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Spectra Energy Partners Reports Third Quarter 2016 Results

HOUSTONNov. 2, 2016 /PRNewswire/ -- Spectra Energy Partners, LP (NYSE: SEP) today reported net income of $296 million, including net income from controlling interests of $275 million, for the third quarter ended September 30, 2016, with diluted earnings per limited partner unit of $0.64. The third quarter included a non-recurring special item of $38 million, which decreased diluted earnings per limited partner unit by $0.12.

Spectra Energy Logo.

Highlights:

  • Expansion projects continue to contribute to growth
  • Express Enhancement and phase one of Gulf Markets placed into service ahead of schedule
  • An additional $1.2 billion of expansion projects have been or will be placed into service in fourth quarter 2016, for a total of more than $1.4 billion in 2016 in-service projects
  • 36th consecutive quarterly distribution increase

Third quarter 2016 ongoing distributable cash flow was $313 million, compared with $270 million in the prior-year quarter. Distributions per limited partner unit for third quarter 2016 were $0.67625, compared with $0.62625 per limited partner unit in third quarter 2015.

For the quarter, ongoing earnings before interest, taxes, depreciation and amortization (EBITDA) were $469 million, compared with $467 million in the prior-year quarter.

Ongoing net income from controlling interests was $313 million for the quarter, or $0.76 diluted earnings per limited partner unit, compared with $321 million, or $0.85 diluted earnings per limited partner unit, in the prior-year quarter. Net income from controlling interests was $275 million for the quarter, or $0.64 diluted earnings per limited partner unit, compared with $321 million, or $0.85 diluted earnings per limited partner unit, in the prior-year quarter.

CEO COMMENT

"Spectra Energy Partners' results once again benefited from our robust expansion program, and reflect the strength of our fee-based business model that has no direct commodity exposure, virtually no volume exposure, and high credit-quality customers," said Greg Ebel, chief executive officer, Spectra Energy Partners. "Our base business continues to perform well, and we achieved a renewal rate of more than 98 percent of contracted revenues on our U.S. natural gas pipelines – a very solid indication of the value our customers place on our system and the strategic value of having assets in the ground to build upon. We continue to generate strong and reliable cash flows that support the growth in the distributions we promised to investors at the beginning of the year.

"Spectra Energy Partners is a must-own investment, and will remain a key financing vehicle for our U.S. pipeline projects when the proposed Spectra Energy and Enbridge merger is completed. Upon closing the merger, SEP will maintain its low-risk, stable distributable cash flow model that has served investors so well since its inception. SEP has excellent liquidity and access to capital markets at very attractive rates, allowing it to fund the visible, high-quality growth projects we have in execution today and those that we will move into execution in the future."

SEGMENT RESULTS

U.S. Transmission                                                   

Ongoing EBITDA from U.S. Transmission was $430 million in third quarter 2016, compared with $401 million in third quarter 2015. The third quarter 2016 results exclude a special item of $38 million in expense related to the Texas Eastern pipeline incident in Pennsylvania and reflect increased earnings from expansion projects.

Liquids

Liquids EBITDA was $60 million in third quarter 2016, compared with $79 million in third quarter 2015. The decrease is due almost entirely to the absence of equity earnings from Sand Hills and Southern Hills natural gas liquids (NGL) pipelines, which Spectra Energy Partners owned until October 2015.

Other

"Other" net expenses were $21 million in third quarter 2016, compared with $13 million in third quarter 2015, reflecting higher allocated benefits costs.

Interest Expense

Interest expense was $53 million in third quarter 2016, compared with $59 million in third quarter 2015, reflecting higher capitalized interest.

Liquidity and Capital Expenditures

Total debt outstanding at Spectra Energy Partners as of September 30, 2016, was $7.1 billion, with available liquidity of $1.7 billion.

Including contributions from noncontrolling interests, Spectra Energy Partners has $1.8 billion of capital expansion spending planned in 2016, which will be funded through a combination of debt and equity. Including contributions from noncontrolling interests of $437 million, total capital spending for the nine months ended September 30, 2016, was $1.3 billion, consisting of $1.1 billion of growth capital expenditures and $178 million of maintenance capital expenditures.

