Spectra Energy Reports 56 Percent Increase in Third Quarter 2013 Results

-- Ongoing net income from controlling interests of $283 million, $0.42 diluted earnings per share (EPS), compared with $179 million, $0.27 EPS, in the prior year quarter.

-- $1.2 billion New Jersey-New York Expansion placed into service on schedule; continued execution of growth plans creates ongoing value.

-- Major MLP drop-down completed November 1, creating approximately $20 billion enterprise.

Nov 04, 2013, 06:35 ET from Spectra Energy Corp

HOUSTON, Nov. 4, 2013 /PRNewswire/ -- Spectra Energy Corp (NYSE: SE) today reported 2013 third quarter net income from controlling interests of $263 million, or $0.39 diluted EPS, compared with $179 million, or $0.27 EPS, in the prior year quarter.  Ongoing net income was $283 million, or $0.42 diluted EPS, versus $179 million, or $0.27 EPS, during the prior year quarter.

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"Spectra Energy's results were very much in line with our expectations for the quarter and the year," said Greg Ebel, president and chief executive officer, Spectra Energy Corp.  "With the continued successful execution of our capital expansion plans, the strong performance of our newly acquired oil and natural gas liquids pipeline businesses, and the early completion of our drop down of assets into our MLP, Spectra Energy Partners, we are delivering impressive financial results and returns for our shareholders."

BUSINESS UPDATES

Spectra Energy recently completed the drop-down of the remainder of its U.S. Storage and Transmission assets into Spectra Energy Partners. The transaction transforms Spectra Energy Partners into one of the largest fee-based MLPs in North America with an enterprise value of almost $20 billion. The drop-down also allows for a significant dividend increase at Spectra Energy and significant increases in Spectra Energy Partners' distributions to unitholders.  The cash to Spectra Energy from its limited partnership and general partnership distributions will support Spectra Energy's ability to raise its annual dividend by 12 cents per year, effective in the first quarter of 2014, an annual increase of about 10 percent from 2013. Spectra Energy expects to continue annual dividend increases at this level through 2015.  Spectra Energy Partners will increase its quarterly distribution, to be paid in the first quarter of 2014, by three cents per unit and expects to continue with a one cent per unit quarterly increase thereafter, resulting in an increase of 11 percent from 2013.

Spectra Energy continues to execute on its $25 billion growth plan -- with several notable project updates.  The $1.2 billion New Jersey-New York Expansion is now in-service, as scheduled, and bringing critically-needed new natural gas supplies into the region for the first time in more than 40 years.  Last month, the Sabal Trail Transmission project received approval from the Federal Energy Regulatory Commission (FERC) to commence the pre-file process to engage stakeholders and is progressing towards a mid-2017 in-service date. The $3.2 billion project is underpinned by a 25-year contract with Florida Power & Light.

The $500 million TEAM 2014 Project is moving forward and expects FERC approval before year-end.  Additionally, the $150 million Gulf Market Expansion Project will provide much needed additional supplies of natural gas to support the growing manufacturing sector and LNG export industry along the Texas and Louisiana coast.  The company has secured 650 million cubic feet per day of new long-term contracts for shipments on this expansion of the Texas Eastern pipeline system. 

Finally, DCP Midstream continues to advance its substantial natural gas processing footprint and placed into service two new processing plants in the last 90 days.   The O'Connor Plant, formerly known as the LaSalle Plant, located in the DJ Basin near Kersey, Colorado, commenced commercial operations in October. The Rawhide Plant, a 75 million cubic feet per day processing plant in Glasscock County, Texas was placed into service in late August. Rawhide is part of DCP's expansion program for the liquids-rich Permian Basin.  DCP Midstream was also recently ranked by Hart Energy as the largest natural gas processor and the number one natural gas liquids producer by volume in the United States.

SEGMENT RESULTS

U.S. Transmission            U.S. Transmission reported ongoing third quarter 2013 earnings before interest and taxes (EBIT) of $250 million, compared with $238 million in third quarter 2012.  Quarterly EBIT results reflect increased earnings from expansions on Texas Eastern, partially offset by expected lower storage revenues.  The 2013 period excludes a special item of $4 million of transaction costs related to the drop down of assets into Spectra Energy Partners. 

