2017.

OVERALL FINANCIAL PERFORMANCE

Adjusted Net Income from continuing operations attributable to Common Shares

Three months ended June 30 Six months ended June 30

($ Millions, except per Common Share amounts) 2017 2016 2017 2016Adjusted net income from continuing operations before tax (1)

Pipeline 79 75 166 159 Midstream 6 3 12 4

Veresen - Corporate (46) (56) (82) (117)Tax expense (8) (4) (22) (6)Adjusted net income from continuing operations 31 18 74 40Preferred Share dividends (7) (7) (13) (13)Adjusted net income from continuing operationsattributable to Common Shares 24 11 61 27 Per Common Share ($) 0.08 0.04 0.20 0.09(1) See the reconciliation of adjusted net income attributable to Common Shares to net income attributed to Common Shares in the “Non-

GAAP Financial Measures” section of this MD&A.

Adjusted net income from continuing operations attributable to Common Shares represents net income from continuing operations adjusted for specific items that are significant, but are not reflective of our underlying operations. We have presented adjusted net income from continuing operations attributable to Common Shares in order to enhance the comparability of our earnings. See the Non-GAAP Financial Measures section of this MD&A for the full definition of this term and the reconciliation to net income attributable to Common Shares.

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For the three and six months ended June 30, 2017, we generated adjusted net income from continuing operations attributable to Common Shares of $24 million or $0.08 per Common Share and $61 million or $0.20 per Common Share. For the same periods last year, we generated net income of $11 million or $0.04 per Common Share and $27 million or $0.09 per Common Share.

The increase in adjusted earnings increase was driven by strong results from Alliance, which continues to benefit from favourable market fundamentals, and improved results from Aux Sable, driven by higher NGL fractionation margins. Adjusted earnings also reflects reduced development spending on our Jordan Cove LNG and Pacific Connector projects.

Net Income attributable to Common Shares


($ Millions, except per Common Share amounts) 2017 2016 2017 2016Net income (loss) before tax Pipeline 79 75 166 159 Midstream 7 - 10 2 Veresen – Corporate (54) (56) (90) (117)Tax expense (5) (4) (18) (13)Net income from continuing operations 27 15 68 31Net income (loss) from discontinued operations 130 1 142 (2)Net income 157 16 210 29Preferred Share dividends (7) (7) (13) (13)Net income attributable to Common Shares 150 9 197 16Per Common Share ($) 0.48 0.03 0.63 0.05

For the three and six months ended June 30, 2017, we generated net income attributable to Common Shares of $150 million or $0.48 per Common Share and $197 million or $0.63 per Common Share. For the same periods last year, we generated net income of $9 million or $0.03 per Common Share and $16 million or $0.05 per Common Share.

In addition to factors impacting adjusted net income, as previously discussed, the following items are reflected in net income.

Midstream results include the impact of the revaluation of the cross currency swap and translation of US dollar denominated debt in Veresen Midstream resulting in a net pre-tax gain of $1 million in the second quarter of 2017, compared to a net $3 million pre-tax loss in the same period last year.

For the three and six months ended June 30, 2017, we incurred $54 million and $90 million of net corporate expenses before taxes, decreases of $2 million and $27 million compared to the same periods last year. The decrease reflects lower project development spending related to our Jordan Cove LNG project, partially offset by $8 million in costs relating to the Pembina Transaction.

Net income from discontinued operations for the three and six months ended June 30, 2017 was $130 million and $142 million, respectively, compared to a net income of $1 million and a net loss of $2 million during the same periods in 2016. Net income in 2017 includes net after-tax gains on the sale of assets totaling $91 million, realized during the second quarter of 2017 upon closing the sale of our gas-fired, district energy and waste heat facilities, and Grand Valley 2 Limited Partnership. Net income also increased due to the power assets no longer being depreciated in the current year, subsequent to the power business' classification as held for sale in accordance with US GAAP in the fourth quarter of 2016.

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Distributable Cash


($ Millions, except per Common Share amounts) 2017 2016 2017 2016Pipeline 92 85 188 161Midstream 22 21 41 37Veresen – Corporate (17) (16) (36) (32)Preferred Share dividends (7) (7) (13) (13)Distributable Cash from continuing operations 90 83 180 153Discontinued operations - Power 10 11 24 22Distributable Cash (1) 100 94 204 175 Per Common Share ($) 0.32 0.30 0.65 0.57

(1) See the reconciliation of distributable cash to cash from operating activities in the “Non-GAAP Financial Measures” section of this MD&A.

For the three and six months ended June 30, 2017, we generated distributable cash of $100 million or $0.32 per Common Share and $204 million or $0.65 per Common Share, compared to $94 million or $0.30 per Common Share and $175 million or $0.57 per Common Share for the same periods in 2016.

The increase in distributable cash reflects higher cash flows from our Pipeline business.

Distributions from our Pipeline business during the second quarter of 2017 increased by $7 million compared to the same period in 2016, reflecting continuing robust demand for Alliance's transportation services and incremental cash flows from available liquidity.

Distributions from our Midstream business and corporate costs during the second quarter of 2017 were consistent with the same period last year.

Distributable cash in the first six months of the year generally reflect the same factors discussed for the secondquarter.

Cash from Operating Activities


($ Millions) 2017 2016 2017 2016Pipeline 99 83 179 171Midstream 26 23 47 41Veresen - Corporate (42) (51) (87) (123)Discontinued operations - Power 3 11 18 25

86 66 157 114

For the three and six months ended June 30, 2017, we generated $86 million and $157 million of cash from operating activities compared to $66 million and $114 million in the same period in 2016. Higher cash flows from our Pipeline business reflect higher distributions from Alliance. Lower corporate cash outflows reflect the decrease in Jordan Cove spending relative to the same period in 2016.

ACCOUNTING STANDARDS AND BASIS OF PRESENTATION

Our consolidated financial statements as at and for the three and six months ended June 30, 2017 have been prepared by management in accordance with US GAAP. All financial information is in Canadian dollars unless otherwise noted and, as it relates to our financial results, has been derived from information used to prepare our US GAAP consolidated financial statements. Capitalized terms used in this MD&A that have not been defined have the same meanings attributed to them in our 2016 consolidated financial statements. Additional information concerning our business is available on SEDAR at www.sedar.com or on our website at www.vereseninc.com.

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FORWARD-LOOKING AND NON-GAAP INFORMATION

Some of the information contained in this MD&A is forward-looking information under Canadian securities laws. All information that addresses activities, events or developments which may or will occur in the future is forward-looking information. Forward-looking information typically contains statements with words such as may, estimate, anticipate, believe, expect, plan, intend, target, project, forecast or similar words suggesting future outcomes or outlook. Forward-looking statements in this MD&A include statements about:

• the level of volume demand under Alliance's new services framework;• the outcome of the statement of claim relating to Aux Sable's NGL Sales Agreement;• Aux Sable’s ability to realize upon the extraction agreements with producers;• the future pricing environment for ethane and propane;• the timing of the completion of construction and in-service date of the Sunrise and Tower gas plants, the Saturn compression station

expansion and the South Central and Tower Liquids hubs;• the level of volume demand at the Sunrise, Tower and Saturn facilities and our ability to secure third party volumes;• the successful re-contracting of AEGS post 2018;• the projected date for a final investment decision on Jordan Cove LNG and Pacific Connector Gas Pipeline;• the effective elimination of cash taxes for approximately the next four years, excluding Part VI.1 taxes on Preferred Share dividends,

as a result of our U.S.-based organizational restructuring;• the sufficiency of our liquidity;• the sufficiency of our available committed credit facilities to fund working capital, dividends and capital expenditures; • the ability of each of our businesses to generate distributable cash and the timing under which distributable cash will be generated; • our ability to pay dividends;• our projected timing and ability to close the divestment of our power business; and• our projected timing and ability to close the Transaction with Pembina

The risks and uncertainties that may affect our operations, performance, development and the results of our businesses include, but are not limited to, the following factors:

• our ability to successfully implement our strategic initiatives and achieve expected benefits; • levels of oil and gas exploration and development activity; • status, credit risk and continued existence of contracted customers; • availability and price of capital; • availability and price of energy commodities; • availability of construction services and materials; • fluctuations in foreign exchange and interest rates; • our ability to successfully obtain regulatory approvals; • changes in tax, regulatory, environmental, and other laws and regulations; • competitive factors in the pipeline, midstream and power industries; • operational breakdowns, failures, or other disruptions; and • prevailing economic conditions in North America.

Additional information on these and other risks, uncertainties and factors that could affect our operations or financial results are included in our filings with the securities commissions or similar authorities in each of the provinces of Canada, as may be updated from time to time. We caution readers that the foregoing list of factors and risks is not exhaustive. The impact of any one risk, uncertainty or factor on a particular forward-looking statement is not determinable with certainty as these factors are independent and management’s future course of action would depend on its assessment of all information at that time. Although we believe the expectations conveyed by the forward-looking information are reasonable based on information available to us on the date of preparation, we can give no assurances as to future results, levels of activity and achievements. Readers should not place undue reliance on the information contained in this MD&A, as actual results achieved will vary from the information provided herein and the variations may be material. We make no representation that actual results achieved will be the same in whole or in part as those set out in the forward-looking information. Furthermore, the forward-looking statements contained herein are made as of the date hereof, and, except as required by law, we do not undertake any obligation to update publicly or to revise any forward-looking information, whether as a result of new information, future events or otherwise. We expressly qualify any forward-looking information contained in this MD&A by this cautionary statement.

Certain financial information contained in this MD&A may not be standard measures under GAAP in the United States and may not be comparable to similar measures presented by other entities. These measures are considered to be important measures used by the investment community and should be used to supplement other performance measures prepared in accordance with GAAP in the United States. For further information on non-GAAP financial measures used by us see the section entitled “Non-GAAP Financial Measures” contained in this MD&A.

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RESULTS OF OPERATIONS – BY BUSINESS SEGMENT

Pipeline Business2017 2016

Three months ended June 30

AdjustedNet IncomeBefore Tax

Net IncomeBefore Tax

DistributableCash

Adjusted NetIncome

Before TaxNet IncomeBefore Tax

DistributableCash

Alliance(1) 45 45 56 44 44 51Ruby 30 30 30 29 29 29AEGS 4 4 6 2 2 5

79 79 92 75 75 85

2017 2016

Six months ended June 30



DistributableCash

Adjusted NetIncome

Before TaxNet IncomeBefore Tax

DistributableCash

Alliance(1) 101 101 118 95 95 92Ruby 60 60 60 60 60 60AEGS 5 5 10 4 4 9

166 166 188 159 159 161(1) Includes NRGreen

Alliance Pipeline

Operational Highlights


Volumes (100%; bcf/d) 2017 2016 2017 2016

Firm transportation volumes 1.335 1.320 1.346 1.368Seasonal 0.092 0.144 0.154 0.131Priority Interruptible Transportation Service("PITS") and Interruptible Transportation ("IT")volumes 0.091 0.095 0.096 0.088

Total Canadian volumes 1.518 1.559 1.596 1.587

Incremental U.S. volumes (incl. Bakken) 0.144 0.139 0.120 0.138

Total U.S. volumes 1.662 1.698 1.716 1.725

Blended average toll rates ($/mcf):Firm 1.31 1.31 1.31 1.33Seasonal, PITS and IT 1.60 1.46 1.67 1.46U.S. only 0.61 0.59 0.61 0.61

Strong market demand continued in the second quarter, due to Chicago gas prices trading at higher premiums to AECO gas prices and reduced takeaway capacity on other gas pipelines serving Western Canada, allowing Alliance to sell its remaining available capacity through seasonal and interruptible offerings.

