Premier natural gas company
Spectra Energy Corp.
) reported fourth-quarter 2012 earnings per share from continuing
operations of 32 cents, failing to meet the Zacks Consensus
Estimate by a penny. The quarterly figure also dropped 27.3% from
the year-earlier profit of 44 cents. The underperformance mainly
stemmed from the lower commodity price realizations.
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The company's operating revenues of $1,347.0 million shrunk
approximately 5.7% from the year-earlier level of $1,428.0
million and also failed to reach our projection of $1,472.0
Full-year 2012 earnings from continuing operations of $1.43 per
share fell short of the Zacks Consensus Estimate of $1.45 and
fell 19.2% from the year-earlier profit level of $1.77.
Total revenue in 2012 dropped 5.2% year over year to $5,075.0
million, lagging our expectation of $5,161.0 million.
The segment posted quarterly earnings before interest and taxes
(EBIT) of $249.0 million, reflecting an upside of 10.2% from the
year-ago quarter. Higher earnings from expansions and lower
operating expenses contributed to the growth.
The segment reported a year-over-year 22.5% decrease in its EBIT
to $93.0 million from the prior-year level of $120.0 million. The
decrease was primarily due to the refund of certain revenues to
the clients that were realized from upstream shipping contracts.
This reimbursement was regulated by the Ontario Energy Board in
Western Canada Transmission & Processing:
The segment witnessed an EBIT of $72.0 million, down 47.4% 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 and Montney areas of
British Columbia, the upside was restricted by lower earnings at
the Empress natural gas liquids (NGL) business.
The segment's EBIT of $58.0 million plummeted approximately 39.6%
from the year-ago level of $96.0 million. The underperformance
was mainly due to lower natural gas liquid (NGL) prices.
Production and Price Realizations
The company produced NGLs of 405 thousand barrels per day
(MBbl/d), down marginally from the year-ago quarter level of 406
MBbl/d. Price of NGLs averaged 77 cents per gallon (down nearly
36% year over year), while crude oil averaged at approximately
$88.11 per barrel (down 6.3% year over year). Natural gas was
sold at $3.40 per million British thermal units (MMBtu) versus
$3.55 per MMBtu in the fourth quarter of 2011.
As of Dec 31, 2012, Spectra Energy had long-term debt of
approximately $10,653 million with a debt-to-capitalization ratio
of 52.0% (versus 51.2% in the preceding quarter).
Earlier, the company had projected diluted earnings per share
(EPS) at $1.50 for 2013 and increased the annual dividend by 10
cents to reach $1.22.
Spectra intends to allocate about $1.4 billion for expansion in
2013. This is in sync with its long-term growth plan of $1.5
billion average annual growth capital expenditure (capex). The
company has assumed expansion and maintenance capex of $1.4
billion and $790 million, respectively, for 2013.
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 linger in 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 invest about $25 billion over the next decade on
fee-based gas infrastructure growth projects. The company plans
to allocate an amount of $25 billion in growth projects through
the end of the decade. Further, momentum will be driven by the
advancing of master limited partnership (MLP) dropdown strategy
through the recent asset additions.
Recently, Spectra Energy inked an agreement to purchase the
Express-Platte Pipeline System from
Kinder Morgan Energy Partners L.P.
), the Ontario Teachers' Pension Plan and Borealis
Infrastructure. The transaction, valued at $1.49 billion,
involves 100% ownership of the pipeline system that includes both
the Express and Platte crude oil pipelines.
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.
Spectra Energy holds a Zacks Rank #3, which is equivalent to a
Hold rating for a period of one to three months.
However, there are certain companies in the oil and gas industry
Cabot Oil & Gas Corporation
) that offer value and are worth buying now. The companies sport
a Zacks Rank #1 (Strong Buy).