spectra energy 1Q08SEEarningsReview

First Quarter 2008 Earnings Review

Fred Fowler
President and CEO

Greg Ebel
CFO

May 6, 2008

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

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
3

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
4

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

5

Distribution
1Q08 1Q07

• 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
•

6

Western Canada Transmission & Processing
1Q08 1Q07

• 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

7

Field Services
1Q08 1Q07
Special Items - 3

• 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

8

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

9

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
10

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
•
11

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%
12

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)

13

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.

14

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

15

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
16

17

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