Total volumes delivered into Channahon of 1.662 bcf/d during the second quarter of 2017 were slightly lower than the 1.698 bcf/d during the same period in 2016. During the quarter, Alliance undertook a four-day required shutdown on a portion of the pipeline due to slope movement caused by spring runoff and heavy rains near the Wapiti River, approximately 25 kilometers southwest of Grande Praire, Alberta. During the required shutdown, Alliance completed an excavation and inspection of the affected pipeline segment and confirmed that there were no integrity concerns. Alliance declared force majeure under its agreements with firm shippers, resulting in a minimal impact on revenues for the quarter.

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Financial Highlights

Components of Alliance Equity Income:


(Veresen's share; $ Millions) 2017 2016 2017 2016Transportation revenue 98 98 206 203Other revenue 2 4 4 7

100 102 210 210General, administrative, operating andmaintenance (25) (28) (50) (54)Earnings before interest, tax depreciation and amortization (“EBITDA”) (1) 75 74 160 156

Interest and other finance (12) (12) (23) (25)Depreciation and amortization (18) (18) (36) (36)Net income and adjusted net income beforetax / equity income 45 44 101 95

Distributable cash 56 51 118 92(1) This item is not a standard measure under US GAAP and may not be comparable to similar measures presented by other entities. See

section entitled “Non-GAAP Financial Measures” in this MD&A.

Alliance continued to see strong demand for its service offerings, largely driven by a continuation of the wide Chicago-AECO gas price differential. EBITDA was consistent in the second quarter of 2017, with slightly lower operating costs due to timing of pipeline integrity expenditures more than offsetting a reduction in other revenue.

Net income before tax for the three and six months ended June 30, 2017 was $45 million and $101 million compared to $44 million and $95 million for the same periods last year and was impacted by the same factors discussed above.

Distributable cash for the three and six months ended June 30, 2017 was $56 million and $118 million compared to $51 million and $92 million for the same periods in 2016. The increase reflects continuing robust demand for Alliance's transportation services and incremental cash flows from available liquidity.

Ruby PipelineOperational HighlightsLong-term take-or-pay contracts are in place for approximately 1.1 bcf/d, or 71%, of the pipeline's capacity, 90% of which are held by investment grade shippers. Transportation deliveries for the three and six months ended June 30, 2017 averaged 0.520 bcf/d and 0.617 bcf/d, compared to 0.555 bcf/d and 0.630 bcf/d in the same periods in 2016.

Financial HighlightsDistributable cash, adjusted net income and net income for the three and six months ended June 30, 2017 was $30 million and $60 million compared to $29 million and $60 million for the same periods in 2016, representing the three and six month portions of the US$91 million annual distributions we are entitled to as holders of the convertible preferred shares. The $1 million increase in the second quarter of 2017 relative to the same period last year is a result of the weaker Canadian dollar.

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AEGS


($ Millions) 2017 2016 2017 2016

EBITDA 8 7 14 13

Depreciation and amortization (3) (4) (7) (7)

Interest and other finance (1) (1) (2) (2)

Net income and adjusted net income before tax 4 2 5 4

Distributable cash 6 5 10 9

Volumes (mbbls/d (1)) 290 287 288 286 (1) Average daily volumes are based on toll volumes.

Operational HighlightsToll volumes for the three and six months ended June 30, 2017 were 290 mbbls/d and 288 mbbls/d, consistent with volumes of 287 mbbls/d and 286 mbbls/d for the same periods last year.

Financial Highlights For the three and six months ended June 30, 2017, AEGS results remained consistent, with distributable cash and net income in line with the same periods last year.

Midstream Business2017 2016

Three months ended June 30



DistributableCash

Adjusted NetIncome

(Loss) BeforeTax

Net Income(Loss)

Before TaxDistributable

Cash

Veresen Midstream 2 3 17 4 1 16

Aux Sable 4 4 5 (1) (1) 5

6 7 22 3 - 21

2017 2016




DistributableCash

Adjusted NetIncome

(Loss) BeforeTax

Net Income(Loss)

Before TaxDistributable

Cash

Veresen Midstream 4 2 32 7 5 31

Aux Sable 8 8 9 (3) (3) 6

12 10 41 4 2 37

Veresen Midstream



2017 2016 2017 2016

Throughput volumes (mmcf/d)

Hythe/Steeprock (1) 380 385 381 386

Dawson (2) 622 724 669 746

1,002 1,109 1,050 1,132(1) Hythe/Steeprock fee volumes represent (i) either the minimum commitment volumes for which we earned processing fees or actual

volumes processed if in excess of the minimum threshold in respect of the Midstream Services Agreement with our primary customer, and (ii) fees for volumes processed for other producers.

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(2) Dawson throughput volumes represent actual volumes processed from our primary customer.

Fee volumes at Hythe/Steeprock averaged 380 mmcf/d and 381 mmcf/d for each of the three and six months ended June 30, 2017. Fee volumes are comprised of the minimum volume commitment under the Hythe/Steeprock MSA and natural gas from third party producers. Compared to the same period last year, the Hythe/Steeprock fee volumes decreased two percent in line with the contractual commitment. The Hythe and Steeprock facilities operated at a reliability factor of approximately 100% for the three and six months ended June 30, 2017, exceeding their respective target factors under the Midstream Services Agreement ("MSA").

We successfully completed the Hythe sour facility turnaround in June 2017. The turnaround was completed ahead of schedule and below budget. The minimum volume commitment under the Hythe/Steeprock MSA remained applicable during the turnaround period. A turnaround of this scale for the Hythe facility is currently planned to be completed every four years.

During the three and six months ended June 30, 2017, actual volumes received from Encana and CRP at Dawson averaged 622 mmcf/d and 669 mmcf/d compared to 724 mmcf/d and 746 mmcf/d in the same periods last year, decreasing in the second quarter due to the turnarounds at Hythe and at downstream third party processing facilities that limited gas volumes on the Dawson system.


Components of Veresen Midstream Equity Income:


(Veresen's share; $ Millions) 2017 2016 2017 2016

Hythe/Steeprock EBITDA 10 10 20 20

Dawson EBITDA 8 9 17 19

Corporate general and administrative (1) (1) (3) (3)

EBITDA 17 18 34 36

Depreciation and amortization (9) (8) (18) (17)

Interest and other finance (6) (6) (12) (12)

Adjusted net income 2 4 4 7

Unrealized gain on translation of US dollar debt 11 (1) 15 23

Loss on cross currency swap (10) (2) (16) (25)

Other(1) - - (1) -

Net income before tax / equity income 3 1 2 5

Distributable cash 17 16 32 31 (1) Represents write-down on deferred financing costs incurred on a modification to Veresen Midstream's debt

During the second quarter of 2017, Hythe/Steeprock and Dawson generated $10 million and $8 million of EBITDA, respectively, consistent with amounts generated during the same period last year. The EBITDA generated by Hythe/Steeprock is mainly comprised of the minimum volume and fee commitment provided under the Hythe/Steeprock MSA with Encana. Dawson EBITDA is based on actual throughput received from Encana and CRP and fee-for-service revenues governed under the Dawson MSA.

Net income before tax for the three and six months ended June 30, 2017 includes fair value losses of $10 million and $16 million associated with Veresen Midstream's cross currency swap, offset by foreign exchange gains of $11 million and $15 million incurred on the revaluation of its US dollar-denominated Term Loan. During the same periods in 2016, results included fair value losses of $2 million and $25 million on the cross currency swap, offset by a $1 million foreign exchange loss and a $23 million foreign exchange gain on the revaluation of the Term Loan.

Distributions for the three and six months ended June 30, 2017 were $17 million and $32 million, consistent with the same periods in 2016. The Veresen Midstream ownership structure provides for us to receive approximately 60% of the cash distributions while we are entitled to approximately 47% of the net income in 2017.

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As at June 30, 2017, Veresen Midstream had drawn its US$725 Term Loan B in full and $1,072 million from its $1,680 million (100%) expansion credit facility, using the proceeds to fund both the initial acquisition of assets from Encana and CRP and ongoing construction. As at June 30, 2017, Veresen Midstream had invested $1,904 million (100%) in the Sunrise, Tower and Saturn Phase II facilities.

On February 17, 2017, Veresen Midstream successfully re-priced its US dollar-denominated Term Loan B, resulting in a reduction of 75 basis points. The transaction closed March 7, 2017.

Aux SableNGL Market Overview


2017 2016 2017 2016

Average USGC ethane margin (US$/gallon) 0.03 0.05 0.03 0.04

Average USGC propane plus margin (US$/gallon) 0.40 0.36 0.46 0.31

Average USGC propane (US$/gallon) 0.63 0.49 0.67 0.44

Average Henry Hub natural gas (US$/mmbtu) 3.14 2.24 3.10 2.11

Average Chicago Citygate natural gas (US$/mmbtu) 2.92 2.09 2.95 2.07

Average WTI crude oil (US$/bbl) 48.29 45.59 50.10 39.52

Average Chicago - AECO differential ($/mmbtu) 1.14 1.31 1.20 1.13

U.S. Gulf Coast ("USGC") ethane margins in the second quarter of 2017 remained relatively unchanged from the same period last year, continuing the trend of low margins that has been prevalent for several years.

Although propane inventories increased over the second quarter as exports decreased, U.S. propane stocks ended the second quarter at 56 million barrels, 23 million barrels below the same period in 2016 and 7 million barrels below the five-year average. USGC propane prices averaged US$0.63 per gallon in the second quarter of 2017 compared to US$0.49 per gallon during the same period in 2016. Despite lower export demand and rising inventory levels, Gulf Coast propane prices continued to improve relative to WTI crude oil.

The Chicago Citygate gas price averaged US$2.92 per mmbtu in the second quarter of 2017, increasing $0.83 per mmbtu compared to the same period last year. Demand remained strong in the second quarter of 2017, driven by cooler than normal weather in April and concerns over the supply/demand balance during the summer injection season resulting from lower than expected injections in May combined with declining gas production. Natural gas pricing in the second quarter of 2016 was negatively impacted by high inventory levels.

Propane plus margins increased as higher propane prices were only partially offset by higher natural gas prices.



2017 2016 2017 2016

Average volume receipts (mmcf/d)

Prairie Rose Pipeline 110 103 107 101

Average sales (mbbls/d)

Ethane 42 41 40 32

Propane plus 53 50 52 48

Total NGLs 95 91 92 80

During the three and six months ended June 30, 2017, Aux Sable processed 95% and 97% of the natural gas delivered by Alliance, consistent with the same periods last year.

Receipts into the Prairie Rose Pipeline in North Dakota averaged 110 and 107 mmcf/d during the three and six months ended June 30, 2017, compared to 103 and 101 mmcf/d for the same periods last year.

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Aux Sable sold 42 and 40 mbbls/d of ethane during the three and six months ended June 30, 2017, compared to 41 and 32 mmbls/d during the same period last year due to higher local demand in the first three months of 2017. Propane plus sales volumes were consistent with the same periods last year.


