Enbridge’s delay on Cabin Project will be good for Spectra Energy in the short term Ebel said
Speaking at the press conference to announce third quarter earnings for Spectra Energy, Gregory Ebel, Chief Executive Officer, President, and Director said at the press conference: “As you’ve seen from our earnings release this morning, Spectra Energy delivered ongoing third quarter results of $179 million. Earnings for the quarter are down year-on-year basically because of weak commodity prices affecting earnings at both DCP Midstream and at Empress. However, our other businesses continued to perform well.
“In fact, on a commodity neutral basis, our year-to-date earnings are very much in line with our expectations. Even with the current weakness in commodity prices, we remain optimistic about longer-term NGL fundamentals. For example, we expect to see growth in propane exports starting later this year and significantly increase ethane demand by the petrochemical sector over the next several years along the Gulf Coast and elsewhere in North America. So our view tends to be strong fundamentals and expanding market opportunities longer term. In the near term, we expect some commodity choppiness. But that’s nothing we haven’t managed through in the past. And fortunately, thanks to the size and strength of the business, we’re able to maintain our focus on the longer term and take advantage of the significant growth opportunities before both Spectra Energy and our joint venture DCP.
“As we mentioned last quarter, with the commodity price environment that exists today, it’s not possible to meet our $1.90 earnings per share target for the year. And at this point, we anticipate that commodity prices will have a negative $0.50 to $0.55 impact on our 2012 earnings per share. Of course, there are number of other factors that can affect our earnings either positively or negatively.”
Earning performed in line with expections
“Importantly, our fee-based businesses continued to perform in line with our expectations and our expansion opportunities remained strong and growing. Our fee-based businesses continue to generate strong earnings and cash flows, helping to offset the effects of lower commodity prices. And that’s the beauty of Spectra Energy’s business, predominantly stable, fee-based earnings that provide a great foundation from which to increase our dividend and deliver commodity neutral earnings growth.
“We expect to deliver dividend growth of at least $0.08 a year through 2014. Yesterday, we announced that our board has approved a $0.10 per share increase in our dividend, bringing our total annualised dividend to $1.22 per share. This is consistent with our overall strategy to provide total shareholder returns through a combination of earnings and dividend growth, a strategy that has allowed us to deliver total shareholder return of 60% since January 2010.”
$8 billion in expansion plans to 2014
“We also have a solid roster of expansion projects in execution. They include about $4 billion in Spectra Energy finance projects and more than $4 billion of expansion projects at DCP Midstream. So $8 billion in 2012 to 2014 expansion projects are in execution. And we’re starting to see the benefits of projects going into service.
“To highlight just a few of those for you: the Philadelphia Lateral will deliver incremental volumes; a firm natural gas supplier along our Texas Eastern system; our TEAM 2012 project is now in service, fully subscribed and generating revenues. The next phase of our ongoing team projects is TEAM 2014. That project is fully subscribed with a targeted in-service date of late 2014. And we’re making excellent progress on the construction of the New Jersey-New York expansion project and we’re on pace to achieve our projected in-service date of fourth quarter 2013. Hurricane Sandy has certainly cost us a few days of construction but nothing substantial for a project of this size.”
T-North slated for completion this year
“In British Columbia, the T-North 2012 project is slated for a fourth quarter in-service date. We’ll also complete construction of the Fort Nelson North facility in the fourth quarter, followed by an in-service date early in the new year.”
Bloom heads BG Group
“In Western Canada, we’re continuing to pursue opportunities around LNG exports. And in September, we announced plans to jointly develop with BG Group, a new natural gas pipeline from the northeast B.C. to serve BG’s proposed LNG export facility in Prince Rupert. The new pipeline represents our next wave of investment opportunity in B.C., and allows us to create value by leveraging surplus B.C. natural gas supplies and facilitating its exports to high demand international markets. We expect to make a final investment decision alongside BG by 2015. Underscoring our commitment and focus on LNG infrastructure, we announced that Doug Bloom, who many of you know is President of our Western Canadian business, will now become President of a new Spectra Energy business, Canadian LNG, and lead our efforts in securing LNG opportunities in Western Canada. So Spectra is clearly focussed on the long term. We have what it takes to deliver attractive growing shareholder return. We have the stable and high-performing businesses and a balanced business model focussed on long-term sustainable value creation, a fact borne out by our commitment to dividend and earnings growth. Our asset footprint is unrivaled in our sector.”
