Spectra Energy Reports Second Quarter Net Income Increase of More Than 20 Percent

04 Aug, 2010, 06:30 ET from Spectra Energy

HOUSTON, Aug. 4 /PRNewswire-FirstCall/ --

  • Reported net income (controlling interests) of $174 million, $0.27 earnings per share (EPS), versus prior year quarter's $140 million, $0.22 EPS.
  • Quarter benefited from expansion project earnings and improved commodity prices.

Spectra Energy Corp (NYSE: SE) reported 2010 second quarter net income from controlling interests of $174 million, or $0.27 diluted EPS, compared with $140 million, or $0.22 diluted EPS, in the prior year quarter.

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The higher 2010 quarter results reflect sound performance from the company's fee-based businesses, the positive effect of higher commodity prices at its Field Services business, and a stronger Canadian dollar.

"We had another good quarter, delivering earnings solidly in line with our expectations and exceeding last year's net income by more than 20 percent. Our core, fee-based businesses continue to perform well, benefiting from earnings from expansion projects previously placed into service," said Greg Ebel, president and chief executive officer, Spectra Energy Corp. "This has been a strong first half of the year and we are well positioned to deliver on our financial, strategic, safety and operational goals."

"In addition to meeting our earnings targets and successfully executing on our capital expansion plans, we also are focused on future growth, as evidenced by our recent announcement regarding the planned acquisition of Bobcat Gas Storage, which will provide continued earnings growth. This acquisition and the resulting build-out support our stated plans to deploy at least $1 billion per year in growth capital," said Ebel.

SEGMENT RESULTS

U.S. Transmission

U.S. Transmission reported second quarter 2010 earnings before interest and taxes (EBIT) of $223 million, compared with $234 million in second quarter 2009. Second quarter 2009 results included a $24 million net benefit related to project development costs. Before the effect of this 2009 item, EBIT increased by 6 percent over last year's quarter.

During the 2010 quarter, the segment benefited from business expansion projects previously placed into service, including Gulfstream Phase III, Algonquin J-2 and Northern Bridge. In addition, the segment benefited from higher processing revenues as a result of higher prices.

Distribution

Distribution reported second quarter 2010 EBIT of $73 million, compared with $40 million in the second quarter 2009. This improvement is primarily due to a stronger Canadian dollar and lower operating fuel costs.  In addition, the second quarter 2009 results included a charge for a cumulative adjustment to the earnings sharing required under Union Gas' incentive ratemaking methodology.

Western Canada Transmission & Processing

Western Canada Transmission & Processing reported second quarter 2010 EBIT of $69 million, compared with $58 million in second quarter 2009.  The segment benefited from improved results in the base gathering and processing business, primarily driven by additional contracted volumes from expansions, including Fort Nelson, South Peace Pipeline and West Doe.  The segment also benefited from the effect of a stronger Canadian dollar.  This was partially offset by lower earnings at the Empress natural gas liquids (NGL) business as a result of a scheduled 25-day plant shutdown for maintenance activities that occurred in May 2010.

Field Services

Field Services reported second quarter 2010 EBIT of $58 million, compared with $24 million in second quarter 2009. The increase in ongoing earnings was primarily driven by higher commodity prices.

During second quarter 2010, crude oil averaged approximately $78 per barrel, compared with approximately $60 per barrel in the prior year quarter. The NGL to crude relationship averaged 49 percent during the second quarter 2010 versus 44 percent during the prior year quarter. This equates to an NGL price of $0.91 per gallon during the 2010 quarter versus $0.62 per gallon in second quarter 2009. NYMEX natural gas averaged $4.09 per million British thermal unit (MMBtu) versus $3.50 per MMBtu during the same period in 2009.

Second quarter results also reflect the benefit of non-cash mark-to-market gains on hedges used to protect distributable cash flow at DCP Midstream's master limited partnership. These increases in earnings were partially offset by lower marketing results and the timing of higher planned repair and maintenance costs.

DCP Midstream paid distributions of $112 million to Spectra Energy during the second quarter.

Other

"Other" reported net costs of $16 million in second quarter 2010, compared with net costs of $12 million in second quarter 2009.

Interest Expense

Interest expense was $158 million for second quarter 2010, compared with $146 million for second quarter 2009.  This increase is primarily from the effects of the stronger Canadian dollar.

Income Taxes

Second quarter 2010 income tax expense from continuing operations was $76 million, compared with $67 million reported in second quarter 2009.  The higher tax expense resulted from higher earnings in the 2010 period. The effective tax rate was 29 percent in second quarter 2010, compared with 30 percent in second quarter 2009. 

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

There were no special items in the second quarters of 2010 or 2009.