Components of Aux Sable Equity Income:


(Veresen's share; $ Millions) 2017 2016 2017 2016

Margin-based lease revenues

Amount generated during period 3 - 12 -

(Unrecognized margin generated in period) (2) - (11) -

Amount recognized as revenue 1 - 1 -

Pipeline capacity margin - (2) 2 (3)

Other margin-based activities 5 2 6 1

Fixed fee activities 11 11 23 22General, administrative, operating and maintenance (8) (7) (14) (13)

EBITDA 9 4 18 7

Depreciation, amortization and other (5) (5) (10) (10)Net income (loss) before tax / equity income (loss) 4 (1) 8 (3)


For the three and six months ended June 30, 2017, Aux Sable generated $5 million and $9 million of distributable cash and $4 million and $8 million of net income before tax, compared to $5 million and $6 million of distributable cash and net losses before tax of $1 million and $3 million in the same period last year.

In 2016, Aux Sable's NGL Sales Agreement provided downside protection against a weak NGL market environment, delivering the fixed fee and covering the Channahon base facility's operating costs with no significant margin-based lease revenues being generated. The improvement in NGL fractionation margins in 2017 is not fully reflected in the financial results at Aux Sable's Channahon facility as the NGL Sales Agreement measures income on an annual basis and therefore margins generated are deferred until later in the year when recognition is assured. For the three and six months ended June 30, 2017, the Channahon fractionation facility generated $3 million and $12 million of margin-based lease revenues, $1 million of which has been recognized in income. Barring an unforeseen downward shift in margins we anticipate recognizing all deferred margin-based lease revenues by the end of the year.

The EBITDA increase from other margin-based activities during the first half of 2017 relative to the same period last year primarily reflects improved propane plus margins.

Distributable cash was impacted by the same factors described above, the settlement of working capital balances, debt repayment and slightly higher maintenance capital costs.

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Discontinued Operations - Power BusinessThree months ended June 30 Six months ended June 30

($ Millions, except where noted) 2017 2016 2017 2016Net income (loss) from discontinued

operations before tax 12 1 28 (2)

Gain on disposal of discontinued operations 139 - 139 -

Income taxes on discontinued operations (21) - (25) -Net income (loss) from discontinuedoperations 130 1 142 (2)


Volumes (GWh)Gross 164 207 302 410

Net 139 184 251 366

Operational HighlightsFor the three and six months ended June 30, 2017, our power facilities operated in line with our expectations.

Financial HighlightsFor the three and six months ended June 30, 2017, distributable cash was $10 million and $24 million compared to $11 million and $22 million for the same periods last year. The impact of the sale of our gas-fired, district energy and waste heat generation facilities, and Grand Valley 2 Limited Partnership during the second quarter of 2017 was partially offset by stronger cash flows from our wind facilities. The year-to-date increase also reflected stronger operating performance from our gas-fired generation facilities during the first quarter of 2017 relative to the same period in 2016.

For the three and six months ended June 30, 2017, net income from discontinued operations was $130 million and $142 million compared to net income of $1 million and net loss of $2 million in the same periods last year. Net income increased primarily due to the net after-tax gains on the sale of assets totaling $91 million, realized during the second quarter of 2017 upon closing the sale of our gas-fired, district energy and waste heat generation facilities, and Grand Valley 2 Limited Partnership. Net income also increased due to the power assets no longer being depreciated in the current year, subsequent to the power business' classification as held for sale in accordance with US GAAP in the fourth quarter of 2016.

Veresen - Corporate


($ Millions) 2017 2016 2017 2016

Equity loss - 2 - 5

General & administrative 9 7 17 16

Project development 26 38 42 78

Transaction costs 8 - 8 -

Depreciation and amortization 1 1 2 2

Interest and other finance 9 8 20 16

Foreign exchange and other 1 - 1 -

Net expenses before tax 54 56 90 117

Distributable cash (17) (16) (36) (32)

For the three and six months ended June 30, 2017, we incurred $54 million and $90 million of net corporate expenses before taxes, decreases of $2 million and $27 million compared to the same periods last year. The decrease reflects lower project development spending related to our Jordan Cove LNG project, partially offset by $8 million in costs relating to the Pembina Transaction. Interest costs were higher in the first six months of 2017 as a result of incremental debt drawn to fund equity contributions to support our growth initiatives within Veresen Midstream.

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Taxes


($ Millions) 2017 2016 2017 2016Net income from continuing operations

before tax 32 19 86 44Current tax expense (2) (3) (5) (5)Deferred tax expense (3) (1) (13) (8)Total tax expense (5) (4) (18) (13)Effective rate 16% 21% 21% 30%

Our effective tax rate for the three and six months ended June 30, 2017 is comparatively lower than the same periods in 2016 as a result of the U.S.-based organizational restructuring we implemented on January 1, 2016 which, while deferring cash taxes with the exception of Part VI.1 taxes on our Preferred Share dividends for approximately the next four years, resulted in a taxable capital gain in 2016. This is partially offset by higher U.S. income in 2017.

LIQUIDITY AND CAPITAL RESOURCES


($ Millions, except where noted) 2017 2016 2017 2016

Cash flows

Operating activities 86 66 157 114

Investing activities 360 (41) 209 (184)

Financing activities (429) (38) (295) 56

June 30, 2017 December 31, 2016

Cash and short-term investments - continuing operations 191 108

Capitalization

Senior debt (1) 1,086 28% 1,207 30%

Shareholders’ equity 2,789 72% 2,832 70%

3,875 100% 4,039 100%(1) Includes current portion of long-term senior debt.

Our debt to total capitalization ratio decreased from 30% as at December 31, 2016 to 28% as at June 30, 2017 following the closing of our gas-fired, district energy and waste heat generation facilities, and Grand Valley 2 Limited Partnership for net proceeds of $387 million. We expect our debt to total capitalization ratio to decrease further when we close the sale of our remaining power facilities as the proceeds will be used to repay outstanding balances on our revolving credit facility.

We expect to continue to utilize cash from operations, proceeds from the sale of our power business and drawings on our Revolving Credit Facility to fund liabilities as they become due, finance capital expenditures, fund debt repayments, pay dividends and provide flexibility for new investment opportunities. As at June 30, 2017, we had $750 million of committed credit facilities, of which $265 million was drawn. At June 30, 2017, $5 million in letters of credit were issued and outstanding on our credit facilities.

As at June 30, 2017, we had cash and short-term investments of $191 million (December 31, 2016 - $108 million) and a non-cash working capital deficit of $10 million (December 31, 2016 - deficit of $329 million) from continuing operations.

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Investing Activities For the six months ended June 30, 2017, we generated $209 million of cash to fund our investing activities, compared to $184 million of cash used in the same period last year. Significant investing activities for the six months ended June 30, 2017 and 2016 are presented in the table below.


($ Millions) 2017 2016Investments in subsidiaries

Equity contributions in jointly-controlled businesses (141) (151)Contributions to jointly-controlled business held at cost (10) -Return of capital 5 -

(146) (151)Capital expenditures

Burstall (32) (26)Other capital expenditures - (4)

(32) (30)Other - -Cash provided (used) by discontinued operations 387 (3)Investing 209 (184)

Financing Activities For the six months ended June 30, 2017, we had a net cash outflow of $295 million from our financing activities, compared to an inflow of $56 million for the previous year.

On March 14, 2017, we repaid all of the outstanding $300 million 3.95% senior medium term notes using our revolving credit facility.

Financing activities for the six months ended June 30, 2017 and 2016 included:


($ Millions) 2017 2016

Common Share dividend payments (157) (57)

Long-term debt repaid (302) (2)

Net draws on Revolving Credit Facility 180 132

Preferred Share dividend payments (13) (13)

Cash used by discontinued operations (3) (4)

Financing (295) 56

Equity Financing Activities On March 31, 2017, 23,926 shares were issued to settle a portion of our long-term incentive plan obligation that vested at the end of 2016.

Following our August 3, 2016 announcement of our intention to sell our power business we suspended our DRIP commencing with the August 2016 dividend.

DIVIDENDS PolicyOur general dividend policy is to establish and maintain a sustainable and stable monthly dividend, having regard for forecast distributable cash and our growth capital requirements.

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As a result of the Transaction between Pembina and Veresen, we have altered our dividend record dates to coincide with Pembina's monthly common share dividend schedule. We anticipate all future dividend record dates to be on the 25th calendar day of each month. Should the record date fall on a weekend or a statutory holiday, the effective record date will be the previous business day.

Holders of our Cumulative Redeemable Preferred Shares are entitled to receive fixed cumulative preferential cash dividends, if and when declared by our Board of Directors, at specified rates, detailed below, payable quarterly.

Preferred SharesFace Value($ Millions)

AnnualDividend Rate Dividend Rate Reset Date

Series A 200 4.40% September 30, 2017 and every five years thereafter based on then-market rates

Series C 150 5.00% March 31, 2019 and every five years thereafter based on then-market rates

Series E 200 5.00% June 30, 2020 and every five years thereafter based on then-marketrates

Sustainability of Dividends and Productive CapacityWe intend to continue to pay dividends, although such dividends are not guaranteed and do not represent a legal obligation. The sustainability of such dividends is a function of several factors including, among other things:

• earnings and cash flows we generate;• ongoing maintenance of each business’s physical and economic productive capacity;• our ability to comply with debt covenants and refinance debt as it comes due; and• our ability to satisfy any applicable legal requirements.

For a complete discussion of the significant risks and uncertainties affecting us, see the “Risks” section contained in our 2016 MD&A.

Dividends Paid/Payable Relative to Cash from Operating Activities and Net Income Attributable to Common Shares


($ Millions) 2017 2016 2017 2016

Cash from operating activities 86 66 157 114

Net income attributable to Common Shares 150 9 197 16

Dividends paid/payable 78 76 157 152

Less dividends paid in Common Shares under DRIP - (50) - (97)

Net dividends paid/payable 78 26 157 55

Excess of cash from operating activities over net dividendspaid/payable 8 40 - 59

Excess (deficiency) of net income attributable to Common Shares over net dividends paid/payable 72 (17) 40 (39)

Cash from operating activities generally exceeds net dividends paid/payable, with the difference representing the cash we use for maintenance capital expenditures, scheduled amortization of any long-term debt, and cash we retain to fund growth.

Net income attributable to Common Shares is generally less than dividends paid/payable as our net income includes certain non-cash expenses such as depreciation and deferred tax, and can include impairment charges, unrealized foreign exchange and fair value gains and losses which are not reflected in calculating the amount of cash available for the payment of dividends.

For the three and six months ended June 30, 2017, net income attributable to Common Share was higher than dividends paid/payable as our net income included the gain on disposal of our power assets.

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FINANCIAL INSTRUMENTS

We and our jointly-controlled businesses periodically enter into interest rate hedges to manage interest rate exposures. For the three and six months ended June 30, 2017, equity income within our discontinued operations includes a $2 million mark-to-market loss and $nil unrealized mark-to-market gain ($1 million and $nil after tax), associated with interest rate hedges. For three and six months ended June 30, 2016, equity income from within our discontinued operations includes a $3 million and $10 million unrealized mark-to-market loss ($2 million and $7 million after tax).

