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spectra energy 3Q08EarningsReview_110608

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  • 1. Third Quarter 2008 Earnings Review Fred Fowler President and CEO Greg Ebel CFO November 6, 2008
  • 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. Third Quarter 2008 Earnings Review | November 6, 2008 2
  • 3. Third Quarter 2008 • Excellent earnings in 3Q08 • $0.49 ongoing fully diluted EPS • 29% increase over 3Q07 • Solid financial performance from all segments - robust commodity prices fueled Field Services and Western Canada earnings • Completed share repurchase program in mid-August • 2008 expansion projects substantially complete • Healthy balance sheet and liquidity position Expect to exceed employee incentive EPS target of $1.56 Third Quarter 2008 Earnings Review | November 6, 2008 3
  • 4. Third Quarter 2008 Summary ($ millions) 3Q08 3Q07 Reported Net Income $ 296 $ 234 Special Items 3 5 Discontinued Operations 3 (3) Extraordinary Item - 4 Ongoing Net Income $ 302 $ 240 Reported Diluted EPS $ 0.48 $ 0.37 Ongoing Diluted EPS $ 0.49 $ 0.38 • Special Item: • 3Q08 – final resolution on the bankruptcy settlement with customer at U.S. Transmission • 3Q07 – separation costs • Discontinued Operations: • 3Q08 – certain Western Canada midstream plants held for sale • 3Q07 – true-up on 2005 sale of Ft. Frances facility • Extraordinary Item: • 3Q07 – loss from deregulated Distribution storage assets Third Quarter 2008 Earnings Review | November 6, 2008 4
  • 5. U.S. Transmission Reported & Ongoing Segment EBIT ($ millions) 3Q08 3Q07 Reported Segment EBIT $ 213 $ 230 Special Items 4 --- Ongoing Segment EBIT $ 217 $ 230 • 3Q08 ongoing segment results decreased $13 million compared with 3Q07 primarily a result of: • Northeast Gateway, Time II and Egan projects in-service • capitalized interest on expansion projects • offset by: • project development costs expensed in 3Q08 compared with the capitalization of costs in 3Q07 • higher transmission, storage and G&A costs in 3Q08 Third Quarter 2008 Earnings Review | November 6, 2008 5
  • 6. Distribution Reported & Ongoing Segment EBIT ($ millions) 3Q08 3Q07 Reported Segment EBIT $ 44 $ 40 Special Items --- --- Ongoing Segment EBIT $ 44 $ 40 • 3Q08 ongoing segment results were $4 million higher compared with 3Q07 primarily a result of : • increased storage and transportation revenues Third Quarter 2008 Earnings Review | November 6, 2008 6
  • 7. Western Canada Transmission & Processing Reported & Ongoing Segment EBIT ($ millions) 3Q08 3Q07 Reported Segment EBIT $ 113 $ 101 Special Items --- --- Ongoing Segment EBIT $ 113 $ 101 • 3Q08 ongoing segment results were $12 million higher than 3Q07 due to: • higher Empress earnings due to higher volumes and frac spread • partially offset by: higher expenses primarily due to quarter-over-quarter timing higher repair and maintenance costs in 3Q08 Third Quarter 2008 Earnings Review | November 6, 2008 7