Including the effects of the above special items, reported EBIT for third quarter 2013 was $246 million, compared with $238 million in the third quarter 2012. 

Distribution Distribution reported third quarter 2013 EBIT of $34 million, compared with $55 million in third quarter 2012. The decrease is due to an expected reduction in transportation revenue as a result of a 2012 regulatory decision, and expected lower storage revenues.   

Western Canada Transmission and Processing Western Canada Transmission and Processing reported third quarter 2013 EBIT of $90 million, compared with $83 million in third quarter 2012.  The segment experienced higher earnings at the Empress natural gas liquids (NGL) business, attributable mainly to higher propane prices and lower production costs compared to third quarter 2012.  These results were offset by expected lower earnings in the conventional gathering and processing business, driven by lower contracted volumes, as well as higher benefit and other costs.

Field Services Field Services reported third quarter 2013 EBIT of $137 million, compared with $62 million in third quarter 2012. The change in EBIT is attributable primarily to higher volumes from DCP Midstream's new processing plants going into service as well as higher commodity prices and lower operating costs.  Additionally, there was an increase in gains on units issued by DCP Midstream Partners.  These increases were partially offset by higher interest expense, primarily as a result of lower capitalized interest in the 2013 quarter.

During the third quarters of 2013 and 2012, respectively, DCP's realized NGL prices averaged $0.78 per gallon versus $0.72 per gallon, NYMEX natural gas averaged $3.58 per million British thermal units (MMBtu) versus $2.81 per MMBtu, and crude oil averaged $106 per barrel versus $92 per barrel.

DCP Midstream has paid distributions of $128 million to Spectra Energy year-to-date.

Liquids Liquids consists of the Express-Platte Pipeline System acquired in March 2013, along with our equity investments in Sand Hills Pipeline and Southern Hills Pipeline.  Liquids reported third quarter 2013 EBIT of $33 million, consisting primarily of Express-Platte operating results.

Other "Other" reported net costs of $33 million in the third quarter of 2013.  Excluding a special item of $17 million for MLP transaction costs, ongoing net costs were $16 million, compared with $29 million in third quarter 2012.  Other is primarily comprised of corporate costs, including benefits and captive insurance.

Interest Expense Interest expense was $167 million for third quarter 2013 compared with $159 million for third quarter 2012.  The increase was driven by higher average debt balances.

Income Taxes Third quarter 2013 income tax expense from continuing operations was $85 million, compared with $72 million reported in the third quarter of 2012.  The higher tax expense was due primarily to higher earnings partially offset by changes in Canadian provincial tax rates and the recognition of certain regulatory tax benefits.  The effective tax rate was 23 percent in the third quarter of 2013, compared with 26 percent in the third quarter of 2012. 

 

Special Items Affecting Spectra Energy's EPS for the Quarters Include: (in millions, except per-share amounts)

Pre-tax Amount

Tax Effect

Net Income – Controlling Interests Impact

EPS Impact

 Third Quarter 2013

     Transaction costs related to the drop down of  assets into Spectra Energy Partners

$         (21)

$          1

$         (20)

$    (0.03)

 Total Special Items

$         (21)

$          1

$         (20)

$    (0.03)

 Third Quarter 2012

$            –

$          –

$             –

$          –

 

Reconciliation of Reported to Ongoing Net Income – Controlling Interests (in millions)

Quarters Ended September 30,

2013

2012

Net Income – Controlling Interests as Reported

$       263

$       179

Adjustments to Reported Net Income – Controlling Interests:

Special Items

20

Ongoing Net Income – Controlling Interests

$       283

$       179

 

Reconciliation of Reported to Ongoing Diluted EPS

Quarters Ended

September 30,

2013

2012

Diluted EPS as Reported

$         0.39

$        0.27

     Special Items

0.03

Diluted EPS, Ongoing

$        0.42

$       0.27

Additional Information Additional information about third quarter 2013 earnings can be obtained via the Spectra Energy Web site: www.spectraenergy.com.

The analyst call, held jointly with Spectra Energy Partners, is scheduled for today, Monday, November 4, 2013, at 8:00 a.m. CT. The webcast can be accessed via the Investors Section of Spectra Energy's Web site or the conference call can be accessed by dialing (888) 252-3715 in the United States or Canada, or (706) 634-8942 internationally. The conference code is "74541627" or "SE and SEP Quarterly Earnings Call."