This year, Spectra Energy Partners has received net proceeds of $493 million through its "At the Market" (ATM) equity issuance program, plus an additional $489 million from equity issuances to its general partner.

EXPANSION PROJECT UPDATES 

Spectra Energy Partners placed the Loudon Expansion into service on time in September, while the Express Enhancement and phase one of Gulf Markets came online in October – both earlier than expected. Additionally, the Salem Lateral went into service in October. The AIM project is intended to be fully in service in the fourth quarter.

Construction on Sabal Trail began in the third quarter, with the project scheduled to be placed into service in the first half of 2017.

In the third quarter, Spectra Energy Partners received the FERC Environmental Assessment for Access SouthAdair Southwest, and Lebanon Extension, keeping these projects on target for in-service in the second half of 2017.

Atlantic Bridge is expected to receive its FERC certificate in the fourth quarter, keeping the project on schedule for a second half of 2017 in-service date.

FERC certificates are expected for the NEXUS and TEAL projects in the first quarter of 2017, with in-service scheduled for the fourth quarter of 2017.

The Bayway Lateral project is on schedule for its first half of 2018 in-service, and PennEastcontinues to make progress toward being placed into service in the second half of 2018.

Development work also continues in New England with the Access Northeast project, which is designed to both physically and contractually serve the needs of New England power generators by providing significant additional natural gas transmission capacity into the region, and will improve reliability and save consumers an average of $1 billion a year in energy costs during a normal winter.

The Independent System Operator in New England, which is responsible for operating the electric grid, recently stated that New England's power generation situation is "precarious" during the winter months, and that by 2019 – without immediate action to solidify the region's energy infrastructure – it may be unsustainable during extreme cold conditions.

Spectra Energy – along with co-developers Eversource and National Grid – are extremely disappointed by some of the recent actions by certain New England states. Despite this, Access Northeast remains the solution for the region, and Spectra Energy remains committed to delivering the reliable and affordable energy to help consumers and to help each state meet its energy and environmental goals.

ADDITIONAL INFORMATION

Additional information about third quarter 2016 earnings can be obtained via the Spectra Energy website: www.spectraenergy.com.

The analyst call, held jointly with Spectra Energy, is scheduled for today, Wednesday, November 2, 2016, at 8 a.m. CT. The webcast will be available via the Spectra Energy and Spectra Energy Partners Investors pages. The conference call can be accessed by dialing (888) 252-3715 in the U.S. or Canada, or (706) 634-8942 internationally. The conference ID is 70917863 or "Spectra Energy / Spectra Energy Partners Earnings Call."

A replay of the call will be available until 5 p.m. CT on Friday, December 2, 2016, by dialing (800) 585-8367 in the U.S. or Canada, or (404) 537-3406 internationally, and using the above conference ID. A replay and transcript also will be available via the Spectra Energy and Spectra Energy PartnersInvestors pages.

Non-GAAP Financial Measures

We use ongoing net income from controlling interests as a measure to evaluate operations of the partnership. This measure is a non-GAAP financial measure as it represents net income from controlling interests, excluding special items. Special items represent certain charges and credits which we believe will not be recurring on a regular basis. We believe that the presentation of ongoing net income from controlling interests provides useful information to investors, as it allows investors to more accurately compare our ongoing performance across periods. The most directly comparable GAAP measure for ongoing net income from controlling interests is net income from controlling interests.

We use earnings from continuing operations before interest, income taxes, and depreciation and amortization (EBITDA) and ongoing EBITDA, non-GAAP financial measures, as performance measures for Spectra Energy Partners, LP. Ongoing EBITDA represents EBITDA, excluding special items. We believe that the presentation of EBITDA and ongoing EBITDA provides useful information to investors, as it allows investors to more accurately compare Spectra Energy Partners, LP's performance across periods. The most directly comparable GAAP measure for EBITDA and ongoing EBITDA for Spectra Energy Partners, LP is net income.

The primary performance measures used by us to evaluate segment performance are segment EBITDA and Other EBITDA. We consider segment EBITDA and Other EBITDA, which are the GAAP measures used to report segment results, to be good indicators of each segment's operating performance from its continuing operations as they represent the results of our segments' operations before depreciation and amortization without regard to financing methods or capital structures. Our segment EBITDA and Other EBITDA may not be comparable to similarly titled measures of other companies because other companies may not calculate EBITDA in the same manner.

