spectra energy se_2q08_earnings_new
TRANSCRIPT
Second Quarter 2008 Earnings Review
August 6, 2008
Fred FowlerPresident and CEO
Greg EbelCFO
2Second Quarter 2008 Earnings Review | August 6, 2008
Safe Harbor StatementSafe Harbor StatementSome 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 DisclosureIn 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.
3Second Quarter 2008 Earnings Review | August 6, 2008
• Exceptional earnings in 2Q08 • $0.44 ongoing fully diluted EPS• 47% increase over 2Q07
• Solid financial performance from all segments - robust commodity prices fueled Field Services earnings
• Share repurchase progress through June 30th:
• $284 million• 10.5 million shares
• 2008 expansion projects on track• CEO succession plan in place
Excellent Second Quarter 2008Excellent Second Quarter 2008
Expect dividend yield and increased compound annual growth rate to deliver double-digit total shareholder return
4Second Quarter 2008 Earnings Review | August 6, 2008
$ 0.30$ 0.31$ 192
(11)7
$ 1962Q07
(21)Special Items
$ 274Ongoing Net Income$ 0.47Reported Diluted EPS$ 0.44
-
$ 2952Q08
Ongoing Diluted EPS
Discontinued Operations
Reported Net Income($ millions)
• Over 47% increase in ongoing EPS• Special Item:
• 2Q08 – gain on the bankruptcy settlement with Calpine at U.S. Transmission• 2Q07 – separation costs
• Discontinued Operations: • 2Q07 – Sonatrach settlement proceeds
Second Quarter 2008 SummarySecond Quarter 2008 Summary
Expect to significantly exceed employee incentive EPS target of $1.56
5Second Quarter 2008 Earnings Review | August 6, 2008
U.S. TransmissionU.S. Transmission
• 2Q08 ongoing segment results decreased $10 million compared with2Q07 primarily a result of:• Northeast Gateway, Time II and Egan projects in-service • capitalized interest on expansion projects • offset by:
• higher project development costs due to capitalization of costs in 2Q07 • higher transmission and storage costs in 2Q08
$ 223$ 213Ongoing Segment EBIT---
$ 2232Q07
(31)$ 2442Q08
Special ItemsReported Segment EBIT
Reported & Ongoing Segment EBIT ($ millions)
6Second Quarter 2008 Earnings Review | August 6, 2008
DistributionDistribution
• 2Q08 ongoing segment results unchanged compared with 2Q07 primarily a result of :• increased storage and transportation revenues • favorable foreign currency exchange• offset by a provision related to the OEB’s decision on unregulated
storage revenues collected 11/06 – 6/08
$ 54$ 54Ongoing Segment EBIT---
$ 542Q07
---$ 542Q08
Special ItemsReported Segment EBIT
Reported & Ongoing Segment EBIT ($ millions)
7Second Quarter 2008 Earnings Review | August 6, 2008
Western Canada Transmission & ProcessingWestern Canada Transmission & Processing
• 2Q08 ongoing segment results were $39 million higher than 2Q07 due to: • higher Empress earnings due to frac spread and higher volumes
2Q08 average frac spread was $8.39 compared with $5.85 in 2Q07• favorable foreign currency exchange• higher processing revenues
$ 48$ 87Ongoing Segment EBIT---
$ 482Q07
---$ 872Q08
Special ItemsReported Segment EBIT
Reported & Ongoing Segment EBIT ($ millions)
8Second Quarter 2008 Earnings Review | August 6, 2008
Field ServicesField Services
• 2Q08 ongoing EBIT higher by $90 million compared with 2Q07 due to:• favorable commodity prices• increased volumes and improved plant operating efficiencies • partially offset by DCP Midstream Partners (DPM) hedge Mark-to-Market (MTM)
• Commodity prices:• crude oil averaged $124/barrel in 2Q08; $65/barrel in 2Q07• correlation for 2Q08 was 50%; 68% for 2Q07• natural gas averaged $11/MMbtu for 2Q08; $8/MMbtu for 2Q07
• $444 million in cash distributions to Spectra Energy, including special dividend paid in April of $250 million
$ 124$ 241EBIT before MTM at DPM(1)(25)DPM Non-cash MTM
$126$ 216Ongoing Segment EBIT3
$ 123
2Q07
-$ 216
2Q08
Special ItemsReported Segment EBIT
Reported & Ongoing Segment EBIT ($ millions)
9Second Quarter 2008 Earnings Review | August 6, 2008
OtherOther
• 2Q08 higher than 2Q07 due primarily to:• higher insurance claims and benefits costs
$ (19)$ (28)Other Ongoing EBIT (Loss)7
$ (26)2Q07
-$ (28)2Q08
Special ItemsOther Reported EBIT (Loss)
Reported & Ongoing EBIT ($ millions)
10Second Quarter 2008 Earnings Review | August 6, 2008
Additional ItemsAdditional Items• Interest expense for 2Q08 was $149 million compared with $156
million for 2Q07
• Effective tax rate was 31% for both 2Q08 and 2Q07
• Debt to Total Capitalization at June 30, 2008 is 57%
• Total credit facility capacity at June 30, 2008 of $2.7 billion; available liquidity of $1.9 billion
• Canadian currency net after tax effect on earnings for 2Q08 was favorable by about $5 million compared with 2Q07
11Second Quarter 2008 Earnings Review | August 6, 2008
Ongoing Segment and Other EBITDAOngoing Segment and Other EBITDA
$ 1,324(29)321189
275$ 568
YTD ‘07
$ 1,679(41)537297
312$ 574
YTD ‘08
(18)(24)Other$ 625$ 765Total
182280Field Services82129
Western Canada Transmission & Processing
94100Distribution$ 285$ 280U.S. Transmission2Q072Q08
Ongoing Segment and Other EBITDA ($ millions)
• U.S. Transmission Ongoing EBITDA also includes Spectra Energy’s 50% share of Gulfstream’s 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
12Second Quarter 2008 Earnings Review | August 6, 2008
• Hypothetical average commodity prices for calendar year 2008:• $100/bbl crude oil
• 55% NGL/crude price relationship (correlation)• $10/MMBtu natural gas
Change for Crude Oil Price Assumption 204$ ($100 - $83) x $12 Change in Correlation Assumption (75) (55% - 60% ) x $15Change for Natural Gas Assumption 40 (($10 - $8)/$0.10)) x $2Total potential EBIT Increase 169$
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 $0.10/MMBTU change in Natural Gas 2$
Hypothetical Example: Commodity Price Change Effect on Field Services EBITHypothetical Example: Commodity Price Change Effect on Field Services EBIT
13Second Quarter 2008 Earnings Review | August 6, 2008
2008 Crude Oil Price
2008 Crude Oil Pricing
$80
$89
$98
$107
$116
$125
$134
Jan-
08
Feb-
08
Mar
-08
Apr
-08
May
-08
Jun-
08
Jul-0
8
Aug
-08
Sep
-08
Oct
-08
Nov
-08
Dec
-08
$/bb
l
08/04/2008 Fwds
2008 Annual Avg ofSettled and ForwardPrices as of08/04/08 ($117)
2008 Settled Prices
SE 2008 Annual AvgForecastAssumption as ofLate Oct 2007 ($83)
Pric ing information compiled from NYMEX WTI Futures.
14Second Quarter 2008 Earnings Review | August 6, 2008