Please call five to ten minutes prior to the scheduled start time. A replay of the call will be available until 5:00 p.m. CT, January 1, 2014, by dialing (855) 859-2056 with conference ID 74541627. The international replay number is (404) 537-3406, with the above conference ID. A replay and transcript also will be available by accessing Spectra Energy's or Spectra Energy Partners' Web sites. 

Non-GAAP Financial Measures We use ongoing net income from controlling interests and ongoing diluted EPS as measures to evaluate operations of the company.  These measures are non-GAAP financial measures as they represent net income from controlling interests and diluted EPS, adjusted for special items and discontinued operations. Special items represent certain charges and credits which we believe will not be recurring on a regular basis, and discontinued operations do not represent our ongoing core business. We believe that the presentation of ongoing net income and ongoing diluted EPS provide useful information to investors, as it allows them to more accurately compare our ongoing performance across periods. The most directly comparable GAAP measures for ongoing net income from controlling interests and ongoing diluted EPS are net income from controlling interests and diluted EPS, including any special items.

The primary performance measure used by us to evaluate segment performance is segment EBIT from continuing operations, which at the segment level represents earnings from continuing operations (both operating and non-operating) before interest and taxes, net of noncontrolling interests related to those earnings. We consider segment EBIT, which is the GAAP measure used to report segment results, to be a good indicator of each segment's operating performance from its continuing operations as it represents the results of our ownership interest in operations without regard to financing methods or capital structures.

We also use ongoing segment EBIT and Other EBIT (net costs) as measures of performance. Ongoing segment and Other EBIT are non-GAAP financial measures as they represent reported segment and Other EBIT adjusted for special items. We believe that the presentation of ongoing segment and Other EBIT provide useful information to investors, as they allow investors to more accurately compare a segment's or Other's ongoing performance across periods. The most directly comparable GAAP measures for ongoing segment or Other EBIT are reported segment or Other EBIT, which represent EBIT from continuing operations, including any special items.

Earnings before interest, taxes and depreciation and amortization (EBITDA) is a non-GAAP financial measure. The most directly comparable GAAP measure for EBITDA, as used in the discussion of the dropdown of Spectra Energy's remaining U.S. transmission, storage and liquids assets to Spectra Energy Partners, is net income plus net interest expense and depreciation and amortization.

Forward-Looking Statements This release includes "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements are based on our beliefs and assumptions. These forward-looking statements are identified by terms and phrases such as: anticipate, believe, intend, estimate, expect, continue, should, could, may, plan, project, predict, will, potential, forecast, and similar expressions. Forward-looking statements involve risks and uncertainties that may cause actual results to be materially different from the results predicted.  Factors that could cause actual results to differ materially from those indicated in any forward-looking statement include, but are not limited to: the success of the completed drop-down; state, federal and foreign legislative and regulatory initiatives that affect cost and investment recovery, have an effect on rate structure, and affect the speed at and degree to which competition enters the natural gas and oil industries; outcomes of litigation and regulatory investigations, proceedings or inquiries; weather and other natural phenomena, including the economic, operational and other effects of hurricanes and storms; the timing and extent of changes in commodity prices, interest rates and foreign currency exchange rates; general economic conditions, including the risk of a prolonged economic slowdown or decline, or the risk of delay in a recovery, which can affect the long-term demand for natural gas and oil and related services; potential effects arising from terrorist attacks and any consequential or other hostilities; changes in environmental, safety and other laws and regulations; the development of alternative energy resources; results and costs of financing efforts, including the ability to obtain financing on favorable terms, which can be affected by various factors, including credit ratings and general market and economic conditions; increases in the cost of goods and services required to complete capital projects; declines in the market prices of equity and debt securities and resulting funding requirements for defined benefit pension plans; growth in opportunities, including the timing and success of efforts to develop U.S. and Canadian pipeline, storage, gathering, processing and other related infrastructure projects and the effects of competition; the performance of natural gas and oil transmission and storage, distribution, and gathering and processing facilities; the extent of success in connecting natural gas and oil supplies to gathering, processing and transmission systems and in connecting to expanding gas and oil markets; the effects of accounting pronouncements issued periodically by accounting standard-setting bodies; conditions of the capital markets during the periods covered by forward-looking statements; and the ability to successfully complete merger, acquisition or divestiture plans; regulatory or other limitations imposed as a result of a merger, acquisition or divestiture; and the success of the business following a merger, acquisition or divestiture.  These factors, as well as additional factors that could affect our forward-looking statements, are described under the headings "Risk Factors" and "Cautionary Statement Regarding Forward-Looking Information" in our 2012 Form 10-K, filed on February 22, 2013, and in our other filings made with the Securities and Exchange Commission (SEC), which are available via the SEC's Web site at www.sec.gov. In light of these risks, uncertainties and assumptions, the events described in the forward-looking statements might not occur or might occur to a different extent or at a different time than we have described. All forward-looking statements in this release are made as of the date hereof and we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Spectra Energy Corp (NYSE: SE), a FORTUNE 500 company, is one of North America's premier pipeline and midstream companies. Based in Houston, Texas, the company's operations in the United States and Canada include more than 22,000 miles of natural gas, natural gas liquids, and crude oil pipelines, approximately 305 billion cubic feet (Bcf) of natural gas storage, as well as natural gas gathering and processing, and local distribution operations. The company also has a 50 percent ownership in DCP Midstream, the largest producer of natural gas liquids and the largest natural gas processor in the United States. Spectra Energy has served North American customers and communities for more than a century. The company's longstanding values are recognized through its inclusion in the Dow Jones Sustainability World and North America Indexes and the CDP's Global 500 and S&P 500 Climate Disclosure and Performance Leadership Indexes. For more information, visit www.spectraenergy.com.

