Premier natural gas company
Spectra Energy Corp.
) reported second-quarter 2012 earnings per share from continuing
operations of 33 cents, failing to meet the Zacks Consensus
Estimate of 36 cents. The quarterly figure also dropped 21.4% from
the year-earlier profit of 42 cents. The underperformance was due
to lower commodity price realizations.
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The company reported operating revenues of $1,112.0 million, down
approximately 6.4% from the year-earlier level of $1,188.0 million.
The quarterly figure also failed to meet the Zacks Consensus
Estimate of $1,226.0 million.
The segment posted quarterly earnings before interest and taxes
(EBIT) of $237.0 million, showing a downswing of 2.5% from the
year-ago quarter. Lower processing and storage revenues contributed
to the decline.
The segment reported a year-over-year fall in its EBIT to $75.0
million from the prior-year level of $88.0 million. The
underperformance was primarily due to a negative regulatory
decision that adversely affected 2010-2011 storage revenues and a
weaker Canadian dollar.
Western Canada Transmission & Processing:
The segment witnessed an EBIT of $94.0 million, down almost 17%
from the year-earlier level. Although the segment registered
improved results in the gathering and processing business,
primarily driven by expansions in the Horn River area of British
Columbia, it remains restricted by lower earnings at the Empress
natural gas liquids (NGL) business.
The segment's EBIT of $66.0 million plummeted approximately 52%
from the year-ago level of $138.0 million. The underperformance was
mainly due to lower commodity prices. However, higher volumes in
key growth areas like the Permian and Eagle Ford basins partly
mitigated the weakness.
Production and Price Realizations
The company produced NGLs of 392 thousand barrels per day (MBbl/d),
up 4.0% year over year. Price of NGLs averaged $0.77 per gallon
(down nearly 40% year over year), while crude oil averaged at
approximately $93.46 per barrel (down 8.9% year over year). Natural
gas was sold at $2.22 per million British thermal units (MMBtu)
versus $4.31 per MMBtu in the second quarter of 2011.
As of June 30, 2012, Spectra Energy had long-term debt of
approximately $9,632 million with a debt-to-capitalization ratio of
51.3% (versus 51.5% in the preceding quarter).
Spectra Energy is one of North America's premier natural gas
infrastructure plays and has strong business positions in growth
markets. Though we believe commodity price concerns remain for the
near term, the company's core fee-based businesses of storage,
transmission, distribution and Canadian gathering and processing
have the potential to move the needle toward solid earnings and
cash flow growth in the long run.
Spectra plans to deploy $1 billion per year through 2015 on
fee-based gas infrastructure growth projects. The company expects
to commission around 8 projects through 2016. We see upside
potential from diverse near- to medium-term projects, including its
New Jersey-New York pipeline, an NGL pipeline in Texas,
opportunities in the Gulfstream Pipeline and infrastructure to
serve western Canada LNG exports.
However, we remain concerned about the lower price realizations and
also believe that the heavy debt-to-capitalization ratio is a
competitive disadvantage for the company.
The company's closest contender in the natural gas utilities
Enterprise Products Partners L.P.
), reported better-than-expected second quarter earnings as it
transported more crude, natural gas and other commodities through
Currently, we maintain our long-term Neutral recommendation on the