Spectra Earnings Beat, Revs Miss

Zacks

Premier natural gas company, Spectra Energy Corp. (SE) reported third-quarter 2013 earnings per share from continuing operations of 42 cents, beating the Zacks Consensus Estimate of 35 cents. The results increased 55.6% from the year-ago earnings of 27 cents. The upside came from all segments excluding Distribution.

The company’s operating revenues of $1,144.0 million rose 6.7% from the year-earlier level of $1,072.0 million. However, this failed to reach our projection of $1,296.0 million.

Operational Analysis

U.S. Transmission: The segment posted quarterly earnings before interest and taxes (:EBIT) of $250.0 million, reflecting an upside of 5.0% from the year-ago quarter. This was attributable to the expansion of Texas Eastern and partially mitigated by lower storage revenues.

Distribution: The segment reported a year-over-year 38.2% decrease in its EBIT to $34.0 million from the prior-year level of $55.0 million. The decrease was mainly due to lower storage and transportation revenues.

Western Canada Transmission & Processing: The segment witnessed an EBIT of $90.0 million, up 8.4% from the year-earlier level. The upside came from lower production costs and higher propane sale prices.

Field Services: The segment’s EBIT of $137.0 million rose 121% from the year-ago level of $62.0 million. The improvement was mainly backed by higher volumes from new processing plants as well as higher commodity prices and lower operating costs. These increases were partially offset by higher interest expense.

Price Realizations

Price of NGLs averaged 78 cents per gallon (up nearly 8.3% year over year), while crude oil averaged approximately $106 per barrel (up 15.2% year over year). Natural gas was sold at $3.58 per million British thermal units (MMBtu) versus $2.81 per MMBtu in the third quarter of 2012.

Balance Sheet

As of Sep 30, 2013, Spectra Energy had long-term debt of approximately $16,821 million with a debt-to-capitalization ratio of 62% (versus 55% in the preceding quarter).

Outlook

Spectra Energy is one of North America’s premier natural gas infrastructure plays and has strong business positions in growth markets. On Nov 1, 2013, the company completed the drop-down of the remainder of its U.S. Storage and Transmission assets to its MLP Spectra Energy Partners, LP (SEP). The transaction transforms Spectra Energy Partners into one of the largest fee-based MLPs in North America with an enterprise value of almost $20 billion.

Spectra plans to invest about $25 billion over the next decade on fee-based gas infrastructure growth projects. The company plans to allocate $25 billion in growth projects through the end of the decade.

Spectra Energy holds a Zacks Rank #2, which is equivalent to a Buy rating for a period of one to three months. There are other stocks in the oil and gas sector – SM Energy Company (SM) and TransAtlantic Petroleum Ltd. (TAT) –  which hold a Zacks Rank #1 (Strong Buy) and are also expected to provide above-average returns to investors.

Read the Full Research Report on SM
Read the Full Research Report on SE
Read the Full Research Report on SEP
Read the Full Research Report on TAT


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