Veresen Midstream entered into cross currency swaps to manage both interest rate and foreign exchange rate exposures on its US$725 million drawn Term Loan B. During the first quarter of 2017, $48 million (100%) of the derivative financial instrument was monetized by amending the exchange rate on the final bullet payment on the existing swaps to the current market rate, resulting in Veresen Midstream receiving $48 million (100%) in cash and resetting the fair value of the swaps.

For the three and six months ended June 30, 2017, equity income from Veresen Midstream includes a $10 million and $16 million pre-tax unrealized mark-to-market loss ($7 million and $12 million after tax), associated with the cross currency swap. For the three and six months ended June 30, 2016, equity income from Veresen Midstream includes a $2 million and $25 million pre-tax unrealized mark-to-market loss ($1 million and $18 million after tax) associated with the cross currency swap.

CONTRACTUAL OBLIGATIONS AND COMMITMENTS

On March 31, 2017, Ruby Pipeline Pipeline L.L.C. entered into a one year loan with a syndicate of lenders to refinance the US$250 million (100%) medium term note, which matured on April 1, 2017. On June 30, 2017, Ruby made the first of three equal quarterly payments of approximately US$16 million (100%), with the remaining balance of US$202 million (100%) due on March 31, 2018. To fund these debt repayments, we and Kinder Morgan Inc. are contributing funds in the form of a subordinated note maturing March 31, 2026, bearing interest at a rate of 10% per year. Our 50% ownership interest will result in us making three quarterly payments of approximately US$8 million, the first of which occurred on June 30, 2017, with a final payment of approximately US$101 million to be made on March 31, 2018.

On April 15, 2015, Aux Sable received a Notice and Finding of Violation from the United States Environmental Protection Agency ("EPA") for exceedances of permitted limits for Volatile Organic Compounds at Aux Sable's Channahon, Illinois Facility. Aux Sable is engaged in discussions with the EPA to resolve the matter. The initial EPA proposal confirms the settlement amount will not be material.

On March 30, 2012, a Statement of Claim was filed against our equity-accounted investees, Aux Sable Liquid Products, L.P., Aux Sable Canada L.P., Aux Sable Extraction LP and Aux Sable Canada Ltd., relating to differences in interpretation of certain terms of the NGL Sales Agreement. On October 14, 2016, an Amended Statement of Claim was filed, disputing the application by Aux Sable of certain additional elements of the NGL Sales Agreement. Aux Sable filed a Statement of Defence on January 5, 2017 and BP filed a corresponding Reply on January 31, 2017. Aux Sable will fully defend its position in this matter and at this time, is unable to predict the likely outcome. We believe the amount of estimated loss accrued in the financial statements is consistent with requirements under US GAAP. We will continue to assess the matter and the amount of loss accrued may change in the future.

NEW ACCOUNTING STANDARDS

Adoption of New Standards

The following new Accounting Standards Updates ("ASU") have been issued by the Financial Accounting Standards Board ("FASB"), as of June 30, 2017:

Effective January 1, 2017, we adopted ASU 2015-017, "Income Taxes: Balance Sheet Classification of Deferred Taxes". This ASU changes the classification of deferred tax liabilities and assets. Under the ASU, an entity classifies deferred tax liabilities and assets as non-current in the statement of financial position. This guidance was applied retrospectively and did not have a material impact to us.

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Effective January 1, 2017, we adopted ASU 2016-07, "Investments - Equity Method and Joint Ventures: Simplifying the Transition to the Equity Method of Accounting". This ASU eliminates the requirement for an investor to adjust the investment, results of operations, and retained earnings retroactively on a step-by-step basis as if the equity method had been in effect during all previous periods that the investment had been held, in the event that an investment qualifies for use of the equity method as a result of an increase in the level of ownership interest or degree of influence. This guidance was applied prospectively and did not have a material impact to us.

Future accounting policy changesIn May 2014, the FASB issued ASU 2014-09, "Revenue from Contracts with Customers". This ASU provides guidance for changes in criteria for revenue recognition from contracts with customers. Additionally, in April 2016, the FASB issued ASU 2016-10, "Revenue from Contracts with Customers: Identifying Performance Obligations and Licensing" which provides guidance on identifying performance obligations and licensing. Further in May 2016, the FASB issued ASU 2016-12, "Revenue from Contracts with Customers: Narrow-Scope Improvements and Practical Expedients" which provides guidance to address certain issues assessing collectibility, presentation of sales taxes, non cash consideration and completed contracts and contract modifications at transition. In August 2015, the FASB issued ASU 2015-14, "Revenue from Contracts with Customers - Deferral of the effective date". This ASU defers the effective date of ASU 2014-09 for all entities by one year. In December 2016, the FASB issued ASU 2016-20, “Technical Corrections and Improvements to Revenues from Contracts with Customers under Topic 606” which provides amendments to clarify and correct unintended application of the guidance. All guidance is effective for annual and interim periods beginning after December 15, 2017, and will be applied retrospectively. We are currently evaluating the impact of the standard.

In January 2016, the FASB issued ASU 2016-01, "Financial Instruments - Overall: Recognition and Measurement of Financial Assets and Liabilities". This ASU addresses certain aspects of the guidance regarding recognition, measurement, presentation and disclosure of financial instruments, specifically the guidance for measuring the fair value of equity investments. This guidance is effective for annual and interim periods beginning after December 15, 2017, and is to be applied by means of a cumulative-effect adjustment to the Statement of Financial Position as of the beginning of the fiscal year of adoption, with amendments related to equity securities without readily determinable fair values to be applied prospectively. We do not expect the standard to have a material impact.

In February 2016, the FASB issued ASU 2016-02, "Leases". This ASU addresses the recognition, measurement, presentation and disclosure in the financial statements of the assets and liabilities related to operating leases. This guidance is effective for annual and interim periods beginning after December 15, 2018. We are currently evaluating the impact of the standard.

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments”. This ASU replaces the incurred loss impairment methodology in current guidance with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. This guidance is effective for annual and interim periods beginning after December 15, 2019. Entities will apply the guidance through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective (a modified-retrospective approach). We are currently evaluating the impact of the standard.

In August 2016, the FASB issued ASU 2016-15, “Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments”. This ASU is intended to reduce diversity in practice in how certain transactions are classified in the statement of cash flows. This guidance is effective for annual and interim periods beginning after December 15, 2017. Entities will apply the guidance retrospectively to all periods presented but may apply it prospectively from the earliest date practicable if retrospective application would be impracticable. We are currently evaluating the impact of the standard.

In November 2016, the FASB issued ASU 2016-18, “Statement of Cash Flows: Restricted Cash”. This ASU is intended to reduce diversity that exists in the classification and presentation of changes in restricted cash on the statement of cash flows under Topic 230. This guidance is effective for annual and interim periods beginning after December 15, 2017. Entities will apply the guidance retrospectively to all periods presented. We are currently evaluating the impact of the standard.

In January 2017, the FASB issued ASU 2017-01, “Business Combinations: Clarifying the Definition of a Business". This ASU is intended to clarify the definition of a business to assist entities with evaluating whether

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transactions should be accounted for as acquisitions (or disposals) of assets or businesses. This guidance is effective for annual and interim periods beginning after December 15, 2017. Entities will apply the guidance prospectively on or after the effective date. We are currently evaluating the impact of the standard.

In January 2017, the FASB issued ASU 2017-04, “Intangibles - Goodwill and Other : Simplifying the Test for Goodwill Impairment". This ASU is intended to simplify the subsequent measurement of goodwill by comparing the fair value of a reporting unit with its carrying amount. This guidance is effective for annual and interim periods beginning after December 15, 2019. Entities will apply the guidance prospectively. We are currently evaluating the impact of the standard.

In May 2017, the FASB issued ASU 2017-10, “Service Concession Arrangements: Determining the Customer of the Operation Services". This ASU is intended to clarify how an operating entity should determine the customer of the operation services for transactions. This guidance is effective for annual and interim periods beginning after December 15, 2017. Entities will apply the guidance retrospectively. We are currently evaluating the impact of the standard.

In July 2017, the FASB issued ASU 2017-11, “Distinguishing Liabilities from Equity". This ASU is intended to reduce the complexity associated with navigating the guidance in Topic 480. Those amendments do not have an accounting effect. We do not expect the standard to have a material impact.

NON-GAAP FINANCIAL MEASURES

Certain financial measures referred to in this MD&A are not measures recognized under US GAAP. These non-GAAP financial measures do not have standardized meanings prescribed by US GAAP and therefore may not be comparable to similar measures presented by other entities. We caution investors not to construe these non-GAAP financial measures as alternatives to other measures of financial performance calculated in accordance with US GAAP. We further caution investors not to place undue reliance on any one financial measure.

We provide the following non-GAAP financial measures to assist investors with their evaluation of us, including their assessment of our ability to generate distributable cash to fund monthly dividends. We consider these non-GAAP financial measures, together with other financial measures calculated in accordance with US GAAP, to be important factors that assist investors in assessing performance.

Distributable Cash - represents the cash we have available for distribution to common shareholders after providing for debt service obligations, Preferred Share dividends, and any maintenance and sustaining capital expenditures. Distributable cash does not include distribution reserves, if any, available in jointly-controlled businesses, project development costs, or costs incurred in conjunction with acquisitions and dispositions. Project development costs are discretionary, non-recoverable costs incurred to assess the commercial viability of greenfield business initiatives unrelated to our operating businesses. We consider acquisition and disposition costs, including associated taxes, to be unrelated to our operating businesses. The investment community uses distributable cash to assess the source and sustainability of our dividends. The following is a reconciliation of distributable cash to cash from operating activities.

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Reconciliation of Distributable Cash to Cash From Operating Activities


($ Millions) 2017 2016 2017 2016

Cash from operating activities 86 66 157 114Add (deduct):

Project development costs (1) 26 38 42 78Transaction costs 8 - 8 -Change in non-cash working capital and other 1 5 10 15Principal repayments on senior notes (1) (3) (4) (6)Maintenance capital expenditures (1) (2) (2) (3)Distributions earned greater (less) than distributions received (2) (12) (3) 6 (10)

Preferred Share dividends (7) (7) (13) (13)Distributable cash 100 94 204 175

(1) Represents costs incurred by us in relation to projects where the recoverability of such costs has not yet been established. Amounts incurred for the three and six months ended June 30, 2017 relate primarily to the Jordan Cove LNG terminal project and the Pacific Connector Gas Pipeline project.

(2) Represents the difference between distributions declared by jointly-controlled businesses and distributions received.

Distributable Cash per Common Share - reflects the per common share amount of distributable cash calculated based on the average number of common shares outstanding on each record date.

EBITDA - refers to earnings before interest, tax, depreciation and amortization. EBITDA is reconciled to net income before tax by deducting interest, depreciation and amortization, and asset impairment losses, if any. The investment community uses this measure, together with other measures, to assess the source and sustainability of cash distributions.

Adjusted Net Income attributable to Common Shares - represents net income adjusted for specific items that are significant, but are not reflective of our underlying operations. Specific items are subjective, however, we use our judgement and informed decision-making when identifying items to be included or excluded in calculating adjusted net income. Specific items may include, but are not limited to, certain income tax adjustments, gains or losses on sales of assets, certain fair value adjustments, and asset impairment losses. We believe our use of adjusted net income attributable to Common Shares provides useful information to us and our investors by improving the ability to compare financial results among reporting periods, and by enhancing the understanding of our operating performance and our ability to fund distributions. The following is a reconciliation of adjusted net income attributable to Common Shares to net income attributable to Common Shares.


