spectra energy FAQ4Q08

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spectra energy FAQ4Q08

  1. 1. Investor Relations Frequently Asked Questions February 5, 2009 Questions Regarding Fourth Quarter 2008: • Why did U.S. Transmission’s ongoing earnings decrease for 4Q08 compared with 4Q07? o U.S. Transmission reported fourth quarter 2008 ongoing EBIT of $205 million, compared with $221 million in the fourth quarter 2007. U.S. Transmission’s earnings decreased due to: • lower processing earnings due to lower volumes and pricing, • higher development costs associated with ongoing pipeline and storage projects, • excluding these, U.S. Transmission delivered strong earnings growth from expansion projects • What was the driver of Distribution’s increase in earnings for fourth quarter 2008 compared to the prior year? o 4Q08 ongoing segment results were $6 million higher compared with 4Q07 primarily a result of increased storage and transportation revenues, lower operating costs and increased customer usage as a result of colder weather o these increases were offset by an unfavorable foreign currency exchange and earnings sharing with customers related to the incentive regulation framework which was implemented in 2008 • What were the drivers for Western Canadian Transmission and Processing for 4Q08 vs. 4Q07? o Western Canada Transmission & Processing’s ongoing EBIT was $65 million, compared with $141 million last year. Western Canada Transmission & Processing earnings decreased primarily as a result of: • lower earnings at Empress due to a lower frac spread • and an unfavorable foreign currency exchange • What were the earnings drivers at Field Services in 4Q08 vs. 4Q07? o Field Services’ ongoing EBIT was $69 million, compared with $195 million in the fourth quarter of 2007. The decrease primarily resulted from: • unfavorable commodity pricing • offset by favorable DCP Midstream Partners hedge Mark-to-Market effects. Crude oil averaged $59 a barrel in fourth quarter 2008, compared with $91 a o barrel in the 2007 quarter. NGL to crude relationship for fourth quarter 2008 was 46 percent, down from 65 percent in the 2007 quarter. Natural gas averaged about $6.95/MMBtu during both quarters. For the quarter, Field Services paid distributions of $105 million to Spectra o Energy • What was your net effective income tax rate in 4Q08 compared to 4Q07? o Our effective tax rate was 20% for 4Q08 compared to 31% for 4Q07. The full year effective tax rate for 2008 was 32%. The lower tax rate this quarter was -1-
  2. 2. primarily due to favorable adjustments in 2008 for final 2007 tax returns and lower 2008 state income tax. • What was the effect of the Canadian Dollar Exchange Rate for the fourth quarter 2008? o For this quarter, the net after tax effect was about $15 million unfavorable compared with 4Q07. Year-to-date, the net after tax effect is a positive $9 million. • What is the current level of credit facilities, the available capacity and total liquidity at 12/31/08? o Our total credit facilities at 12/31/08 totaled $2.6 billion with available capacity of $1.4 billion. Total available liquidity is about $1.4 billion. • What was interest expense for 4Q08 compared with 4Q07? o Interest expense was $166 million for both 4Q08 and 4Q07. Interest on higher debt balances in 2008 was offset by the effects of a lower Canadian dollar. • What were your capital expenditures for 4Q08 and all of 2008? o Our 4Q08 capital expenditures totaled $495 million, $280 million for expansion and $215 million for maintenance. o For all of 2008, we’ve spent $1,500 million on expansion and $530 million for maintenance, for a total of $2,030 million. Questions Regarding the 2009 Outlook: • What is your 2009 EPS target? o Our 2009 EPS target is $1.15. • What are the commodity/currency price assumptions in the 2009 forecast? o DCP Midstream commodity assumptions: • Crude Oil: $55 / Bbl (WTI) • NGL/Crude price