  • 8. Field Services Reported & Ongoing Segment EBIT ($ millions) 3Q08 3Q07 EBIT before MTM at DPM $ 216 $ 140 DPM Non-cash MTM 23 - Reported Segment EBIT $ 239 $ 140 Special Items - 3 Ongoing Segment EBIT $ 239 $143 • 3Q08 ongoing EBIT higher by 67% compared with 3Q07 resulting from: • favorable commodity prices • derivative timing gains associated with gas marketing positions • favorable DCP Midstream Partners (DPM) hedge mark-to-market (MTM) • offset by impact of Hurricane Ike on volumes and plant operations and higher O&M spending • Commodity prices: • crude oil averaged $118/barrel in 3Q08; $76/barrel in 3Q07 • correlation for 3Q08 was 51%; 62% for 3Q07 • natural gas averaged $10.24/MMbtu for 3Q08; $6.16/MMbtu for 3Q07 • $269 million in cash distributions to Spectra Energy Third Quarter 2008 Earnings Review | November 6, 2008 8
  • 9. 2008 Crude Oil Price 2008 Crude Oil Pricing $140 2008 Annual Avg of Settled and Forward $130 Prices as of 11/04/08 ($103) $120 11/04/2008 Fwds $110 $/bbl 2008 Settled Prices $100 $90 SE 2008 Annual Avg $80 Forecast Assumption as of Late Oct 2007 ($83) $70 Jun-08 Jul-08 Nov-08 Jan-08 Aug-08 May-08 Feb-08 Mar-08 Apr-08 Sep-08 Dec-08 Oct-08 Pric ing information c ompiled from NYMEX WTI Futures. Third Quarter 2008 Earnings Review | November 6, 2008 9
  • 10. Other Reported & Ongoing EBIT ($ millions) 3Q08 3Q07 Other Reported EBIT (Loss) $ (9) $ (15) Special Items - 5 Other Ongoing EBIT (Loss) $ (9) $ (10) • 3Q08 ongoing EBIT for other was flat with 3Q07 • Continue to expect 2008 corporate costs to be in the $80 - $90 million forecasted range Third Quarter 2008 Earnings Review | November 6, 2008 10
  • 11. Ongoing Segment and Other EBITDA Ongoing Segment and Other EBITDA ($ millions) 3Q08 3Q07 YTD ‘08 YTD ‘07 U.S. Transmission $ 285 $ 296 $ 856 $ 864 Distribution 89 82 401 357 Western Canada Transmission & Processing 151 136 448 315 Field Services 309 203 846 524 Other (5) (8) (46) (38) $ 829 $ 709 $ 2,505 $ 2,022 Total • U.S. Transmission Ongoing EBITDA also includes Spectra Energy’s 50% share of Gulfstream and SESH Interest and DD&A • Field Services Ongoing EBITDA represents Spectra Energy’s Ongoing Equity Earnings of DCP Midstream plus half of DCP Midstream’s Interest, Taxes and DD&A Third Quarter 2008 Earnings Review | November 6, 2008 11
  • 12. Additional Items • Interest expense for 3Q08 was $163 million compared with $156 million for 3Q07 • Effective tax rate was 33% for 3Q08 compared with 32% in 3Q07 • Debt to Total Capitalization at September 30, 2008 is 59.6% • Canadian currency net after tax effect on earnings for 3Q08 was favorable by about $1 million compared with 3Q07 • Total credit facility capacity at September 30, 2008 of $2.7 billion; available liquidity of $1.7 billion Third Quarter 2008 Earnings Review | November 6, 2008 12
  • 13. 9/30/08 Liquidity Summary As of 9/30/2008 (USD in Millions) Spectra Capital Westcoast Union Gas SEP Total Revolving Credit Commitments * $ 1,500 $ 188 $ 470 $ 500 $ 2,658 Plus: Net Available Cash / Investments 23 42 6 94 165 Total Liquidity Sources $ 1,523 $ 230 $ 476 $ 594 $ 2,823 Less: Borrowings (782) - (131) (240) (1,153) Less: Letter of Credit Utilization (5) - - - (5) Available Liquidity $ 736 $ 230 $ 345 $ 354 $ 1,665 * A subsidiary of Lehman Brothers is a lender under the Spectra Capital and SEP bank credit facilities and as of September 30, 2008 was in default in its obligation to fund borrowings under the Spectra Capital facility. As a result, Spectra Capital and SEP consider the $64 million of unfunded Lehman Brothers commitments to be unavailable. Well-positioned to manage through current market volatility. Third Quarter 2008 Earnings Review | November 6, 2008 13
