TransCanada Management Discusses Q2 2012 Results - Earnings Call Transcript

TransCanada (TRP)

Q2 2012 Earnings Call

July 27, 2012 11:00 am ET

Executives

David Moneta - Former Vice President of Investor Relations & Communications

Russell K. Girling - Chief Executive Officer, President and Director

Donald R. Marchand - Chief Financial Officer and Executive Vice President

Alexander J. Pourbaix - President of Energy and Oil Pipelines

Gregory A. Lohnes - President of Natural Gas Pipelines

G. Glenn Menuz - Vice President and Controller

Analysts

Paul Lechem - CIBC World Markets Inc., Research Division

Juan Plessis - Canaccord Genuity, Research Division

Linda Ezergailis - TD Securities Equity Research

Matthew Akman - Scotiabank Global Banking and Market, Research Division

Carl L. Kirst - BMO Capital Markets U.S.

Robert Kwan - RBC Capital Markets, LLC, Research Division

Theodore Durbin - Goldman Sachs Group Inc., Research Division

Steven I. Paget - FirstEnergy Capital Corp., Research Division

Andrew M. Kuske - Crédit Suisse AG, Research Division

David McColl - Morningstar Inc., Research Division

Presentation

Operator

Good day, ladies and gentlemen. Welcome to the TransCanada Corporation 2012 Second Quarter Results Conference Call. I would like to turn the meeting over to Mr. David Moneta, Vice President of Investor Relations. Please go ahead, Mr. Moneta.

David Moneta

Thanks very much, and good morning, everyone. I'd like to welcome you to TransCanada's 2012 Second Quarter Conference Call. With me today are Russ Girling, President and Chief Executive Officer; Don Marchand, Executive Vice President and Chief Financial Officer; Alex Pourbaix, President of Energy and Oil Pipelines; Greg Lohnes, President of Natural Gas Pipelines; and Glenn Menuz, our Vice President and Controller.

Russ and Don will begin today with some opening comments on our financial results and certain other company developments. Please note that a slide presentation will accompany their remarks. And a copy of the presentation is available on our website at transcanada.com. It can be found in the Investor Section under the heading, Events and Presentations.

Following their prepared remarks, we will turn the call over to the conference coordinator for your questions. During the question-and-answer period, we'll take questions from the investment community first, followed by the media.

[Operator Instructions]

Also, we ask that you focus your questions on our industry, our corporate strategy, recent developments and key elements of our financial performance. If you have detailed questions relating to some of our smaller operations or your detailed financial models, Terry, Lee and I would be pleased to discuss them with you following the call.

Before Russ begins, I'd like to remind you that our remarks today will include forward-looking statements that are subject to important risks and uncertainties. For more information on these risks and uncertainties, please see the reports filed by TransCanada with Canadian Securities regulators and the U.S. Securities Exchange Commission.

And finally, I'd also like to point out that during this presentation, we'll refer to measures such as comparable earnings; comparable earnings per share; earnings before interest, taxes, depreciation and amortization, or EBITDA; comparable EBITDA; and funds generated from operations. These and certain other comparable measures do not have any standardized meaning under GAAP and are, therefore, considered to be non-GAAP measures. As a result, they may not be comparable to similar measures presented by other entities. These measures are used to provide you with additional information on TransCanada's operating performance, liquidity and its ability to generate funds to finance its operations.

With that, I'll now turn the call over to Russ.

Russell K. Girling

Thank you, David, and good morning, everyone, and thank you for joining us today. Last quarter, I spoke about delivering critical energy infrastructure, and this continuing to be a priority for our company. And I can tell you that we remain focused on advancing that priority, and I'll talk about some very positive news related to our Gulf Coast project in just a minute. But I'd remind you that all of our projects currently under way are either regulated or they're underpinned by long-term contracts, which gives us great confidence that they will generate stable sustained earnings and cash flow growth for our shareholders for years to come.

In the second quarter, our businesses, for the most part, continue to perform very well. However, a portion of our business that is directly impacted by power crisis and gas prices was adversely impacted by weak demand and soft prices. That said, I remain very confident that TransCanada is well positioned to grow earnings, cash flow and dividends as we complete our current capital program, secure attractive new opportunities and benefit from the cyclical recovery in natural gas and power prices.

We remain on target to complete $13 billion in capital projects between now and 2015, including the restart of 2 nuclear reactors at Bruce Power; our Gulf Coast project that will deliver U.S. and Canadian oil to Texas refiners; the Keystone XL project, which will bring U.S. Bakken and Canadian oil sands crude to market; the Tamazunchale extension; our Ontario solar project; and many further expansions to our Alberta System.

Turning to the financial highlights for the quarter, comparable earnings were $300 million, or $0.43 a share. Excluding an after-tax charge of $22 million related to the Sundance A arbitration decision announced this week, comparable earnings were $322 million, or $0.46 per share. Comparable EBITDA was $1 billion, and funds generated from operations were $729 million. Today, the Board of Directors declared a quarterly dividend of $0.44 per common share for the quarter ending September 30, 2012.

Don Marchand, our CFO, will offer more details on our financial results in just a couple moments. But before he does, I will walk you through some of the very important advancements in our 3 core businesses over the past quarter. On the Gulf Coast project, we've now achieved a very important milestone as we advanced our Gulf Coast project that will deliver U.S. and Canadian oil to Texas refiners. I'm pleased to confirm that we did receive a final of the 3 necessary permits needed from the U.S. Army Corps of Engineers.

This will allow us to maintain our previously stated schedule of beginning construction on the pipeline this summer and an in-service date of mid- to late-2013. At a cost of $2.3 billion, this project will employ approximately 4,000 American workers during the construction project and many more jobs that are created at U.S. companies manufacturing all the materials needed to build such a large piece of energy infrastructure. Included in the cost of $2.3 billion is the U.S. $300 million, 76-kilometer Houston Lateral pipeline that will transport oil from Cushing, Oklahoma to Houston refineries as well.

U.S. crude oil production has been growing significantly in states such as Oklahoma, Texas, North Dakota and Montana. And producers do not have access to enough pipeline capacity today to move that production to the large refining market on the U.S. Gulf Coast. The Gulf Coast project will address that constraint and at the same time, allow Gulf Coast refiners access to lower-cost domestic production and avoid paying premium to foreign oil producers.

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