($ Millions) 2017 2016 2017 2016Adjusted net income attributable to Common Shares 24 11 61 27

Midstream - gain (loss) on revaluation of Veresen Midstream debt (1) 11 (1) 15 23Midstream - loss on Veresen Midstream cross currency swap (2) (10) (2) (16) (25)

Midstream - deferred financing costs (3) - - (1) -Corporate - Pembina transaction costs (4) (8) - (8) -

Power - income (loss) from discontinued operations (5) 130 1 142 (2)

Taxes (6) 3 - 4 (7)

Net income attributable to common shares 150 9 197 16Net income attributable to Common Shares includes the following items which are non-operating in nature and/or unusual items and which we do not expect to recur:(1) Gain (loss) on the revaluation of US dollar-denominated Term Loan B held by Veresen Midstream.(2) Loss on the Veresen Midstream cross currency swap entered into to hedge the impact of changes in foreign exchange and interest

rates on the Term Loan B held by Veresen Midstream.(3) Expensing of deferred financing costs relating to the re-pricing of Veresen Midstream's US dollar denominated Term Loan B.(4) Transaction costs incurred in relation to the Pembina transaction.

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(5) Income generated by the Power segment is now shown as discontinued operations.(6) Taxes related to the adjusting items described above and to other tax provisions/recoveries not reflective of our underlying operations.

2016 represents capital gains tax on U.S.-based organizational restructuring. SELECTED QUARTERLY FINANCIAL INFORMATION

2017 2016 2015($ Millions, except where noted) Q2 Q1 Q4 Q3 Q2 Q1 Q4 Q3Operating revenues 16 12 16 13 12 12 14 14Net income (loss) from continuing operations

27 41 (54) 19 8 10 5 11Net income (loss) from discontinued operations

130 12 (1) - 1 (3) 9 (3)Net income (loss) attributable to Common Shares

150 47 (55) 19 9 7 14 8Per Common Share ($) – basic:

Net income (loss) attributable to Common Shares 0.48 0.15 (0.17) 0.06 0.03 0.02 0.05 0.03Distributable cash 100 104 80 101 94 81 93 71Distributable cash per Common Share ($) – basic 0.32 0.33 0.25 0.33 0.30 0.27 0.31 0.25

Cash from operating activities 86 71 85 78 66 48 76 77

Significant items that affected quarterly financial results include the following:• Second quarter 2017 reflects continued strong earnings from Alliance, lower Jordan Cove related

spending and a gain on the sale of certain power assets• First quarter 2017 reflected robust earnings from Alliance and lower Jordan Cove related spending• Fourth quarter 2016 reflected continued strong earnings from Alliance and impairment charges to Ruby

and Aux Sable• Third quarter 2016 reflected strong earnings from Alliance• Second quarter 2016 reflected strong cash flows from Alliance and higher Jordan Cove related

spending• First quarter 2016 reflects strong earnings from Alliance under its new service model, a continuation of

low fractionation margins impacting Aux Sable and higher Jordan Cove related spending• Fourth quarter 2015 reflected a continuation of low fractionation margins at Aux Sable and higher

Jordan Cove-related spending.• Third quarter 2015 reflected lower earnings from Aux Sable driven by low fractionation margins.

DISCLOSURE CONTROLS AND PROCEDURES

Disclosure controls and procedures are designed to provide reasonable assurance that all relevant information is gathered and reported to senior management, including the President & Chief Executive Officer (CEO) and Senior Vice President, Finance and Chief Financial Officer (CFO), on a timely basis so appropriate decisions can be made regarding public disclosure.

We have evaluated the effectiveness of the design and operation of our disclosure controls and procedures, under the supervision of our CEO and CFO. Based on this evaluation, we concluded the disclosure controls and procedures, as defined in National Instrument 52-109, were effective as of June 30, 2017.

INTERNAL CONTROLS OVER FINANCIAL REPORTING

We are responsible for establishing and maintaining adequate internal controls over financial reporting to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with US GAAP. We assessed the design and effectiveness of internal controls over financial reporting as at June 30, 2017, and, based on that assessment, determined the design and operating effectiveness of internal controls over financial reporting was effective. However, because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements on a timely basis.

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No changes were made to internal controls over financial reporting during the three and six months ended June 30, 2017 that have materially affected, or are reasonably likely to materially affect, internal controls over financial reporting.

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Veresen Inc.

Consolidated Statement of Financial Position

(Canadian $ Millions; number of shares in Millions, unaudited) June 30, 2017 December 31, 2016 (1)

AssetsCurrent assets

Cash and short-term investments 191 108Distributions receivable 56 50Accounts receivable and other 14 27Assets held for sale (note 3) 368 780

629 965

Investments in jointly-controlled businesses (note 4) 1,497 1,431Investments held at cost (note 7) 1,768 1,818Pipeline, plant and other capital assets 320 307Intangible assets 45 46Due from jointly-controlled businesses 3 3Other assets 2 2

4,264 4,572

LiabilitiesCurrent liabilities

Accounts payable and other 45 73Deferred revenue 5 3Dividends payable 26 26Current portion of long-term senior debt (note 5) 4 304Liabilities associated with assets held for sale (note 3) 19 177

99 583

Long-term senior debt (note 5) 1,082 903Deferred tax liabilities 244 209Other long-term liabilities 50 45

1,475 1,740

Shareholders’ EquityShare capital (note 6) Preferred shares 536 536 Common shares (314 and 314 outstanding at June 30, 2017 and December

31, 2016, respectively) 3,482 3,482Additional paid-in capital 28 28Cumulative other comprehensive income 198 281Accumulated deficit (1,455) (1,495)

2,789 2,8324,264 4,572

(1) Certain comparative figures have been reclassified as Assets Held for Sale (note 3)Commitments and Contingencies (note 10)Variable Interest Entities (note 11)See accompanying Notes to the Consolidated Financial Statements

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Veresen Inc.

Consolidated Statement of Income

(Canadian $ Millions, except per Common Share Three months ended June 30 Six months ended June 30amounts (note 6); unaudited) 2017 2016 (1) 2017 2016 (1)

Equity income (note 4) 52 42 111 92Dividend income 30 29 60 60Operating revenues 16 12 28 24Operations and maintenance (8) (5) (13) (10)General and administrative (9) (7) (18) (17)Project development (26) (38) (42) (78)Transaction costs (8) - (8) -Depreciation and amortization (4) (5) (9) (9)Interest and other finance (10) (9) (22) (18)Foreign exchange and other (1) - (1) -Net income before tax 32 19 86 44Current tax (2) (3) (5) (5)Deferred tax (3) (1) (13) (8)Net income from continuing operations 27 15 68 31Discontinued operations (note 3)

Net income (loss) from discontinued operations before tax and gain on disposal 12 1 28 (2) Gain on disposal of discontinued operations 139 - 139 - Income tax on discontinued operations (21) - (25) -Discontinued operations income (loss) 130 1 142 (2)Net income 157 16 210 29Preferred Share dividends (7) (7) (13) (13)Net income attributable to Common Shares 150 9 197 16

Continuing operations 0.07 0.03 0.18 0.06 Discontinued operations 0.41 - 0.45 (0.01)Net income per Common Share 0.48 0.03 0.63 0.05

Consolidated Statement of Comprehensive Income (Loss)Three months ended June 30 Six months ended June 30

(Canadian $ Millions, unaudited) 2017 2016 2017 2016

Net income 157 16 210 29Other comprehensive income (loss) Unrealized foreign exchange gain (loss) on translation (64) 8 (83) (156)Other comprehensive income (loss) (64) 8 (83) (156)Comprehensive income (loss) 93 24 127 (127)Preferred Share dividends (7) (7) (13) (13)Comprehensive income (loss) attributable to CommonShares 86 17 114 (140)

(1) Certain comparative figures have been reclassified as Discontinued Operations (note 3)See accompanying Notes to the Consolidated Financial Statements

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Veresen Inc.

Consolidated Statement of Cash FlowsThree months ended June 30 Six months ended June 30

(Canadian $ Millions, unaudited) 2017 2016 (1) 2017 2016 (1)

OperatingNet income 157 16 210 29Net loss (income) from discontinued operations (130) (1) (142) 2Equity income (note 4 and 8) (52) (42) (111) (92)Distributions from jointly-controlled businesses 89 62 157 127Depreciation and amortization 4 5 9 9Foreign exchange and other non-cash items 2 3 4 3Deferred tax 3 1 13 8Changes in non-cash working capital (note 9) 10 11 (1) 3

Cash provided by continuing operations 83 55 139 89Cash provided by discontinued operations 3 11 18 25

86 66 157 114Investing

Investments in jointly-controlled businesses (3) (15) (141) (151)Investments in held at cost business (note 7) (10) - (10) -Return of capital from jointly-controlled businesses - - 5 -Pipeline, plant and other capital assets (13) (24) (32) (30)

Cash used by continuing operations (26) (39) (178) (181)Cash used by discontinued operations (1) (2) - (3)Proceeds from sale of discontinued operations (note 3) 387 - 387 -

360 (41) 209 (184)Financing

Long-term debt repaid (note 5) (2) (2) (302) (2)Net change in credit facilities (note 5) (341) - 180 132Common Share dividends paid (78) (27) (157) (57)Preferred Share dividends paid (7) (7) (13) (13)

Cash provided (used) by continuing operations (428) (36) (292) 60Cash used by discontinued operations (1) (2) (3) (4)

(429) (38) (295) 56Increase (decrease) in cash and short-term investments 17 (13) 71 (14)Effect of foreign exchange rate changes on cash and

short-term investments (5) 1 (6) (2)Cash and short-term investments at the beginning of the

period - continuing operations 163 27 108 41Cash and short-term investments at the beginning of the

period - discontinued operations (note 3) 28 27 30 17Cash and short-term investments at the end of the period 203 42 203 42Cash and short-term investments - discontinued operations (note 3) (12) (26) (12) (26)Cash and short-term investments - continuing operations 191 16 191 16(1) Certain comparative figures have been reclassified as Discontinued Operations (note 3)See accompanying Notes to the Consolidated Financial Statements

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Veresen Inc.

Consolidated Statement of Shareholders' EquitySix months ended June 30

(Canadian $ Millions, unaudited) 2017 2016Preferred SharesBalance at the beginning and end of the period 536 536

Common SharesJanuary 1 3,482 3,354Common Shares issued under Premium Dividend and Dividend Reinvestment

Plan ("DRIP") - 94Balance at the end of the period 3,482 3,448

Additional paid-in capitalJanuary 1 28 4Additional paid-in capital - 24Balance at the end of the period 28 28

Cumulative other comprehensive incomeJanuary 1 281 359Other comprehensive loss (83) (156)Balance at the end of the period 198 203

Accumulated deficitJanuary 1 (1,495) (1,166)Net income 210 29Preferred Share dividends (13) (13)Common Share dividends (157) (152)Balance at the end of the period (1,455) (1,302)

Shareholders' Equity 2,789 2,913

See accompanying Notes to the Consolidated Financial Statements

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Notes to the Consolidated Financial Statements

Three and six months ended June 30, 2017 and 2016 (Canadian $ Millions, except where noted, unaudited)

1. Basis of Presentation

These consolidated financial statements of Veresen Inc. have been prepared by management in accordance with accounting principles generally accepted in the United States of America (“US GAAP”).