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

Quarters Ended

June 30,

2010

2009

Net Income – Controlling Interests as Reported

$       174

$    140

Adjustments to Reported Net Income – Controlling Interests:

Discontinued Operations

1

Ongoing Net Income – Controlling Interests

$       174

$    141

Additional Information

Additional information about second quarter 2010 earnings can be obtained via the Spectra Energy Web site: www.spectraenergy.com.

The analyst call is scheduled for today, Wednesday, August 4, 2010, at 9:00 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 for International. The conference code is "86559902" or "Spectra Energy 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, November 1, 2010, by dialing (800) 642-1687 with conference ID 86559902. The international replay number is (706) 645-9291, with above conference ID. A replay and transcript also will be available by accessing the Investors Section of the company's Web site.

Non-GAAP Financial Measures

We use ongoing net income and ongoing diluted EPS, which are non-GAAP financial measures as they represent net income (controlling interests) and diluted EPS, adjusted for special items and discontinued operations, as measures to evaluate operations of the company. 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 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 and Other EBIT as a measure of performance. Ongoing segment and Other EBIT is a non-GAAP financial measure as it represents reported segment and Other EBIT adjusted for special items. We believe that the presentation of ongoing segment and Other EBIT provides useful information to investors, as it allows them to more accurately compare a segment's or Other's ongoing performance across periods. The most directly comparable GAAP measure for ongoing segment or Other EBIT is reported segment or Other EBIT, which represents EBIT from continuing operations, including any special items.

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 represent our intentions, plans, expectations, assumptions and beliefs about future events. One can typically identify forward-looking statements by the use of forward-looking words such as: may, will, could, project, believe, expect, estimate, continue, potential, plan, forecast and other similar words. Any statements that do not relate strictly to historical or current facts are forward-looking. Such statements are subject to risks, uncertainties and other factors, many of which are outside our control and could cause actual results to differ materially from the results expressed or implied by those forward-looking statements. Those factors include: the implementation of 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 industries; the outcome of litigation and regulatory investigations, proceedings or inquiries; the effect of weather and other natural phenomena, including the economic, operational and other effects of hurricanes and storms and the impact of weather on variations on customer usage; the timing and extent of changes in commodity prices, interest rates and foreign currency exchange rates; general economic conditions, which can affect the long-term demand for natural gas and related services, and in particular, the risk of a prolonged slowdown or decline in the United States or Canadian economy or the risk of delay in recovery of the United States or Canadian economy; potential effects arising from terrorist attacks and any consequential or other hostilities; changes in environmental, safety and other laws and regulations; the results 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; our ability to identify opportunities for our business units and the timing and success of efforts to develop pipeline, storage, gathering, processing and other infrastructure projects and the effects of competition; the performance of natural gas transmission and storage, distribution and gathering and processing facilities; the extent of success in connecting natural gas supplies to gathering, processing and transmission systems and in connecting to expanding gas markets; the effects of accounting pronouncements issued periodically by accounting standard-setting bodies; conditions of the capital markets in general; and our ability to successfully complete and integrate future acquisitions.  These factors, as well as additional factors that could affect our forward-looking statements, are described under the headings "Risk Factors" and "Forward-Looking Statements" in our 2009 Form 10-K, filed on February 25, 2010, 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 natural gas infrastructure companies serving three key links in the natural gas value chain: gathering and processing, transmission and storage, and distribution. For nearly a century, Spectra Energy and its predecessor companies have developed critically important pipelines and related infrastructure connecting natural gas supply sources to premium markets. Based in Houston, Texas, the company operates in the United States and Canada approximately 19,100 miles of transmission pipeline, more than 285 billion cubic feet of storage, as well as natural gas gathering and processing, natural gas liquids operations and local distribution assets. The company also has a 50 percent ownership in DCP Midstream, one of the largest natural gas gatherers and processors in the United States. Spectra Energy is a member of both the Dow Jones Sustainability Index North America and the U.S. S&P 500 Carbon Disclosure Leadership Index. For more information, visit www.spectraenergy.com.

Spectra Energy Corp

Quarterly Highlights

June 2010

(Unaudited)

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

Three Months Ended

Six Months Ended

June 30,

June 30,

2010

2009

2010

2009

COMMON STOCK DATA

Earnings Per Share From Continuing Operations  

  Basic and Diluted

$                 0.27

$                     0.22

$                     0.79

$                        0.69

Earnings Per Share

  Basic and Diluted

$                 0.27

$                     0.22

$                     0.82

$                        0.69

Dividends Per Share

$                 0.25

$                     0.25

$                     0.50

$                        0.50

Weighted-Average Shares Outstanding

  Basic

648

645

648

637

  Diluted

650

646

650

638

INCOME

Operating Revenues

$               1,063

$                      937

$                   2,543

$                      2,321

Total Reportable Segment EBIT

423

356

1,034

956

Income (Loss) from Discontinued Operations, Net of Tax

-

(1)

