Spectra Continues to See Steady Growth in First-Quarter 2011

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Researched by Industrial Info Resources (Sugar Land, Texas)--Leading natural gas infrastructure company Spectra Energy Corporation (NYSE:SE) (Houston, Texas) reported small but steady overall growth for first-quarter 2011, benefiting from a strong winter performance, favorable natural gas liquids prices, and expansion projects that began operations in the last months of 2010. Net income was reported to be $357 million for the quarter, basically flat when compared with the $358 million reported for first-quarter 2010.

Spectra officials noted that earnings were stronger when using the earnings before interest and taxes (EBIT) measurement, which excludes interest expenses and income; income taxes from continuing operations; and expenses from discontinued operations. Using this method, net income was $644 million for the quarter, a 7.87% increase from first-quarter 2010.

Total operating revenues stood at $1.61 billion for the quarter, an 8.92% increase from the same period last year. Cold weather boosted customer usage in the Distribution segment, which also saw an increased number of residential customers and stronger industrial usage, while the U.S. Transmission segment benefited from expansion projects that were put into service in fourth-quarter 2010. Other positive factors included a stronger Canadian dollar.

However, the Field Services segment saw a decrease in earnings due to higher operating and maintenance costs, as well as reduced production and margins in regions that experienced severe cold weather. Production in the segment was mostly flat compared to first-quarter 2010.

"I'm pleased with our first-quarter performance, which exceeded our expectations and has given us an excellent running start to the year," said Greg Ebel, the president and chief executive officer of Spectra, in a conference call. "In fact, after allowing for the unusually low tax rate in first-quarter 2010, our earnings per share were up about 10% quarter-over-quarter."

Three of the four major Spectra segments saw steady, if not dramatic, gains in revenues and EBIT during the quarter:

• The U.S. Transmission segment reported operating revenues of $483 million for the quarter, a 5.69% increase from first-quarter 2010, and EBIT of $279 million, a 12.96% increase.
• The Distribution segment reported operating revenues of $696 million for the quarter, a 4.19% increase from the same period in 2010, and EBIT of $167 million, a 14.38% increase.
• The Western Canada Transmission and Processing segment reported operating revenues of $439 million for the quarter, a 23.66% increase from first-quarter 2010, and EBIT of $141 million, an 18.49% increase.
• The Field Services segment, which represents Spectra's 50% interest in DCP Midstream LP (NYSE:DPM) (Denver, Colorado), reported revenues and EBIT of $81 million for the quarter, an 18.18% decrease from the same period in 2010.

Spectra officials said that two of the first quarter's positive trends, the strengthened Canadian dollar and favorable natural gas liquids prices, are continuing into the second quarter. Ebel noted increasing growth opportunities in the natural gas market, particularly in the Appalachian and Western Canadian areas.

"We're encouraged by the growing support for the important role of natural gas, and how it can [help] in meeting the connected goals of energy independence, economic growth and environmental integrity," Ebel said in the conference call. "We expect to see a new wave of opportunities across our system, as power generators look seriously at converting older coal- and oil-fired plants to clean-burning, efficient natural gas, and to support greater utilization of existing gas-fired plants."

Industrial Info is tracking 37 active Spectra projects in North America that are worth a total of more than $1.6 billion, including the $39.26 million re-laying of the company's $135 million Northeastern Tennessee Natural Gas Pipeline. The project involves removing 9.2 miles of existing 8-inch-diameter pipeline and replacing it with a 24-inch-diameter natural gas pipeline to increase the transmission capacity of the 1.5 billion-cubic-feet-per-day Line 3300 by 150 million standard cubic feet per day. The line will transport natural gas from the Appalachian supply basin to the Tennessee Valley Authority's (NYSE:TVE) (Knoxville, Tennessee) John Sevier Plant. For more information, visit Industrial Info's North American Oil and Gas Transmission Project Database.

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