Amounts are stated in millions of Canadian dollars unless otherwise indicated.

The preparation of financial statements in accordance with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses, financial instruments and taxes. Actual amounts could differ from these estimates. Significant estimates used in the preparation of these consolidated financial statements relate to the determination of any impairment in the carrying value of long-term assets, the estimated useful lives over which certain assets are depreciated or amortized, and the measurement of asset retirement obligations, and contingencies.

These consolidated financial statements include the accounts of the Company and its subsidiaries. The Company consolidates its interest in entities over which it is able to exercise control. To the extent there are interests owned by other parties, the other parties’ interests are included in Non-Controlling Interest. Veresen accounts for its jointly-controlled businesses using the equity method, and its investment in Ruby Pipeline Holding Company LLC ("Ruby") using the cost method.

Other than as described in note 2, the accounting policies applied are consistent with those outlined in Veresen’s annual audited consolidated financial statements for the year ended December 31, 2016. The year-end balance sheet data was derived from audited financial statements but these interim financial statements do not include all disclosures required by US GAAP and should be read in conjunction with the December 31, 2016 audited consolidated financial statements. Operating results for the three and six months ended June 30, 2017 and June 30, 2016 are not necessarily indicative of the results for the full year.

In management’s opinion the interim consolidated financial statements contain all adjustments, consisting only of normal recurring adjustments, which management considers necessary to present fairly the Company’s financial position as at June 30, 2017 and results of operations and cash flows for the three and six months ended June 30, 2017 and 2016.

2. New Accounting Pronouncements

Adoption of New Standards

The following new Accounting Standards Updates ("ASU") have been issued by the Financial Accounting Standards Board ("FASB"), as of June 30, 2017:

Effective January 1, 2017, the Company adopted ASU 2015-017, "Income Taxes: Balance Sheet Classification of Deferred Taxes". This ASU changes the classification of deferred tax liabilities and assets. Under the ASU, an entity classifies deferred tax liabilities and assets as non-current in the statement of financial position. This guidance was applied retrospectively and did not have a material impact to the Company.

Effective January 1, 2017, the Company adopted ASU 2016-07, "Investments - Equity Method and Joint Ventures: Simplifying the Transition to the Equity Method of Accounting". This ASU eliminates the requirement for an investor to adjust the investment, results of operations, and retained earnings retroactively on a step-by-step basis as if the equity method had been in effect during all previous periods that the investment had been held, in the event that an investment qualifies for use of the equity method as a result of an increase in the level of ownership interest or degree of influence. This guidance was applied prospectively and is not expected to have a material impact to the Company.

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Future accounting policy changesIn May 2014, the FASB issued ASU 2014-09, "Revenue from Contracts with Customers". This ASU provides guidance for changes in criteria for revenue recognition from contracts with customers. Additionally, in April 2016, the FASB issued ASU 2016-10, "Revenue from Contracts with Customers: Identifying Performance Obligations and Licensing" which provides guidance on identifying performance obligations and licensing. Further in May 2016, the FASB issued ASU 2016-12, "Revenue from Contracts with Customers: Narrow-Scope Improvements and Practical Expedients" which provides guidance to address certain issues assessing collectibility, presentation of sales taxes, non cash consideration and completed contracts and contract modifications at transition. In August 2015, the FASB issued ASU 2015-14, "Revenue from Contracts with Customers - Deferral of the effective date". This ASU defers the effective date of ASU 2014-09 for all entities by one year. In December 2016, the FASB issued ASU 2016-20, “Technical Corrections and Improvements to Revenues from Contracts with Customers under Topic 606” which provides amendments to clarify and correct unintended application of the guidance. All guidance is effective for annual and interim periods beginning after December 15, 2017, and will be applied retrospectively. The Company is currently evaluating the impact of the standard.

In January 2016, the FASB issued ASU 2016-01, "Financial Instruments - Overall: Recognition and Measurement of Financial Assets and Liabilities". This ASU addresses certain aspects of the guidance regarding recognition, measurement, presentation and disclosure of financial instruments, specifically the guidance for measuring the fair value of equity investments. This guidance is effective for annual and interim periods beginning after December 15, 2017, and will be applied by means of a cumulative-effect adjustment to the Statement of Financial Position as of the beginning of the fiscal year of adoption, with amendments related to equity securities without readily determinable fair values to be applied prospectively. The Company does not expect the standard to have a material impact.

In February 2016, the FASB issued ASU 2016-02, "Leases". This ASU addresses the recognition, measurement, presentation and disclosure in the financial statements of the assets and liabilities related to operating leases. This guidance is effective for annual and interim periods beginning after December 15, 2018. The Company is currently evaluating the impact of the standard.

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments”. This ASU replaces the incurred loss impairment methodology in current guidance with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. This guidance is effective for annual and interim periods beginning after December 15, 2019. Entities will apply the guidance through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective (a modified-retrospective approach). The Company is currently evaluating the impact of the standard.

In August 2016, the FASB issued ASU 2016-15, “Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments”. This ASU is intended to reduce diversity in practice in how certain transactions are classified in the statement of cash flows. This guidance is effective for annual and interim periods beginning after December 15, 2017. Entities will apply the guidance retrospectively to all periods presented but may apply it prospectively from the earliest date practicable if retrospective application would be impracticable. The Company is currently evaluating the impact of the standard.

In November 2016, the FASB issued ASU 2016-18, “Statement of Cash Flows: Restricted Cash”. This ASU is intended to reduce diversity that exists in the classification and presentation of changes in restricted cash on the statement of cash flows under Topic 230. This guidance is effective for annual and interim periods beginning after December 15, 2017. Entities will apply the guidance retrospectively to all periods presented. The Company does not expect the standard to have a material impact.

In January 2017, the FASB issued ASU 2017-01, “Business Combinations: Clarifying the Definition of a Business". This ASU is intended to clarify the definition of a business to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. This guidance is effective for annual and interim periods beginning after December 15, 2017. Entities will apply the guidance prospectively on or after the effective date. The Company is currently evaluating the impact of the standard.

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In January 2017, the FASB issued ASU 2017-04, “Intangibles - Goodwill and Other: Simplifying the Test for Goodwill Impairment". This ASU is intended to simplify the subsequent measurement of goodwill by comparing the fair value of a reporting unit with its carrying amount. This guidance is effective for annual and interim periods beginning after December 15, 2019. Entities will apply the guidance prospectively. The Company does not expect the standard to have a material impact.

In May 2017, the FASB issued ASU 2017-10, “Service Concession Arrangements: Determining the Customer of the Operation Services". This ASU is intended to clarify how an operating entity should determine the customer of the operation services for transactions. This guidance is effective for annual and interim periods beginning after December 15, 2017. Entities will apply the guidance retrospectively. The Company is currently evaluating the impact of the standard.

In July 2017, the FASB issued ASU 2017-11, “Distinguishing Liabilities from Equity". This ASU is intended to reduce the complexity associated with navigating the guidance in Topic 480. Those amendments do not have an accounting effect. The Company does not expect the standard to have a material impact. 3. Assets Held for Sale, Discontinued Operations, and Disposals

Assets Held for SaleOn February 21, 2017, the Company announced it had reached agreement with three third parties to sell its power generation facilities for $1.18 billion, including project level financing. As a result, the assets and liabilities of the facilities have been classified as held for sale on the consolidated statement of financial position as at June 30, 2017 and the results of operations and cash flows have been presented as discontinued operations on the consolidated statement of income and consolidated statement of cash flows, respectively, with comparatives. The assets and liabilities held for sale were remeasured to reflect our assessment of fair value as a result of the sale which resulted in an additional depreciation charge of $26 million to the Company's district energy assets, recognized in the fourth quarter of 2016 as part of discontinued operations. In 2017, an additional $3 million of depreciation charges were recognized as a result of interim purchase price adjustments.

As at June 30, 2017, the Company has closed the sale of its gas-fired, district energy and waste heat generation facilities, and Grand Valley 2 Limited Partnership for proceeds of $741 million less $354 million of project level financing and working capital adjustments. On August 1st, 2017, the Company closed the sale of Furry Creek Power Ltd. for proceeds of $20 million less $7 million of project level financing and working capital adjustments.

On August 1, 2016, the Company closed the sale of its 33 megawatt Glen Park run-of-river hydro power generation facility to an unrelated third party for proceeds of $81 million which approximated the carrying value of the assets sold. As a result, results of operations and cash flows have been presented as discontinued operations on the consolidated statement of income and consolidated statement of cash flows for the three and six months ended June 30, 2016.

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The table below details the assets and liabilities held for sale:June 30, 2017 December 31, 2016

Assets

Cash 12 30

Restricted cash 1 3

Distributions receivable - 2

Receivables and other 6 20

Property, plant and equipment 328 583

Intangible assets 19 102

Investments in jointly-controlled businesses - 36

Other assets 2 4

Assets held for sale 368 780

Liabilities

Payables 4 11

Current portion of long-term senior debt 1 9

Long-term senior debt 7 151

Deferred tax liabilities 3 2

Other liabilities 4 4

Liabilities held for sale 19 177

The table below provides details on the results of the discontinued operations:

Three months ended June 30 Six months ended June 302017 2016 2017 2016

Equity income (loss) 1 (1) 10 (4)

Operating revenues 20 26 46 51

Operations and maintenance (7) (9) (17) (19)

General and administrative (2) (3) (5) (6)

Depreciation and amortization - (10) (3) (19)

Interest and other finance - (2) (3) (5)

Gain on sale of assets 139 - 139 -Net income (loss) from discontinued operationsbefore tax 151 1 167 (2)

Income tax on discontinued operations (21) - (25) -

Discontinued operations income (loss) 130 1 142 (2)

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4. Investments in Jointly-Controlled Businesses

Condensed financial information (100%) for the Company’s jointly-controlled businesses:

As at June 30, 2017Six months ended

June 30, 2017As at June

30, 2017

Sixmonths

endedJune 30,

2017

100%CurrentAssets

Non-CurrentAssets

Current Liabilities(1)

Non-Current

Liabilities(1)Senior

Debt Revenues Expenses

Profit(Loss)before

TaxOwner-

ship (%)Equity

Investment

EquityIncome(Loss)

Alliance Canada (2) (7) 177 1,201 41 59 850 324 213 111 50 224 53

Alliance U.S. (3) (6) 70 1,068 43 17 548 345 197 148 50 221 48

Aux Sable Canada 56 104 52 13 - 248 243 5 50 47 3

ASLP (4) (6) 56 533 73 104 6 75 87 (12) 43 141 (4)

ASM (6) 23 288 18 - - 158 142 16 43 125 7

ACM 5 - 4 - - 57 51 6 43 - 2

Veresen Midstream (5) 158 3,814 273 49 1,994 134 129 5 47 739 2

Continuing Investments in Jointly-Controlled Businesses 1,497 111York Energy Centre (8) - - - - - 19 16 3 - - 4

Grand Valley (9) 2 42 - 1 45 15 10 5 75 - 6

Assets Held for Sale, Investments in Jointly-Controlled Businesses (note 3) - 10

As at December 31, 2016Six months ended

June 30, 2016

As atDecember

31, 2016

Sixmonths

endedJune 30,

2016

100%CurrentAssets

Non-CurrentAssets

Current Liabilities (1)

Non-Current

Liabilities (1)Senior

Debt Revenues Expenses

Profit(Loss)before

taxOwner-

ship (%)Equity

Investment

EquityIncome(Loss)

Alliance Canada (2) (7) 193 1,237 58 50 898 263 160 103 50 231 49

Alliance U.S. (3) (6) 75 1,140 59 19 564 212 120 92 50 240 46

Aux Sable Canada 58 117 57 24 5 185 184 1 50 44 -

ASLP (4) (6) 56 556 62 105 8 64 76 (12) 43 155 (4)

ASM (6) 32 303 25 1 - 115 107 8 43 131 4

ACM 20 - 26 - - 42 50 (8) 43 (2) (3)

Veresen Midstream (5) 145 3,207 287 19 1,629 168 159 9 47 632 5

Other (6) - - - - - 7 17 (10) 50 - (5)

Continuing Investments in Jointly-Controlled Businesses 1,431 92York Energy Centre (8) 15 251 15 44 236 30 34 (4) 50 23 (2)

Grand Valley 7 165 2 5 154 13 16 (3) 75 13 (2)

Assets Held for Sale, Investments in Jointly-Controlled Businesses (note 3) 36 (4)

Upon acquisition of investments accounted for under the equity method, the Company prepared purchase price allocations of the purchase price to the assets and liabilities of the underlying investee and adjusts equity method earnings for the amortization of purchase price adjustments allocated to depreciable assets.