“Western Canada Transmission & Processing reported third quarter EBIT of $83 million compared with $119 million last year,” John Patrick Reddy, Chief Financial Officer said. “The segment experienced lower earnings at the Empress Natural Gas Liquids business and as anticipated, lower contracted volumes from the conventional production areas such as the Grizzly Valley in British Columbia. These reductions were partially offset by improved results in the gathering and processing business driven by higher contracted volumes from expansions in the Horn River and Montney areas of British Columbia. The majority of the $21 million loss at Empress this quarter is due to lower NGL sales prices, predominately for propane and higher input cost. Unless we see a dramatic upturn in propane prices, Empress earnings will remain challenged in the fourth quarter and we could see losses in the $10 million to $15 million range.”
Losses on the Empress
Stephen Huang with Carlson Capital asked about Empress because it’s private. “It went to a loss or could go to a loss in Q4, can you give us some clarity for ’13 on how you’re thinking Empress turns around or not?”
“Yes, well, we don’t have the same type of volumes contracted so I have to see how that goes forward. As we’ve mentioned before, you got the contracts that are currently underwater that run off through the middle of next year. So the objective there, and we’ll get our ’13 numbers out there, would be to break even at least, if not make a little bit of money. But that depends how the contracting season goes over the next — that’s been happening in the last month or so, and will happen the next couple of months. But obviously, to at least break even is what we’re looking for.” Ebel said
Matthew Akman with Scotiabank asked “To follow up on Empress. I guess one thing not to be highly profitable there, but losing money is another thing. What are some of the options that you guys can look at with Empress to stem that flow?”
“Well, first of all, the biggest thing is not enter contracts and we didn’t at the time but you had a huge extraction premium in the contracts that we signed up for last year,” said Ebel. “That extraction premium has come down substantially, and at the same time, you’ve seen some improvement in propane prices from what we saw earlier in the year. So you’re not facing the kind of lower cost of market type breakdown that we saw in the past. So that’s one, the contracts will be a different mix next year. Two, I think there is some need for some rationalisation in the whole Empress area. As you well know, Matt, there are multiple players there. And obviously, we’ve got about 22% or so of the capacity. So I think we’ve got to think about is there a way for us to rationalise that.”
Enbridge delay on Cabin
will be good for Spectra
Matthew Akman, Scotiabank Global Banking and Markets, Research Division asked about Horn River. “I noticed during the quarter, that in Canada Enbridge announced that they’re delaying the in-service state of Cabin because there’s just not enough gas flow, which means good news for Fort Nelson (Spectra plant) maybe that you guys remain the only processor up there. On the other hand, there’s a lot of gas that’s not going to get processed or drilled because of pricing. So how do you see that on a net basis perspective, is it positive because you have less competition or negative because there’s less gas being produced?”
“Well, I’d say it’s positive because we’re the sole processor of natural gas in that region. Of course, we’ve got — I don’t know exactly what their situation was and how they came to that decision. We obviously have contracts and those are longer term in nature. In terms of growth for the Horn River, you could say that’s a negative because there’s not another plant that maybe we can build for a few years. But net-net, I’d say, at least in the near term to medium term, it’s positive for us…(gas) prices have improved lately. They still got to go some ways but much better than what we saw, say, 4 or 5 months ago. So net-net in the near term, I’d say it’s positive; longer term, that’s obviously not bullish when somebody decides to not finish a plant,” Ebel said.
Nathan Judge with Atlantic Equities asked about the new division Western Canada LNG. “Could you just go into further detail what actually that’s comprised of? And is that the future assets for the BG plant and ultimately, given some recent developments with BG, would you be interested in investing with a liquefaction plant?”
“It really is a development business,” Ebel said. “As you know, the pipeline picked a number somewhere between $4 billion and $8 billion. So that’s obviously a massive opportunity. And there’s more than one pipeline opportunity potentially up there. So we felt it was important to put a key executive in charge of that. Now Doug will have a small team. But there’s also a requirement under our agreement with BG that we put some dedicated individuals there. And the real focus over the next two or three years is around getting regulatory approvals, making sure all the commercial aspects are in place, and of course, working with various stakeholders there and one of the big groups there would obviously be First Nations — aboriginal folks of which we’ve had a good experience of dealing with them for more than 55 years in the region, so that’s really the focus.
“In September Spectra signed an agreement, project development agreement with BG and that commits to two players to move forward in terms of fully scoping out the project and engineering work. So to make a decision sometime by 2015, and to dedicate parties to be able to do that. So that’s one aspect. There are other players, as you know, in British Columbia on the LNG front that we’re also in discussions with and pursuing, and I won’t speak to those — who those are directly but I think if you’ll read any of the trade press out there, you’ll know who that is. So the idea was to set up a separate business unit, have Doug Bloom head that up, not only to corral and bring to fruition the BG opportunity, but also look at other opportunities in British Columbia. So over the next couple of years, you will see us pursue that and spend a good chunk of money developing that project, which with respect to BG, if the project doesn’t come to fruition, would be refunded to us.”
Follow
Recent Comments