 

Spectra Energy Corp

Quarterly Highlights

September 2013

(Unaudited)

(In millions, except per-share amounts and where noted)

Three Months Ended September 30,

Nine Months Ended September 30,

2013

2012

2013

2012

COMMON STOCK DATA

Earnings Per Share From Continuing Operations, Diluted

$

0.39

$

0.27

$

1.20

$

1.11

Earnings Per Share, Diluted

$

0.39

$

0.27

$

1.20

$

1.11

Ongoing Earnings Per Share, Diluted

$

0.42

$

0.27

$

1.23

$

1.11

Dividends Per Share

$

0.305

$

0.28

$

0.915

$

0.84

Weighted-Average Shares Outstanding, Diluted

672

655

671

655

INCOME

Operating Revenues

$

1,144

$

1,072

$

3,953

$

3,728

Total Reportable Segment EBIT

540

438

1,644

1,563

Income from Discontinued Operations, Net of Tax

2

Net Income - Controlling Interests

263

179

802

727

EBIT BY BUSINESS SEGMENT

U.S. Transmission

$

246

$

238

$

760

$

746

Distribution

34

55

267

281

Western Canada Transmission & Processing

90

83

275

315

Field Services

137

62

271

221

Liquids

33

71

Total Reportable Segment EBIT

540

438

1,644

1,563

Other EBIT

(33)

(29)

(104)

(83)

Total Reportable Segment and Other EBIT

$

507

$

409

$

1,540

$

1,480

CAPITAL AND INVESTMENT EXPENDITURES

U.S. Transmission

$

775

$

651

Distribution

238

172

Western Canada Transmission & Processing

438

548

Liquids

218

Other

31

47

Total Capital and Investment Expenditures, Excluding Acquisitions

$

1,700

$

1,418

Acquisitions (a)

$

1,254

$

30

September 30,

December 31,

2013

2012

CAPITALIZATION

Common Equity - Controlling Interests

33%

39%

Noncontrolling Interests and Preferred Stock

5%

5%

Total Debt

62%

56%

Total Debt

$

16,821

$

12,833

Book Value Per Share (b)

$

13.33

$

13.43

Actual Shares Outstanding

670

668

(a) Represents 2013 acquisition of Express-Platte pipeline system and 2012 payment of a portion of the purchase price previously withheld in connection with the acquisition of Bobcat.

(b) Represents controlling interests.