(1) Current liabilities and non-current liabilities exclude senior debt.(2) At June 30, 2017, the Company had a $41 million (December 31, 2016 - $44 million) increase in the carrying value of Alliance Canada

compared to the underlying equity in the net assets primarily resulting from the purchase price discrepancy as part of the acquisitions in 1997, 2002, and 2003 resulting in 50% ownership.

(3) At June 30, 2017, the Company had a US$12 million (December 31, 2016 - US$ 13 million) decrease in the carrying value of Alliance U.S. compared to the underlying equity in the net assets primarily resulting from the purchase price discrepancy as part of the acquisitions in 1997, 2002, and 2003 resulting in 50% ownership.

(4) At June 30, 2017, the Company had a US$25 million (December 31, 2016 - US$ 26 million) decrease in the carrying value of ASLP compared to the underlying equity in the net assets primarily resulting from the purchase price discrepancy as part of the acquisitions in 1997, 2002, and 2003 resulting in 42.7% ownership.

(5) At June 30, 2017, the Company had a $32 million (December 31, 2016 - $35 million) decrease in the carrying value of Veresen Midstream compared to the underlying equity in the net assets primarily resulting from the unrecognized gain on sale relating to the non-monetary portion of the Veresen Midstream transaction, which, on the date of acquisition, March 31, 2015, resulted in 50% ownership. As at June 30, 2017, Veresen's ownership decreased to 46.7%.

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(6) Assets and liabilities of these investments have been translated into Canadian dollars using the exchange rate in effect at the balance sheet date and revenues and expenses have been translated into Canadian dollars at average exchange rates during the period.

(7) Includes NRGreen, which is not being sold with the power business and has therefore been retrospectively reclassified with Alliance Canada.

(8) On April 13, 2017, the Company closed the sales of its interests in York Energy Centre. As at December 31, 2016, the Company had a $38 million increase in the carrying value of York Energy Centre compared to the underlying equity in the net assets primarily resulting from the purchase price discrepancy as part of the acquisition in 2010 resulting in 50% ownership. Expenses include unrealized gains or losses on the interest rate hedge.

(9) On May 31, 2017 the Company closed the sale of its interest in Grand Valley 2 Limited Partnership. The remaining investment represents our interest in Grand Valley 1 Limited Partnership.

5. Long-term Debt

On March 10, 2017, the Corporation repaid its $300 million 3.95% medium term notes, which were scheduled to mature on March 14, 2017.

Revolving Credit FacilitiesOn October 31, 2016, the $750 million Revolving Credit Facility term was extended by one year to mature on May 31, 2020. Outstanding advances bear interest based on various quoted floating rates plus a margin. At June 30, 2017, the Facility was drawn by $265 million (December 31, 2016 - $85 million).

Club Revolving Credit AgreementOn October 31, 2016, the $45 million Club Revolving Credit Agreement term was extended by one year to mature on May 31, 2020. Outstanding advances bear interest on various quoted floating rate plus a margin. At June 30, 2017, $5 million in letters of credit were issued and outstanding.

6. Share Capital

Common SharesOn March 31, 2017, 23,926 shares were issued to settle a portion of the long-term incentive plan obligation that vested at the end of 2016. The weighted average number of Common Shares outstanding used to determine net income per Common Share on a basic and diluted basis for the three and six months ended June 30, 2017 was 313,652,781 and 313,640,884 (2016 - 307,483,990 and 304,498,529).

Premium Dividend and Dividend Reinvestment PlanOn August 3, 2016 the Company suspended the Premium Dividend and Dividend Reinvestment Plan (“DRIP”) commencing with the August 2016 dividend. The DRIP allowed eligible shareholders to elect to reinvest the eligible portion of the dividend declared by the Company in additional Common Shares at a 5% discount to the average market price or to receive the dividend in cash plus a 2% premium cash payment based on the eligible portion of the dividend.

7. Financial Instruments and Risk Management

Fair ValuesFair value is the amount of consideration that would be agreed upon in an arm's length transaction between knowledgeable, willing parties who are under no compulsion to act.

The fair values of financial instruments included in cash and short-term investments, distributions receivable, accounts receivable and other, due from jointly-controlled businesses, other assets, accounts payable and other, dividends payable, and other long-term liabilities approximate their carrying amounts due to the nature of the item and/or the short time to maturity. The fair value of the investment held at cost is based on a number of factors, including the present value of anticipated distributable cash flows to be produced from the underlying operations of the Ruby investment. Assessing these cash flows required the use of assumptions related to the future demand for Ruby's operations, forecasted commodity prices and interest rates, anticipated economic conditions, timing of conversion of the preferred interest into a common equity interest, and other inputs, many of which are not available as observable market data. The fair values of senior debt are calculated by discounting future cash flows using discount rates estimated based on government bond rates plus expected spreads for similarly-rated instruments with comparable risk profiles.

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The carrying value of investments held at cost are accounted for under the cost method. As part of the Company'simpairment review, the Company performs a fair value assessment of the Company's investments held at cost onan annual basis using the most currently available information.

US GAAP establishes a fair value hierarchy that distinguishes between fair values developed based on market data obtained from sources independent of the reporting entity, and fair values developed using the reporting entity’s own assumptions based on the best information available in the circumstances. The levels of the fair value hierarchy are:

Level 1: Inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities.Level 2: Inputs are other than the quoted prices included in Level 1 that are observable for the asset or liability,

either directly or indirectly.Level 3: Inputs are not based on observable market data.

Veresen has categorized senior debt as Level 2. At June 30, 2017 senior debt had a carrying value of $1,086 million (December 31, 2016 - $1,207 million) and fair value of $1,122 million (December 31, 2016 - $1,236 million). The investment held at cost is categorized as Level 3. At June 30, 2017 the investment held at cost had a carrying value of $1,768 million (December 31, 2016 - $1,818 million) and a fair value of $1,787 million (December 31, 2016 - $1,818 million). Included in the carrying value is a contribution of $10 million in the form of a subordinated note. The investment held at cost is denominated in US dollars and fluctuations in exchange rates will result in changes to its carrying value.

Financial instruments measured at fair value as at June 30, 2017 were:

Level 1 Level 2 Level 3 Total

Cash and short-term investments 191 191

Cross Currency SwapsAs at June 30, 2017, Veresen Midstream, a jointly-controlled business, had two cross currency swaps ("Swaps"). These Swaps were entered into to manage the exposure to changes in interest rates and foreign exchange whereby Veresen Midstream receives variable interest rates denominated in US dollars and pays fixed interest rates denominated in Canadian dollars. The first Swap, obtained on March 31, 2015, had an initial notional amount of US$575 million (100%) which declines over the 4-year swap facility, ending March 31, 2019. On May 28, 2015, the Swap was amended as a result of the re-pricing of Veresen Midstream's US dollar denominated Term Loan, to reflect the reduction of 75 basis points. The second Swap, obtained on September 6, 2016, had an initial notional amount of US$150 million (100%) which declines over the remaining term of the swap facility, ending March 31, 2019.

During the first quarter of 2017, $48 million (100%) of the derivative financial instrument was monetized by amending the exchange rate on the final bullet payment on the existing Swaps to the current market rate, resulting in Veresen Midstream receiving $48 million (100%) in cash and resetting the fair value of the Swaps.

Future changes in interest rates and exchange rates will affect the fair value of the Swaps, impacting the amount of unrealized gains or losses included in equity income from jointly-controlled businesses recognized in the period. On February 17, 2017, Veresen Midstream successfully re-priced its US denominated Term Loan B, resulting in a reduction of 75 basis points.

The following is a summary of the Swaps in place as at June 30, 2017:

Jointly-ControlledBusiness Variable Debt Interest Rate Fixed

RateNotional

Amount (1) Fair

Value (1) Term

VeresenMidstream USD-BA-LIBOR 5.81% $349 $(14) March 31, 2015 to March 31,

2019Veresen

Midstream USD-BA-LIBOR 5.49% $91 - September 6, 2016 to March 31, 2019

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The following is a summary of the Swaps in place as at December 31, 2016:

Jointly-ControlledBusiness Variable Debt Interest Rate

FixedRate

Notional Amount (1)

FairValue (1) Term

VeresenMidstream USD-BA-LIBOR 5.81% $364 $23 March 31, 2015 to March 31,

2019Veresen

Midstream USD-BA-LIBOR 5.49% $95 $2 September 6, 2016 to March 31, 2019

(1) Veresen's interest in Veresen Midstream varies for items recognized within the consolidated statement of financial position and the consolidated statement of income. For the purposes of recognizing items in the consolidated statement of financial position, Veresen's ownership interest is based on Veresen's holdings on a fully diluted basis, as at the date of the consolidated statement of financial position. As at June 30, 2017, this ownership interest is 46.7%. For the purposes of recognizing items in the consolidated statement of income, Veresen's ownership interest is based on the weighted average of Veresen's holdings on a fully diluted basis during the financial statement period. For the period ended June 30, 2017 and December 31, 2016 this ownership interest is 46.9% and 47.4%, respectively.

The fair values approximate the amount that Veresen Midstream would have either paid or received to settle the contract, and are included in the Company's investment in Veresen Midstream.

Interest Rate HedgesVeresen and its jointly-controlled businesses periodically enter into interest rate hedges to manage interest rate exposures. As at June 30, 2017, Grand Valley, a jointly-controlled business within the Company's discontinued operations, had one interest rate hedge. Future changes in interest rates will affect the fair value of the hedge, impacting the amount of unrealized gains or losses included in net income or loss from discontinued operations.

