Premier natural gas company, Spectra Energy Corp. (SE) reported fourth-quarter 2013 earnings per share from continuing operations of 41 cents, beating the Zacks Consensus Estimate of 38 cents. The results increased 28.1% from the year-ago earnings of 32 cents. The upside came from all segments.
The company’s operating revenues of $1,565.0 million rose 16.2% from the year-earlier level of $1,347.0 million and exceeded our projection of $1,506.0 million.
Full-year 2013 earnings from continuing operations of $1.64 per share beat the Zacks Consensus Estimate of $1.57 and increased 14.7% from the year-earlier profit level of $1.43. Total revenue in 2013 rose 8.7% year over year to $5,518.0 million.
Operational Analysis
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 transformed Spectra Energy Partners into one of the largest fee-based MLPs in North America with an enterprise value of almost $20 billion.
Spectra Energy Partners: The segment posted quarterly earnings before interest, taxes, depreciation and amortization (EBITDA) of $368.0 million, reflecting an upside of 16.5% from the year-ago quarter. This was attributable to the dropdown of Express-Platte, the performance of which exceeded expectations as well as increased earnings from pipeline expansions, mainly the New Jersey to New York project commissioned on Nov 1.
Distribution: The segment reported a year-over-year 6.1% increase in its EBITDA to $156.0 million from $147.0 million. The increase was mainly due to higher approved rates, colder weather and the negative effect in the fourth quarter 2012 of the decision from the Ontario Energy Board requiring certain transportation revenues be refunded to customers.
Western Canada Transmission & Processing: The segment witnessed an EBITDA of $215.0 million, up 41.4% from the year-earlier level. The upside came from increased earnings at the Empress NGL business, attributable to higher propane sales prices, lower costs and improved contracting structures compared to fourth quarter 2012.
Field Services: The segment’s EBITDA of $72.0 million rose 24.1% from the year-ago level of $58.0 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.
Production and Price Realizations
The company produced NGLs of 452 thousand barrels per day (MBbl/d), up from the year-ago quarter level of 405 MBbl/d. Price of NGLs averaged 81 cents per gallon (up nearly 5.2% year over year), while crude oil averaged approximately $97.48 per barrel (up 10.6% year over year). Natural gas was sold at $3.60 per million British thermal units (MMBtu) versus $3.40 per MMBtu in the fourth quarter of 2012.
Balance Sheet
As of Dec 31, 2013, Spectra Energy had long-term debt of approximately $14,717 million with a debt-to-capitalization ratio of 58% (versus 62% 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. 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 carries a Zacks Rank #3 (Hold). Better-ranked stocks in the oil and gas sector such as Zacks Ranked #1 (Strong Buy) NGL Energy Partners LP (NGL) and Cabot Oil & Gas Corporation (COG) would offer above-average returns to investors.
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