spectra energy 1Q08SEEarningsReview

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spectra energy 1Q08SEEarningsReview

  1. 1. First Quarter 2008 Earnings Review Fred Fowler President and CEO Greg Ebel CFO May 6, 2008
  2. 2. Safe Harbor Statement Some of the statements in this document concerning future company performance will be forward-looking within the meanings of the securities laws. Actual results may materially differ from those discussed in these forward-looking statements, and you should refer to the additional information contained in Spectra Energy’s Form 10-K and other filings made with the SEC concerning factors that could cause those results to be different than contemplated in today's discussion. Reg G Disclosure In addition, today’s discussion includes certain non-GAAP financial measures as defined under SEC Regulation G. A reconciliation of those measures to the most directly comparable GAAP measures is available on Spectra Energy’s Investor Relations website at www.spectraenergy.com. First Quarter 2008 Earnings Review | May 6, 2008 2
  3. 3. Enhancing Shareholder Value • Exceptional earnings in 1Q08 • $0.58 ongoing fully diluted EPS • More than 50% increase over 1Q07 • Solid financial performance and balance sheet, confidence in our ability to deliver our plan, robust commodity prices and strong cash flows allow us to return value to shareholders • Share Repurchase Plan up to $600 million • Recommend dividend increase to Board of Directors • From $0.92/share to $1.00/share annually • Effective 3rd quarter 2008 • Represents almost 14% dividend increase in 2008 We are committed to enhancing the value of our shareholders’ investment in Spectra Energy First Quarter 2008 Earnings Review | May 6, 2008 3
  4. 4. Strong First Quarter 2008 ($ millions) 1Q08 1Q07 Reported Net Income $ 367 $ 236 Special Items - 4 Discontinued Operations - - Extraordinary Items - - Ongoing Net Income $ 367 $ 240 Reported Diluted EPS $ 0.58 $ 0.37 Ongoing Diluted EPS $ 0.58 $ 0.38 Over 50% increase in ongoing EPS • Robust commodity markets at Field Services and Empress • Strong Canadian dollar • Continued growth from base business: • • U.S. Transmission: New projects contributing to EBIT • Distribution: Continued growth in storage and transportation • Western Canada: Improving production outlook • Field Services: Improved plant efficiencies and increased volumes Expect to exceed employee incentive EPS target of $1.56 First Quarter 2008 Earnings Review | May 6, 2008 4
  5. 5. U.S. Transmission Reported & Ongoing Segment EBIT ($ millions) 1Q08 1Q07 Reported Segment EBIT $ 226 $ 220 Special Items --- --- Ongoing Segment EBIT $ 226 $ 220 • 1Q08 ongoing segment results increased $6 million compared with 1Q07 primarily a result of: • Northeast Gateway, Time II and Egan projects in-service • higher processing earnings • capitalized interest on expansion projects • partially offset by higher project development costs due to capitalization of costs in 1Q07 First Quarter 2008 Earnings Review | May 6, 2008 5
  6. 6. Distribution Reported & Ongoing Segment EBIT ($ millions) 1Q08 1Q07 Reported Segment EBIT $ 165 $ 144 Special Items --- --- Ongoing Segment EBIT $ 165 $ 144 • 1Q08 ongoing segment results $21 million higher than 1Q07 primarily a result of: favorable foreign currency exchange • increased storage and transportation revenues • increased customer usage as a result of colder weather • partially offset by higher operating costs • First Quarter 2008 Earnings Review | May 6, 2008 6
  7. 7. Western Canada Transmission & Processing Reported & Ongoing Segment EBIT ($ millions) 1Q08 1Q07 Reported Segment EBIT $ 131 $ 74 Special Items --- --- Ongoing Segment EBIT $ 131 $ 74 • 1Q08 ongoing segment results were $57 million higher than 1Q07 due to: • higher NGL gross margin due to higher frac spread at Empress 1Q08 average frac spread was $8.13 compared with $4.20 in 1Q07 • favorable foreign currency exchange • Strong land sales in Northeast British Columbia - anticipate increased future drilling in certain core areas First Quarter 2008 Earnings Review | May 6, 2008 7
  8. 8. Field Services Reported & Ongoing Segment EBIT ($ millions) 1Q08 1Q07 Reported Segment EBIT $ 192 $ 82 Special Items - 3 Ongoing Segment EBIT $ 192 $ 85 • 1Q08 ongoing EBIT higher by $107 million compared with 1Q07 due to: • favorable commodity prices • increased volumes, improved efficiencies, and growth due to acquisitions • Crude oil prices averaged $98/barrel in 1Q08; $58/barrel in 1Q07; correlation for 1Q08 was 58%; 63% for 1Q07 • $112 million in cash distributions to Spectra Energy; special dividend paid in April of $250 million First Quarter 2008 Earnings Review | May 6, 2008 8