We also use ongoing segment EBITDA as a measure of performance. Ongoing segment EBITDA is a non-GAAP financial measure, as it represents reported segment EBITDA, excluding special items. We believe that the presentation of ongoing segment EBITDA provides useful information to investors, as it allows investors to more accurately compare a segment's ongoing performance across periods. The most directly comparable GAAP measure for ongoing segment EBITDA is segment EBITDA.

We also present Distributable Cash Flow (DCF), which is a non-GAAP financial measure. We believe that the presentation of DCF provides useful information to investors, as it represents the cash generation capabilities of the partnership to support distribution growth. We also use ongoing DCF, which is a non-GAAP financial measure, as it represents DCF, excluding the cash effect of special items. The most directly comparable GAAP measure for DCF and ongoing DCF is net income. We also use DCF coverage, which is a non-GAAP financial measure, as it represents DCF divided by distributions declared on partnership units. The most directly comparable GAAP measure for DCF coverage is Earnings-Per-Unit (EPU).

The non-GAAP financial measures presented in this press release should not be considered in isolation or as an alternative to financial measures presented in accordance with GAAP. These non-GAAP financial measures may not be comparable to similarly titled measures of other partnerships because other partnerships may not calculate these measures in the same manner.

Forward-Looking Statements

This release includes "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements are based on our beliefs and assumptions. These forward-looking statements are identified by terms and phrases such as: anticipate, believe, intend, estimate, expect, continue, should, could, may, plan, project, predict, will, potential, forecast, and similar expressions. Forward-looking statements involve risks and uncertainties that may cause actual results to be materially different from the results predicted. Factors that could cause actual results to differ materially from those indicated in any forward-looking statement include, but are not limited to: state, federal and foreign legislative and regulatory initiatives that affect cost and investment recovery, have an effect on rate structure, and affect the speed at and degree to which competition enters the natural gas and oil industries; outcomes of litigation and regulatory investigations, proceedings or inquiries; weather and other natural phenomena, including the economic, operational and other effects of hurricanes and storms; the timing and extent of changes in commodity prices, interest rates and foreign currency exchange rates; general economic conditions, including the risk of a prolonged economic slowdown or decline, or the risk of delay in a recovery, which can affect the long-term demand for natural gas and oil and related services; potential effects arising from terrorist attacks and any consequential or other hostilities; changes in environmental, safety and other laws and regulations; the development of alternative energy resources; results and costs of financing efforts, including the ability to obtain financing on favorable terms, which can be affected by various factors, including credit ratings and general market and economic conditions; increases in the cost of goods and services required to complete capital projects; declines in the market prices of equity and debt securities and resulting funding requirements for defined benefit pension plans; growth in opportunities, including the timing and success of efforts to develop U.S. and Canadian pipeline, storage, gathering, processing and other related infrastructure projects and the effects of competition; the performance of natural gas and oil transmission and storage, distribution, and gathering and processing facilities; the extent of success in connecting natural gas and oil supplies to gathering, processing and transmission systems and in connecting to expanding gas and oil markets; the effects of accounting pronouncements issued periodically by accounting standard-setting bodies; conditions of the capital markets during the periods covered by forward-looking statements; and the ability to successfully complete merger, acquisition or divestiture plans; regulatory or other limitations imposed as a result of a merger, acquisition or divestiture; and the success of the business following a merger, acquisition or divestiture. These factors, as well as additional factors that could affect our forward-looking statements, are described under the headings "Risk Factors" and "Cautionary Statement Regarding Forward-Looking Information" in our 2015 Form 10-K, filed on February 25, 2016, and in our other filings made with the Securities and Exchange Commission (SEC), which are available via the SEC'swebsite at www.sec.gov. In light of these risks, uncertainties and assumptions, the events described in the forward-looking statements might not occur or might occur to a different extent or at a different time than we have described. All forward-looking statements in this release are made as of the date hereof and we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Spectra Energy Partners, LP (NYSE: SEP) is a Houston-based master limited partnership, formed by Spectra Energy Corp (NYSE: SE). SEP is one of the largest pipeline MLPs in the United States and connects growing supply areas to high-demand markets for natural gas and crude oil. These assets include more than 15,000 miles of transmission and gathering pipelines, approximately 170 billion cubic feet of natural gas storage, and approximately 4.8 million barrels of crude oil storage.