16

2

Net Income - Controlling Interests

174

140

532

438

EBIT BY BUSINESS SEGMENT

U.S. Transmission

$                  223

$                      234

$                      470

$                         451

Distribution

73

40

219

192

Western Canada Transmission & Processing

69

58

188

139

Field Services

58

24

157

174

Total Reportable Segment EBIT

423

356

1,034

956

Other EBIT

(16)

(12)

(30)

(36)

  Total Reportable Segment and Other EBIT

$                  407

$                      344

$                   1,004

$                         920

CAPITAL AND INVESTMENT EXPENDITURES (a)

U.S. Transmission

$                      250

$                         215

Distribution

77

97

Western Canada Transmission & Processing

159

100

Other

14

14

Total Capital and Investment Expenditures

$                      500

$                         426

June 30,

December 31,

2010

2009

CAPITALIZATION

Common Equity - Controlling Interests

40%

40%

Noncontrolling Interests and Preferred Stock

5%

4%

Total Debt

55%

56%

Total Debt

$                   9,885

$                      9,918

Book Value Per Share (b)

$                   11.13

$                      11.01

Actual Shares Outstanding

648

647

(a) Excludes the acquisition of Ozark in 2009.

(b) Represents controlling interests.

Spectra Energy Corp

Quarterly Highlights

June 2010

(Unaudited)

(In millions, except where noted)

Three Months Ended

Six Months Ended

June 30,

June 30,

2010

2009

2010

2009

U.S. TRANSMISSION

 Operating Revenues

$                     442

$                     414

$                  899

$                   819

 Operating Expenses

Operating, Maintenance and Other

165

121

317

264

Depreciation and Amortization

64

62

128

121

 Gains on Sales of Other Assets and Other, net

-

-

-

10

 Other Income and Expenses

29

21

55

41

 Noncontrolling Interests

19

18

39

34

 EBIT

$                     223

$                     234

$                  470

$                   451

 Proportional Throughput, TBtu (a)

567

574

1,385

1,287

DISTRIBUTION

 Operating Revenues

$                     331

$                     284

$                  999

$                   992

 Operating Expenses

Natural Gas Purchased

110

120

481

555

Operating, Maintenance and Other

99

82

202

163

Depreciation and Amortization

49

42

97

82

 EBIT

$                       73

$                       40

$                  219

$                   192

 Number of Customers, Thousands

1,331

1,314

 Heating Degree Days, Fahrenheit

682

918

4,003

4,616

 Pipeline Throughput, TBtu

181

129

485

456

 Canadian Dollar Exchange Rate, Average

1.03

1.17

1.04

1.21

WESTERN CANADA TRANSMISSION & PROCESSING

 Operating Revenues

$                     289

$                     239

$                  644

$                   510

 Operating Expenses

Natural Gas and Petroleum Products Purchased

46

34

127

105

Operating, Maintenance and Other

135

108

250

196

Depreciation and Amortization

36

35

78

67

 Other Income and Expenses

(3)

(4)

(1)

(3)

 EBIT

$                       69

$                       58

$                  188

$                   139

 Pipeline Throughput, TBtu

150

136

300

298

 Volumes Processed, TBtu

163

164

326

331

 Empress Inlet Volumes, TBtu

91

198

278

409

 Canadian Dollar Exchange Rate, Average

1.03

1.17

1.04

1.21

FIELD SERVICES

 Equity in Earnings of DCP Midstream, LLC

$                       58

$                       24

$                  157

$                   174

 EBIT

$                       58

$                       24

$                  157

$                   174

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

6.8

6.9

6.8

6.9

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

361

359

357

345

 Average Natural Gas Price Per MMBtu (d)

$                    4.09

$                    3.50

$                 4.70

$                  4.19

 Average Natural Gas Liquids Price Per Gallon

$                    0.91

$                    0.62

$                 1.00

$                  0.59

 Average Crude Oil Price Per Barrel (e)

$                  78.03

$                  59.62

$               78.37

$                51.35

OTHER

 Operating Revenues

$                       14

$                       12

$                    27

$                     24

 Operating Expenses

30

28

54

60

 Other Income and Expenses

-

4

(3)

-

 EBIT

$                     (16)

$                     (12)

$                   (30)

$                   (36)

(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)  Average price based on NYMEX calendar month

Spectra Energy Corp

Condensed Consolidated Statements of Operations

(Unaudited)

(In millions)

Three Months Ended

Six Months Ended

June 30,

June 30,

2010

2009

2010

2009

Operating Revenues

$            1,063

$               937

$                2,543

$                2,321

Operating Expenses

721

620

1,709

1,589

Gains on Sales of Other Assets and Other, net

-

-

-

10

-

-

Operating Income

342

317

834

742

-

-

Other Income and Expenses

83

54

209

230

Interest Expense

158

146

317

296

Earnings From Continuing Operations Before Income Taxes

267

225

726

676

Income Tax Expense From Continuing Operations

76

67

173

206

-

-

Income From Continuing Operations

191

158

553

470

Income (Loss) From Discontinued Operations, net of tax

-

(1)