relationship: 60% • Natural Gas: $6.00 / MMBtu (NYMEX) o Empress Frac Spread: ~ $4.75 / MMBtu o Canadian Dollar/US Dollar: C$1.20/$1.00 • What are the sensitivities for these prices? o DCP Midstream: • $1.00 / Bbl change in oil = ~ $11 MM change in EBIT • Each percentage change in NGL/Crude relationship = ~ $8 MM (at $55 / Bbl oil price) • $0.10 / MMBtu change in natural gas = ~ $2.5 MM change in EBIT o Empress frac spread: $0.50 / MMBtu change in frac = ~ $16 MM EBIT o Canadian Dollar/US Dollar: $0.01 change in Fx rate = ~ $3 MM change in Net Income • What are the major drivers affecting the decrease from ongoing earnings in 2008 of $1.83/share to the 2009 EPS of $1.15? o Even though we expect to recognize earnings in 2009 from expansion projects placed in-service, this increase is more than offset by lower commodity prices at Field Services and Western Canada (Empress) and the effect of the lower Canadian dollar. -2-
  3. 3. • What will be your expansion capex spending in 2009? o In 2009, expansion capex will be ~$500 million. • For additional information regarding Spectra Energy’s 2009 Outlook, refer to the investor’s section of our website at www.spectraenergy.com. Other Information: • How do I derive the price relationship between NGL prices and crude oil prices? o Using hypothetic assumptions of an oil price at $100 per barrel and an average NGL price of $1.43 per gallon, it is first necessary to come up with a gallon price equivalent for crude oil. This is done by dividing $100/barrel oil by 42 (the number of gallons in a standard barrel). So, at $100 oil, this equals $2.38 per gallon ($100/42). In this hypothetical example, the relationship of liquids prices to crude would equal 60% ($1.43/$2.38). • Based upon public information available, how can an investor estimate the Empress frac spread? o A simple proxy for Empress' frac spread is the difference between Mt. Belvieu propane and Alberta (AECO) gas in US$/MMBtu. One way to estimate this would be to take the NYMEX Propane price converted to $/MMBtu less the combination of the NYMEX Natural Gas price and the NYMEX Clearport Alberta Basis Swap price (to get an Alberta outright price equivalent). Note the gas prices are already in $/MMBtu. In formula terms: NYMEX Propane in $/gallon * ~10.92 gallons/MMBtu = Propane in $/MMBtu Less: (NYMEX Henry Hub Natural Gas plus NYMEX Clearport Alberta Basis Swap price) For example: Based upon 1/23/09 Nymex most recent settle for Mar contract month Contract NYMEX Conversion MMBTU Month Price Rate Price Commodity Propane Mar '09 0.716 10.92 7.82 NG HH Mar '09 4.662 4.66 NG Alberta Basis Swap Mar '09 -0.3000 -0.3000 Natural Gas Price at Alberta 4.36 Estimated Frac Spread (7.82-4.36) 3.46 Note: This example computes the frac spread for only one contract month. Be o advised that this provides an indication only, given the lack of forward market liquidity for propane. Actual Empress’ earnings are impacted by other operational factors such o as fuel costs, freight costs, other O&M, volumes processed and NGL inventory volumes and value. -3-
  4. 4. • What are Spectra Energy’s expected returns for capital projects? o Overall, our project returns on capital employed (ROCE) will average between 10-12% (ROCE= EBIT/Capital Employed). We have two different categories of projects: Organic (bolt-on or expansion of an existing project) – These typically produce ROCE in the low to mid teens Greenfield – (construction of a new asset) – These typically produce high single digit ROCE • What are Spectra Energy’s current credit ratings? o Moody’s: Spectra Energy Capital’s Senior Unsecured debt rating is Baa1, its Commercial Paper is P-2 and TETLP’s Senior Unsecured debt rating is A3 -- Outlook: Stable o S&P: Spectra Energy Capital’s Senior Unsecured debt rating is BBB the operating subsidiaries Senior Unsecured debt is BBB+ -- Outlook: Stable -4-

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