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Spectra Energy Corp (SE)

Spectra Energy New York Analyst Meeting Call

November 17, 2010 08:00 AM EST


Roni Cappadonna – GM, IR

Pat Reddy – CFO



Piers [ph]

Lasan Johong

Mark Reichman



Roni Cappadonna

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Good morning, everyone, if I could ask you all to have your seat here. Good morning and welcome to Spectra Energy New York Analyst Meeting here. We’re glad that you could join us this morning.

I am Roni Cappadonna from the Investor Relations Group at Spectra Energy. Some of you may have worked with Patti Fitzpatrick in the past and I have taken Patty’s position as chief new don inside the company here.

We’re joined today by Pat Reddy, our Chief Financial Officer. And as you probably know, this presentation is being webcast. So when we get to the Q&A here after Pat’s presentation, we’ll ask for you to wait for a mic for any questions that you may have.

As we get started here, I’d like to direct you to our Safe Harbor statement and also remind you that there is a Reg G reconciliation in your books in front of you.

So, with that, I’ll turn it over to you, Pat.

Pat Reddy

Thanks very much, Roni, and it’s great for us to be here. We always look forward to our New York trips, and especially after we’ve had a good quarter, it makes for a more pleasant meeting.

As we reported on our recent earnings call, Spectra Energy delivered ongoing third quarter results of $201 million or $0.31 per share. And we mentioned on the call that we’re pleased with our performance for the quarter and we’re feeling confident as we close in on the end of the year. As you know the fourth quarter typically is the strong one for us. Between our first and fourth quarters, we earn about 60% of our annual EBIT.

So we’re anticipating that if we experienced normal winter weather and if commodity prices stay about at this levels at they’re today then we expect to exceed our 20% earnings growth expectations for the year, our guidance was $1.42 for ongoing EPS, and we should be in good shape to exceed that.

Focusing on the third quarter, there were a number of key drivers that I just wanted to touch on. First in our core fee based businesses, which comprise US Transmission and Storage, our Distribution Operations at Union Gas, and our Gathering and Processing in Western Canada. These operations performed well that EBIT was up about 3.5% from last year. And these businesses are expected to experience steady, profitable growth from our expansion projects. We still expect about 80% of our EBIT this year to come from these fee based businesses with about 20% from our commodity exposed operations.

Second, our fuel services business segment experienced significantly improved earnings, primarily due to higher commodity prices this year. But while NGL prices have been right on track with what we expected, natural gas prices have been considerably lower and we’ll continue to watch natural gas prices as we put our 2011 plan together.

Third, we’ve maintained our focus on executing an attractive growth plan. And during the quarter through strategic acquisitions like our Bobcat purchase, which we’ll talk a little bit more about in a minute. Our project expansions at our fee based businesses as well as growing our footprint in our partnership with ConocoPhillips which is our DCP Midstream operations.

Next. Excluding the effect of – first of all, because we covered these figures on the call, I’m not going to go down by line of business and mention the changes in EBIT from quarter-to-quarter or year-to-date, you can see them on the screen. But I did want to take a few minutes to talk about what’s driving the improvements in our EBIT by line of business.

So starting with US Transmission, we had a couple of items that affected 2009 earnings in the third quarter that didn’t reoccur in 2010, and we need to exclude the effect of those two items, our EBIT actually increased a few million dollars over last year’s quarter. Consistent with our expectations, the segment benefited from business expansion projects previously placed into service, projects like Northern Bridge, Market Hub Partners, Egan Storage, and Algonquin J-2. These benefits were partially offset during the quarter by higher operating costs and these were primarily timing related.

Our Distribution business saw increased EBIT. The improvement was primarily due to increased usage by industrial customers, largely gas-fired power generation facilities, growth in the number of our residential customers, that market continues to grow for us, and lower operating fuel costs with lower natural gas prices that that helped us this year, and then we also benefited from a strengthening Canadian dollar.

Union Gas is particularly sensitive to weather impacts as you know, so the fourth quarter tends to be a big quarter for that operation. On a typical year, on average, we make about 30% of our EBIT in the fourth quarter assuming normal winter weather in that business.

At Western Canadian Transmission and Processing benefitted from improved results in the base gathering business, primarily driven by higher contracted volumes from unconventional areas like Fort Nelson, our South Peace Pipeline and West Doe partially offset by declines in conventional supply areas. We also benefited there from the effect of a stronger Canadian dollar.

And for the quarter, I think we mentioned on our call that our earnings at our Empress processing plant were down slightly. Despite higher frac spreads, we mentioned that we are having to pay significantly higher extraction premiums to third parties to attract gas to our processing plant and we’ll have to take that fact into account as we develop our 2011 plan.

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