  9. 9. Other Reported & Ongoing EBIT ($ millions) 1Q08 1Q07 Other Reported EBIT (Loss) $ (20) $ (15) Special Items - 3 Other Ongoing EBIT (Loss) $ (20) $ (12) • 1Q08 higher than 1Q07 due primarily to: • favorable resolution of a legal matter in 1Q07 First Quarter 2008 Earnings Review | May 6, 2008 9
  10. 10. Additional Items • Interest expense for 1Q08 was $158 million compared with $155 million for 1Q07 • Spectra Energy’s effective tax rate for 1Q08 was 32% compared with 33% in 1Q07 • Debt to Total Capitalization at Mar. 31, 2008 is 54.6% • Total credit facility capacity at Mar. 31, 2008 of $2.7 billion; available liquidity of $2.0 billion • Issued $500 million debt in U.S and $200 million in Canada in April • Canadian currency net after tax effect on earnings for 1Q08 was favorable by about $18 million compared with 1Q07 • Closed May 1 on buy back of Spectra Energy Income Fund for about $275 million First Quarter 2008 Earnings Review | May 6, 2008 10
  11. 11. Review of Value Enhancement Plan • The plan: • Up to $600 million share repurchase • Open Market Purchase • Other negotiated transaction such as Accelerated Stock Repurchase • Substantially pre-funded • Proposed dividend increase • From $0.92/share to $1.00/share, effective 3Q08 • Almost 14% increase in 2008 • Consistent with our 60% payout ratio • The rationale: Excellent earnings in 1Q08 • Strong commodity market outlook • Solid earnings growth • Strong investment grade balance sheet • First Quarter 2008 Earnings Review | May 6, 2008 11
  12. 12. Review of Value Enhancement Plan – cont. • The outlook: • Committed to enhancing the value of our shareholders’ and bondholders’ investment in Spectra Energy • Assuming $90/barrel oil, EPS growth rate expected to be about 8% • Maintain investment grade balance sheet Expect to deliver total shareholder return in excess of 10% First Quarter 2008 Earnings Review | May 6, 2008 12
  13. 13. Revised 2008 Cash Flow USD in Millions Approved DCP Proposed Board Total Revised Special Asset SEIF Share Dividend Plan Changes Plan Earnings Dividend Rationalization Buyback Buyback Increase Primary Sources: Ongoing Net Income 1,000 100 - - - - - 100 1,100 Depreciation and Amortization 605 - - - - - - - 605 Other - - 250 300 - - - 550 550 Total Primary Sources 1,605 100 250 300 - - - 650 2,255 Primary Uses: Capital expenditures (2,420) - - - - - - - (2,420) Dividends (580) - - - - - (20) (20) (600) Other uses (60) - - - (600) (275) - (875) (935) Total Primary Uses (3,060) - - - (600) (275) (20) (895) (3,955) Net Sources/(Uses) (1,455) (245) (1,700) New Debt Issued April 2008 700 (1,000) Financing Needs - including Spectra Energy Partners Financing Needs - excluding Spectra Energy Partners (605) First Quarter 2008 Earnings Review | May 6, 2008 13
  14. 14. 2008 Crude Oil Price 2008 Crude Oil Pricing $120 05/02/2008 Fwds $115 $110 2008 Settled Prices $105 $/bbl $100 SE 2008 Annual Avg $95 Forecast Assumption as of Late Oct 2007 $90 ($83.2) $85 2008 Annual Avg of Settled and Forward Prices as of $80 05/02/08 ($110.0) Jul-08 Nov-08 Jun-08 Jan-08 May-08 Aug-08 Sep-08 Dec-08 Feb-08 Apr-08 Mar-08 Oct-08 Pricing information compiled from NYMEX WTI Futures. First Quarter 2008 Earnings Review | May 6, 2008 14
  15. 15. Strong Investment Grade Balance Sheet Estimated 12/31/08 Estimated 12/31/08 Funds from Operations (FFO)/Interest Funds from Operations (FFO)/Debt 16.50% 3.6 3.5 16.00% 15.50% 3.4 15.00% 3.3 3.2 14.50% 14.00% 3.1 13.50% 3 Forecast at Jan '08 Revised Forecast Forecast at Jan '08 Revised Forecast • Coverage ratios stronger than forecasted in Jan. ’08 • Est. 12/31/08 Debt balance is $11 billion; $400 million lower than forecasted in Jan. ‘08 First Quarter 2008 Earnings Review | May 6, 2008 15
  16. 16. Takeaways • Excellent quarter across all business units • Continue to deliver on plan • Value enhancement plan positive for both equity and debt holders • Enhance shareholder value while maintaining strong, flexible balance sheet to execute on other opportunities • 2008 shaping up to be excellent year for Spectra Energy and our investors Expect dividend yield and increased compound annual growth rate to deliver double-digit total shareholder return First Quarter 2008 Earnings Review | May 6, 2008 16
  17. 17. First Quarter 2008 Earnings Review | May 6, 2008 17

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