  • 14. Long-term Debt Maturities – 4Q08, 2009 & 2010 As of 9/30/02008 (USD in Millions) Long-term Debt Maturities Spectra Capital TETLP Westcoast Union Gas SEP Total 4Q08 $ - $ - $ - $ - $ - $ - 1Q09 $ 148 $ - $ - $ - $ - $ 148 2Q09 - - - - - - 3Q09 - - - 24 - 24 4Q09 500 - - 4 - 504 Total 2009 $ 648 $ - $ - $ 28 $ - 676 Total 2010 $ - $ 300 $ 235 $ 209 $ - $ 743 No significant long-term funding needs until late 2009 Third Quarter 2008 Earnings Review | November 6, 2008 14
  • 15. Major 2008 Projects Substantially Complete 2008 projects deliver returns on capital employed at the upper end of our 10-12% targeted range Expansion Project Segment Est. CapEx ($MM) In-Service M&NE Phase IV (CanaportTM) Expansion UST 320 4Q08 Ramapo UST 260 4Q08 Dawn Storage Deliverability Dist 120 1Q09 TIME II (Phase II) UST 90 4Q08 Gulfstream Phase III UST (1/2 SEP) 60 3Q08 Egan Storage (Caverns 4) UST (1/2 SEP) 60 3Q08 West Doe Phase II WC 5 4Q08 Dawn-Trafalgar Pipeline – Phase III Dist 75 4Q08 Pine River Phase 3 WC 50 4Q08 Glade Spring Expansion UST (SEP) 20 4Q08 Tribute Storage Dist 35 2Q08 Southeast Supply Header UST ~600 3Q08 Total Major 2008 Projects $ 1.7 B Total est 2008 EBIT $ 90 million Total est 2009 Incremental EBIT $ 110 million Third Quarter 2008 Earnings Review | November 6, 2008 15
  • 16. Questions & Answers November 6, 2008
  • 17. Third Quarter 2008 Earnings Review | November 6, 2008 17
  • 18. Appendix Commodity Sensitivity Overview Hypothetical Example for Commodity Price Changes November 6, 2008
  • 19. Commodity Sensitivity Overview – Jan 2008 • DCP Midstream’s primary sensitivity is to NGL prices (for which we assume a 60% price relationship to oil); changes in contract mix have resulted in some exposure to natural gas • Estimated average price of crude oil for 2008 is $83 / Bbl1 DCP Midstream* • $1.00 / Bbl change in oil = ~ $12 MM change in EBIT • Estimated average price of natural gas for 2008 is $8.00 / MMBtu • $0.10 / MMBtu change in natural gas = ~ $2 MM change in EBIT * Represents Spectra Energy’s 50% interest in 1Based upon 2008 forward curve for last half of October DCP Midstream • Empress is sensitive to changes in frac spread • Empress: estimated average frac spread for 2008 is ~ $7.25 / MMBtu2 Empress • $0.50 / MMBtu change in frac = ~ $16 MM EBIT 2Based upon average frac spread for 2006 and 2007 • Canadian earnings have exchange rate risk • Exchange rate at parity for full year Canadian Dollar • $0.01 change in Fx rate = ~ $3 MM change in Net Income No hedges in place for above sensitivities, except cash flow hedges at DCP Midstream’s MLP • Hedging Third Quarter 2008 Earnings Review | November 6, 2008 19
  • 20. Hypothetical Example for Commodity Price Change Effect on Field Services EBIT • Hypothetical average commodity prices for calendar year 2008: • $100/bbl crude oil 55% Crude/NGL price relationship • $10/MMBtu natural gas Change for Crude Oil Price Assumption $ 204 ($100 - $83) x $12 Change in Correlation Assumption (75) (55% - 60%) x $15 Change for Natural Gas Assumption 40 (($10 - $8)/$0.10)) x $2 Total potential EBIT Increase $ 169 Field Services Sensitivities: (SE's 50% share) MM $ per each $1.00/barrel move in Crude Oil $ 12 MM $ per each percentage move in Correlation $ 15 MM $ per each $0.10/MMBTU change in Natural Gas $ 2 Third Quarter 2008 Earnings Review | November 6, 2008 20

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