 

Spectra Energy Corp

Quarterly Highlights

September 2013

(Unaudited)

(In millions, except where noted)

Three Months Ended September 30,

Nine Months Ended September 30,

2013

2012

2013

2012

U.S. TRANSMISSION

Operating Revenues

$

454

$

460

$

1,394

$

1,419

Operating Expenses

Operating, Maintenance and Other

167

165

480

484

Depreciation and Amortization

72

70

215

211

Gains on Sales of Other Assets and Other, net

1

1

3

Other Income and Expenses

59

40

152

103

Noncontrolling Interests

29

27

92

84

EBIT

$

246

$

238

$

760

$

746

Proportional Throughput, TBtu (a)

734

650

2,228

2,025

DISTRIBUTION

Operating Revenues

$

264

$

269

$

1,315

$

1,188

Operating Expenses

Natural Gas Purchased

70

50

567

425

Operating, Maintenance and Other

112

110

331

323

Depreciation and Amortization

49

54

151

159

Noncontrolling Interests

(1)

(1)

EBIT

$

34

$

55

$

267

$

281

Number of Customers, Thousands

1,390

1,370

Heating Degree Days, Fahrenheit

356

295

4,844

3,994

Pipeline Throughput, TBtu

157

158

666

584

Canadian Dollar Exchange Rate, Average

1.04

1.00

1.02

1.00

WESTERN CANADA TRANSMISSION & PROCESSING

Operating Revenues

$

367

$

348

$

1,132

$

1,143

Operating Expenses

Natural Gas and Petroleum Products Purchased

68

81

238

304

Operating, Maintenance and Other

150

142

459

406

Depreciation and Amortization

57

50

167

145

Other Income and Expenses

(2)

8

7

27

EBIT

$

90

$

83

$

275

$

315

Pipeline Throughput, TBtu

171

158

510

490

Volumes Processed, TBtu

168

162

500

501

Empress Inlet Volumes, TBtu

110

121

335

401

Canadian Dollar Exchange Rate, Average

1.04

1.00

1.02

1.00

FIELD SERVICES

Equity in Earnings of DCP Midstream, LLC

$

137

$

62

$

271

$

221

EBIT

$

137

$

62

$

271

$

221

Cash Distributions

$

35

$

25

$

128

$

175

Natural Gas Gathered and Processed/Transported, TBtu/day (b)

7.4

7.2

7.1

7.1

Natural Gas Liquids Production, MBbl/d (b,c)

442

398

417

401

Average Natural Gas Price Per MMBtu (d)

$

3.58

$

2.81

$

3.67

$

2.59

Average Natural Gas Liquids Price Per Gallon (e)

$

0.78

$

0.72

$

0.74

$

0.83

Average Crude Oil Price Per Barrel (f)

$

105.82

$

92.22

$

98.23

$

96.17

LIQUIDS

Operating Revenues

$

76

$

$

162

$

Operating Expenses

Operating, Maintenance and Other

33

72

Depreciation and Amortization

7

15

Other Income and Expenses

2

1

Noncontrolling Interests

5

5

EBIT

$

33

$

$

71

$

Express Pipeline Receipts, MBbl/d

205

204

Platte PADD II Deliveries, MBbl/d

173

169

Canadian Dollar Exchange Rate, Average

1.04

1.02

(a)  Trillion British thermal units

(b)  Includes 100% of DCP Midstream volumes

(c)  Thousand barrels per day

(d)  Million British thermal units.  Average price based on NYMEX Henry Hub

(e)  Does not reflect results of commodity hedges

(f)  Average price based on NYMEX calendar month

Spectra Energy Corp

Condensed Consolidated Statements of Operations

(Unaudited)

(In millions)

Three Months

Nine Months

Ended September 30,

Ended September 30,

2013

2012

2013

2012

Operating Revenues

$

1,144

$

1,072

$

3,953

$

3,728

Operating Expenses

811

744

2,760

2,516

Gains on Sales of Other Assets and Other, net

2

Operating Income

333

328

1,193

1,214

Other Income and Expenses

211

107

448

350

Interest Expense

167

159

476

471

Earnings From Continuing Operations Before Income Taxes

377

276

1,165

1,093

Income Tax Expense From Continuing Operations

85

72

277

289

Income From Continuing Operations

292

204

888

804

Income From Discontinued Operations, net of tax

2

Net Income

292

204

888

806

Net Income - Noncontrolling Interests

29

25

86

79

Net Income - Controlling Interests

$

263

$

179

$

802

$

727

Spectra Energy Corp

Condensed Consolidated Balance Sheets

(Unaudited)

