Spectra Energy Partners, LP (SEP)

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Spectra Energy Partners, LP (SEP)

Q4 2012 Earnings Call

February 05, 2013 11:00 am ET

Executives

Derick SmithDirector of Investor Relations

Julie Dill – President and Chief Executive Officer

Laura Buss Sayavedra – Vice President and Chief Financial Officer

Analysts

Becca Followill – U.S. Capital Advisors

Craig Shere – Tuohy Brothers Investment

John Tysseland – Citigroup

Elvira Scotto – RBC Capital Markets

Chris Signhinolfi – UBS

Rich Cheney – Deutsche Bank

Presentation

Operator

Good morning. My name is Susan, and I will be your conference operator today. At this time, I would like to welcome everyone to the Fourth Quarter 2012 Spectra Energy Partners Earnings Call. All lines have been placed on mute to prevent any background noise. After the speaker’s remarks, there will be a question-and-answer session. (Operator Instructions)

Thank you. I would like to turn the call over to Mr. Derick Smith. You may begin.

Derick Smith

Thank you, Susan. Good morning. I’m Derick Smith, Spectra Energy Partners’ Director of Investor Relations and I’m pleased that you could join us for review of our fourth quarter and year end 2012 earnings.

This morning, Laura Buss Sayavedra, our Chief Financial Officer will cover the 2012 financial results and follow with our 2013 financial outlook. Following Laura’s presentation, Julie Dill, our Chief Executive Officer conclude with a look ahead at 2013 and beyond before opening the floor to any questions you may have.

Before we begin, let me take a moment to remind you that some of the statements we make today about future company performance will include forward-looking statements within the meanings of securities laws. Actual results may materially differ from those discussed in these forward-looking statements. You should refer to the additional information contained in our Form 10-K and other SEC filings, concerning factors that could cause these results to be different and contemplated in today’s discussion.

In addition, today’s discussion includes certain non-GAAP financial measures as defined by SEC Regulation G. Our reconciliation of those measures to the most directly comparable GAAP measures is available on our Investor Relations website at spectraenergypartners.com.

With that, I’ll turn the call over to Laura.

Laura Buss Sayavedra

Thanks, Derick. Good morning, everyone and thank you for joining us today. This morning, I’m pleased to report that we delivered another solid quarter results. This rounded up a strong year which benefited from our well structured fee-based portfolio. With the addition of an interest in Maritimes & Northeast U.S. late last year, SEP’s weighted average contract life is now 13 years.

For the year, our cash available for distribution was $229 million, up 8% over 2011 and above our 2012 outlook of $222 million. Net income for the year was $194 million, an increase of $22 million over the previous year. These strong financial results in 2012 contributed to the announcement last week of our 21st consecutive quarterly distribution increase bringing us to $1.98 per limited partner unit on an annualized basis.

This next slide lays out the elements of our earnings results for 2012. We are not going to spend additional time here since the drivers for 2012 net income and cash available for distribution are very similar. I know you are most interested in cash available for distribution so that we move ahead to that discussion.

As this slide shows, our total cash available for distribution grew in 2012 to $229 million, an increased of $17 million compared to 2011. This is also $7 million higher than we forecast in our original 2012 outlook. Let me review the primary drivers for our 2012 results. Growth in adjusted EBITDA and cash available for distribution was driven primarily by the benefit of a full year of the Big Sandy acquisition and the start up of the East Tennessee Nat project.

We also have around $8 million of benefits in 2012 primarily as a result of favorable ad valorem tax adjustment across many of our businesses. These adjustments were not included in our outlook for 2012 and are not forecast to recur in 2013.

At the end of October 2012, we acquired half of Spectra Energy’s interest in Maritimes & Northeast U.S. pipeline. At that time, we expected the acquisition to be neutral to cash available for distribution for 2012 but in fact it added around $1 million inclusive of transaction and financing costs. We also benefited from savings on overall O&M expenses that were partially offset by higher maintenance CapEx.

2012 was the final year of the 10 year base line assessment set out in the 2002 Pipeline Safety Reauthorization Act. The work [associated] with this assessment came in around $2 million more than we had originally anticipated for the year. All of this led to $17 million improvement over the previous year in actual cash available for distribution and $7 million of our outlook. So we wrap up the year with great results and we are well positioned to deliver on our 2013 outlook, which I will discuss next.

For 2013, we are estimating cash available for distribution of $239 million. This forecast may be lower than some of you were anticipating, so let me walk through how we arrived at our outlook. First, let me remind you that as has been our practice, our outlook does not include any organic growth not approved by our Board nor does include any acquisitions or anticipated dropdowns from our general partner.

The growth we have included in 2013 comes primarily from a full year’s benefit from the Maritimes & Northeast U.S. pipeline. We also do not assume any upside on Gulfstream from things such as favorable weather and contract optimization. So our outlook for this business is based only on our firm contracts in our 49% ownership.

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