16

2

-

-

Net Income

191

157

569

472

Net Income - Noncontrolling Interests

17

17

37

34

-

-

Net Income - Controlling Interests

$               174

$               140

$                   532

$                   438

Spectra Energy Corp

Condensed Consolidated Balance Sheets

(Unaudited)

(In millions)

June 30,

December 31,

2010

2009

ASSETS

Current Assets

$                          1,240

$                          1,429

Investments and Other Assets

6,312

6,356

Net Property, Plant and Equipment

15,557

15,347

Regulatory Assets and Deferred Debits

960

947

Total Assets

$                        24,069

$                        24,079

LIABILITIES AND EQUITY

Current Liabilities

$                          2,606

$                          2,495

Long-term Debt

8,670

8,947

Deferred Credits and Other Liabilities

4,774

4,747

Preferred Stock of Subsidiaries

258

225

Equity

7,761

7,665

Total Liabilities and Equity

$                        24,069

$                        24,079

Spectra Energy Corp

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(In millions)

Six Months Ended

June 30,

2010

2009

CASH FLOWS FROM OPERATING ACTIVITIES

Net income

$             569

$             472

Adjustments to reconcile net income to net cash provided by

operating activities

262

547

Net cash provided by operating activities

831

1,019

CASH FLOWS FROM INVESTING ACTIVITIES

Net cash used in investing activities

(521)

(544)

CASH FLOWS FROM FINANCING ACTIVITIES

Net cash used in financing activities

(368)

(402)

Effect of exchange rate changes on cash

(2)

14

Net increase (decrease) in cash and cash equivalents

(60)

87

Cash and cash equivalents at beginning of period

166

205

Cash and cash equivalents at end of period

$             106

$             292

Spectra Energy Corp

Reported to Ongoing Earnings Reconciliation

June 2010 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

$                           223

$                       223

Distribution

73

73

Western Canada Transmission & Processing

69

69

Field Services

58

58

   Total Reportable Segment EBIT

423

423

Other

(16)

(16)

   Total Reportable Segment and Other EBIT

$                           407

$                       407

EARNINGS

Total Reportable Segment EBIT and Other EBIT

$                           407

$                       407

Interest Expense

(158)

(158)

Interest Income and Other

18

18

Income Taxes from Continuing Operations

(76)

(76)

Total Earnings

$                           191

$                       191

Total Earnings - Noncontrolling Interests

(17)

(17)

Total Earnings - Controlling Interests

$                           174

$                       174

EARNINGS PER SHARE, BASIC

$                          0.27

$                      0.27

EARNINGS PER SHARE, DILUTED

$                          0.27

$                      0.27

Weighted Average Shares (reported and ongoing) - in millions

                             Basic

648

                             Diluted

650

Spectra Energy Corp

Reported to Ongoing Earnings Reconciliation

June 2009 Quarter-to-date

(In millions, except per-share amounts)

Reported Earnings

Discontinued Operations

Total Adjustments

Ongoing Earnings

SEGMENT EARNINGS BEFORE INTEREST AND TAXES FROM CONTINUING OPERATIONS

U.S. Transmission

$                           234

$                                 -

$                                 -

$                            234

Distribution

40

-

-

40

Western Canada Transmission & Processing

58

-

-

58

Field Services

24

-

-

24

   Total Reportable Segment EBIT

356

-

-

356

Other

(12)

-

-

(12)

   Total Reportable Segment and Other EBIT

$                           344

$                                 -

$                                 -

$                            344

EARNINGS

Total Reportable Segment EBIT and Other EBIT

$                           344

$                                 -

$                                 -

$                            344

Interest Expense

(146)

-

-

(146)

Interest Income and Other

27

-

-

27

Income Taxes from Continuing Operations

(67)

-

-

(67)

Discontinued Operations, net of Tax

(1)

1

A

1

-

Total Earnings

$                           157

$                                 1

$                                 1

$                            158

Total Earnings - Noncontrolling Interests

(17)

-

$                                 -

(17)

Total Earnings - Controlling Interests

$                           140

$                                 1

$                                 1

$                            141

EARNINGS PER SHARE, BASIC

$                          0.22

$                                 -

$                                 -

$                           0.22

EARNINGS PER SHARE, DILUTED

$                          0.22

$                                 -

$                                 -

$                           0.22

A - Net earnings from Sonatrach settlement.

Weighted Average Shares (reported and ongoing) - in millions

                             Basic

645

                             Diluted

646

SOURCE Spectra Energy



RELATED LINKS

http://www.spectraenergy.com