(In millions)

September 30,

December 31,

2013

2012

ASSETS

Current Assets

$

1,921

$

1,663

Investments and Other Assets

10,255

7,777

Net Property, Plant and Equipment

21,822

19,905

Regulatory Assets and Deferred Debits

1,355

1,242

Total Assets

$

35,353

$

30,587

LIABILITIES AND EQUITY

Current Liabilities

$

6,159

$

3,791

Long-term Debt

12,268

10,653

Deferred Credits and Other Liabilities

6,671

6,042

Preferred Stock of Subsidiaries

258

258

Equity

9,997

9,843

Total Liabilities and Equity

$

35,353

$

30,587

 

Spectra Energy Corp

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(In millions)

Nine Months

Ended September 30,

2013

2012

CASH FLOWS FROM OPERATING ACTIVITIES

Net income

$

888

$

806

Adjustments to reconcile net income to net cash provided by

operating activities

512

648

Net cash provided by operating activities

1,400

1,454

CASH FLOWS FROM INVESTING ACTIVITIES

Net cash used in investing activities

(4,800)

(1,450)

CASH FLOWS FROM FINANCING ACTIVITIES

Net cash provided by (used in) financing activities

3,467

(35)

Effect of exchange rate changes on cash

(1)

3

Net increase (decrease) in cash and cash equivalents

66

(28)

Cash and cash equivalents at beginning of period

94

174

Cash and cash equivalents at end of period

$

160

$

146

Spectra Energy Corp

Reported to Ongoing Earnings Reconciliation

September 2013 Quarter-to-date

(In millions, except per-share amounts)

Reported Earnings

Special Items

Ongoing Earnings

SEGMENT EARNINGS BEFORE INTEREST AND TAXES

FROM CONTINUING OPERATIONS

U.S. Transmission

$

246

$

4

A

$

250

Distribution

34

34

Western Canada Transmission & Processing

90

90

Field Services

137

137

Liquids

33

33

Total Reportable Segment EBIT

540

4

544

Other

(33)

17

A

(16)

Total Reportable Segment and Other EBIT

$

507

$

21

$

528

EARNINGS

Total Reportable Segment EBIT and Other EBIT

$

507

$

21

$

528

Interest Expense

(167)

(167)

Interest Income and Other

37

37

Income Taxes from Continuing Operations

(85)

(1)

(86)

Total Net Income

$

292

$

20

$

312

Total Net Income - Noncontrolling Interests

(29)

(29)

Total Net Income - Controlling Interests

$

263

$

20

$

283

EARNINGS PER SHARE, BASIC

$

0.39

$

0.03

$

0.42

EARNINGS PER SHARE, DILUTED

$

0.39

$

0.03

$

0.42

A - transaction costs related to the dropdown of assets into Spectra Energy Partners.

Weighted Average Shares (reported and ongoing) - in millions

Basic

670

Diluted

672

Spectra Energy Corp

Reported to Ongoing Earnings Reconciliation

September 2012 Quarter-to-date

(In millions, except per-share amounts)

Reported Earnings/ Ongoing Earnings

SEGMENT EARNINGS BEFORE INTEREST AND TAXES

FROM CONTINUING OPERATIONS

U.S. Transmission

$

238

Distribution

55

Western Canada Transmission & Processing

83

Field Services

62

Total Reportable Segment EBIT

438

Other

(29)

Total Reportable Segment and Other EBIT

$

409

EARNINGS

Total Reportable Segment EBIT and Other EBIT

$

409

Interest Expense

(159)

Interest Income and Other

26

Income Taxes from Continuing Operations

(72)

Total Net Income

$

204

Total Net Income - Noncontrolling Interests

(25)

Total Net Income - Controlling Interests

$

179

EARNINGS PER SHARE, BASIC

$

0.27

EARNINGS PER SHARE, DILUTED

$

0.27

Weighted Average Shares (reported and ongoing) - in millions

Basic

653

Diluted

655

 

 

SOURCE Spectra Energy Corp



RELATED LINKS

http://www.spectraenergy.com