The following is a summary of the interest rate hedge in place as at June 30, 2017:

Jointly-ControlledBusiness Variable Debt Interest Rate Fixed Rate

Notional Amount (1)

FairValue (1) Term

Grand Valley 1 CAD-BA-CDOR 1.52% $35 $1 July 28, 2016 to September 30, 2031

The following is a summary of the interest rate hedge in place as at December 31, 2016:

Jointly-ControlledBusiness Variable Debt Interest Rate Fixed Rate

Notional Amount (1)

FairValue (1) Term

York EnergyCentre CAD-BA-CDOR 4.36% $118 $(22) April 30, 2012 to June 30,

2032Grand Valley 1 CAD-BA-CDOR 1.52% $37 $(1) July 28, 2016 to September

30, 2031Grand Valley 2 CAD-BA-CDOR 2.31% $83 $(1) December 31, 2015 to

December 31, 2033(1) Veresen's interest in the York Energy Centre, Grand Valley 1, and Grand Valley 2 jointly-controlled businesses is 50%, 75%, and 75%,respectively.

The fair values approximate the amount that York Energy Centre and Grand Valley would have either paid or received to settle the contract, and are included in the Company’s investment in York Energy Centre and Grand Valley, as assets held for sale.

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8. Segmented Information

Pipelines (1) Midstream Power Corporate(2) Total

Three months ended June 30 2017 2016 2017 2016 2017 2016 2017 2016 2017 2016Equity income (loss) 45 44 7 - - - - (2) 52 42

Dividend income 30 29 - - - - - - 30 29

Operating revenues 16 12 - - - - - - 16 12

Operations and maintenance (8) (5) - - - - - - (8) (5)

General and administrative - - - - - - (9) (7) (9) (7)

Project development - - - - - - (26) (38) (26) (38)

Transaction costs - - - - - - (8) - (8) -

Depreciation and amortization (3) (4) - - - - (1) (1) (4) (5)

Interest and other finance (1) (1) - - - - (9) (8) (10) (9)

Foreign exchange and other - - - - - - (1) - (1) -

Net income (loss) before taxfrom continuing operations 79 75 7 - - - (54) (56) 32 19

Tax expense(3) - - - - - - (5) (4) (5) (4)

Net income (loss) fromcontinuing operations 79 75 7 - - - (59) (60) 27 15

Discontinued operationsNet income before tax fromdiscontinued operations - - - - 12 1 - - 12 1

Gain on disposal ofdiscontinued operations - - - - 139 - - - 139 -

Tax recovery fromdiscontinued operations - - - - (21) - - - (21) -

Net income from discontinuedoperations - - - - 130 1 - - 130 1

Net income (loss) 79 75 7 - 130 1 (59) (60) 157 16

Preferred Share dividends - - - - - - (7) (7) (7) (7)

Net income (loss) attributable toCommon Shares 79 75 7 - 130 1 (66) (67) 150 9

Total assets(4) 2,445 2,586 926 899 366 889 527 154 4,264 4,528

Capital expenditures(5) - - 13 21 - - - 3 13 24

(1) Includes NRGreen, which was not sold with the power business and has, therefore, been retrospectively reclassified to the Pipeline segment.

(2) Reflects unallocated amounts applicable to Veresen’s head office activities. (3) The Company holds its ownership interests in multiple business lines through partnerships, which are consolidated into various corporate

entities. Consequently, the tax provision is determined on a consolidated basis and, as such, the Company is not able to present income tax by segment.

(4) After giving effect to intersegment eliminations and allocations to businesses.(5) Reflects capital expenditures related only to wholly-owned and majority-controlled businesses.

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Pipelines (1) Midstream Power Corporate(2) Total

Six months ended June 30 2017 2016 2017 2016 2017 2016 2017 2016 2017 2016Equity income (loss) 101 95 10 2 - - - (5) 111 92

Dividend income 60 60 - - - - - - 60 60

Operating revenues 28 24 - - - - - - 28 24

Operations and maintenance (13) (10) - - - - - - (13) (10)

General and administrative (1) (1) - - - - (17) (16) (18) (17)

Project development - - - - - - (42) (78) (42) (78)

Transaction costs - - - - - - (8) - (8) -

Depreciation and amortization (7) (7) - - - - (2) (2) (9) (9)

Interest and other finance (2) (2) - - - - (20) (16) (22) (18)

Foreign exchange and other - - - - - - (1) - (1) -

Net income (loss) before taxfrom continuing operations 166 159 10 2 - - (90) (117) 86 44

Tax expense(3) - - - - - - (18) (13) (18) (13)

Net income (loss) fromcontinuing operations 166 159 10 2 - - (108) (130) 68 31

Discontinued operationsNet income (loss) before taxfrom discontinued operations - - - - 28 (2) - - 28 (2)

Gain on disposal ofdiscontinued operations - - - - 139 - - - 139 -

Tax recovery from discontinuedoperations - - - - (25) - - - (25) -

Net income (loss) fromdiscontinued operations - - - - 142 (2) - - 142 (2)

Net income (loss) 166 159 10 2 142 (2) (108) (130) 210 29

Preferred Share dividends - - - - - - (13) (13) (13) (13)

Net income (loss) attributable toCommon Shares 166 159 10 2 142 (2) (121) (143) 197 16

Total assets(4) 2,445 2,586 926 899 366 889 527 154 4,264 4,528

Capital expenditures(5) - - 32 26 - - - 4 32 30

(1) Includes NRGreen, which was not sold with the power business and has, therefore, been retrospectively reclassified to the Pipeline segment.

(2) Reflects unallocated amounts applicable to Veresen’s head office activities. (3) The Company holds its ownership interests in multiple business lines through partnerships, which are consolidated into various corporate

entities. Consequently, the tax provision is determined on a consolidated basis and, as such, the Company is not able to present income tax by segment.

(4) After giving effect to intersegment eliminations and allocations to businesses.(5) Reflects capital expenditures related only to wholly-owned and majority-controlled businesses.

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9. Supplemental Cash Flow Information

Three months ended June 30 Six months ended June 302017 2016 2017 2016

Accounts receivable 12 - 13 (10)Other assets 3 - - (1)Payables 5 13 (6) 12Interest payable (7) - (3) 1Accrued payables (3) (2) (5) 1Changes in non-cash operating working capital 10 11 (1) 3

10. Commitments and Contingencies

On March 31, 2017, Ruby Pipeline Pipeline L.L.C. entered into a one year loan with a syndicate of lenders to refinance the US$250 million (100%) medium term note, which matured on April 1, 2017. On June 30, 2017, Ruby made the first of three equal quarterly payments of approximately US$16 million (100%), with the remaining balance of US$202 million (100%) due on March 31, 2018. To fund these debt repayments, the Company and Kinder Morgan Inc. are contributing funds in the form of a subordinated note maturing March 31, 2026, bearing interest at a rate of 10% per year. The Company's 50% ownership interest will result in making three quarterly payments of approximately US$8 million, the first of which occurred on June 30, 2017, with a final payment of approximately US$101 million to be made on March 31, 2018.

On April 15, 2015, Aux Sable received a Notice and Finding of Violation from the United States Environmental Protection Agency ("EPA") for exceedances of permitted limits for Volatile Organic Compounds at Aux Sable's Channahon, Illinois Facility. Aux Sable is engaged in discussions with the EPA to resolve the matter. The initial EPA proposal confirms the settlement amount will not be material.

On March 30, 2012, a Statement of Claim was filed against the Company's equity-accounted investees, Aux Sable Liquid Products, L.P., Aux Sable Canada L.P., Aux Sable Extraction LP and Aux Sable Canada Ltd., claiming various relief including damages of US$13 million (42.7%), relating to differences in interpretation of certain terms of the NGL Sales Agreement. On October 14, 2016, an Amended Statement of Claim was filed, disputing the application by Aux Sable of certain additional elements of the NGL Sales Agreement and increasing the damages claim to US $150 million (42.7%). Aux Sable filed a Statement of Defense on January 5, 2017 and BP filed a corresponding Reply on January 31, 2017. Aux Sable will fully defend its position in this matter and at this time, is unable to predict the likely outcome. Management believes the amount of estimated loss accrued in the financial statements is consistent with requirements under US GAAP. It is reasonably possible that amounts accrued in relation to the matter may change in the future.

11. Variable Interest Entities

As a result of adopting ASU 2015-02, a number of entities controlled by the Company are now considered to be Variable Interest Entities ("VIEs"). The Company consolidates VIEs in which it has a variable interest and for which it is considered to be the primary beneficiary. VIEs in which the Company has a variable interest but is not the primary beneficiary are accounted for as equity investments.

Consolidated VIEsUnder the new consolidation standard, a certain number of the Company’s wholly-owned and controlled limited partnerships will continue to be consolidated, but are now deemed to be VIEs. For these limited partnerships, the Company has the power to direct activities that most significantly impact its economic performance and the obligation to absorb losses or the right to receive benefits. On an aggregate basis, as at June 30, 2017 these VIEs have total assets of $162 million (December 31, 2016 - $168 million) and total liabilities of $113 million (December 31, 2016 - $117 million), of which $75 million (December 31, 2016 - $77 million) relates to non-recourse debt. The assets of these VIEs must first be used for the settlement of the VIEs’ obligations.

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Non-consolidated VIEsThe Company’s non-consolidated VIE consists of one legal entity, Veresen Midstream, where the Company does not have the power to direct activities that most significantly impact the economic performance of this VIE. The Company is not the primary beneficiary and, consequently, this entity is accounted for as an equity investment (note 4). The maximum exposure to loss as a result of the Company’s involvement with this VIE is limited to the carrying value of the investment (note 4). None of the Company’s other jointly-controlled businesses are classified as VIEs.

12. Subsequent Events

Combination with PembinaOn May 1, 2017 Pembina Pipeline Corporation (“Pembina”) and the Company announced they had entered into an arrangement agreement (the “Transaction”) under which Pembina will acquire all of the issued and outstanding Veresen common shares in exchange for either (i) 0.4287 of a common share of Pembina or (ii) $18.65 in cash, subject to pro-ration based on maximum share consideration of 99.5 million Pembina common shares and maximum cash consideration of approximately $1.523 billion. At announcement, this offer represented a 21.8% premium to the Company's 20 day weighted average price of $15.31 and a 22.5% premium to the Company's last closing share price of $15.23. The Transaction was unanimously approved by the Boards of Directors of both companies.

On July 11, 2017, the Company's shareholders, at Special Meetings of the Company's common and preferred shareholders, voted to approve the Transaction between Pembina and the Company. Following the shareholder vote of approval on July 11, the Court of Queen's Bench of Alberta approved the Transaction. Closing of the transaction remains subject to certain conditions, including certain regulatory and government approvals and other customary closing conditions.

In anticipation of the combination with Pembina, the Company requested consent from the holders of its Medium Term Notes ("MTN") to align certain covenant and reporting requirements of the Company's MTN program with similar requirements under Pembina's program. On June 30, 2017, the Company received sufficient consents to enact the requested changes upon closing of the transaction.

DividendsOn July 13, 2017 the Company declared dividends of $0.0833 per Common Share. These dividends are payable on August 23, 2017 to shareholders of record on July 25, 2017.

Sale of Power AssetsOn August 1st, 2017, the Company closed the sale of its interests in Furry Creek Power Ltd. for proceeds of $20 million less $7 million of project level financing and working capital adjustments.

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veresen announces second quarter financial results and ... · financial overview three months ended...

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