 

 

Spectra Energy Partners, LP

Quarterly Highlights

September 2016

(Unaudited)

(In millions, except per-unit amounts)

Reported - These results include the impact of special items

                 
   

Three Months Ended

 

Nine Months Ended

   

September 30,

 

September 30,

   

2016

 

2015

 

2016

 

2015

INCOME

               

Operating Revenues

 

$

628

   

$

612

   

$

1,870

   

$

1,821

 

Total Reportable Segment EBITDA

 

452

   

480

   

1,383

   

1,407

 

Net Income - Controlling Interests

 

275

   

321

   

860

   

921

 
                 

EBITDA BY BUSINESS SEGMENT

               

U.S. Transmission

 

$

392

   

$

401

   

$

1,209

   

$

1,186

 

Liquids

 

60

   

79

   

174

   

221

 

   Total Reportable Segment EBITDA

 

452

   

480

   

1,383

   

1,407

 

Other EBITDA

 

(21)

   

(13)

   

(63)

   

(48)

 

   Total Reportable Segment and Other EBITDA

 

$

431

   

$

467

   

$

1,320

   

$

1,359

 
                 

PARTNERS' CAPITAL

               

Declared Cash Distribution per Limited Partner Unit

 

$

0.67625

   

$

0.62625

   

$

1.99125

   

$

1.84125

 

Weighted Average Units Outstanding

               

   Limited Partner Units

 

304

   

301

   

296

   

297

 

   General Partner Units

 

6

   

6

   

6

   

6

 
                 

DISTRIBUTABLE CASH FLOW

               

Distributable Cash Flow

 

$

270

   

$

270

   

$

916

   

$

945

 
                 

CAPITAL AND INVESTMENT EXPENDITURES (a)

               

Capital expenditures - U.S. Transmission

         

$

1,492

   

$

1,144

 

Capital expenditures - Liquids

         

54

   

17

 

Investment expenditures - Sand Hills/Southern Hills/SESH/Penn 
East/Nexus

         

181

   

91

 

Total

         

$

1,727

   

$

1,252

 
                 

U.S. TRANSMISSION

               

Operating Revenues

 

$

535

   

$

515

   

$

1,602

   

$

1,546

 

Operating Expenses

               

   Operating, Maintenance and Other

 

217

   

169

   

572

   

496

 

Other Income and Expenses

 

74

   

55

   

179

   

136

 

EBITDA

 

$

392

   

$

401

   

$

1,209

   

$

1,186

 
                 

LIQUIDS

               

Operating Revenues

 

$

93

   

$

97

   

$

268

   

$

275

 

Operating Expenses

               

   Operating, Maintenance and Other

 

32

   

37

   

94

   

105

 

Other Income and Expenses

 

(1)

   

19

   

   

51

 

EBITDA

 

$

60

   

$

79

   

$

174

   

$

221

 
                 

Express Pipeline Revenue Receipts, MBbl/d (b)

 

235

   

234

   

234

   

239

 

Platte PADD II Deliveries, MBbl/d

 

131

   

167

   

131

   

169

 

Canadian Dollar Exchange Rate, Average

 

1.30

   

1.31

   

1.32

   

1.26

 
                 
           

September 30,

 

December 31,

           

2016

 

2015

                 

Debt

         

$

7,053

   

$

6,604

 
                 

Actual Units Outstanding (c)

         

312

   

291

 
                 

(a) Excludes contributions received from noncontrolling interests of $335 million in 2016 and $132 million in 2015. 2016 period also excludes sale of Sabal Trail interest of $102 million.

(b) Thousand barrels per day.

(c) Increase in 2016 resulted from the "At the Market" equity issuance program and equity issuance to Spectra Energy Corp in April 2016.

 

 

 

Spectra Energy Partners, LP

Condensed Consolidated Statements of Operations

(Unaudited)

(In millions)

Reported - These results include the impact of special items

                       
                       
       

Three Months
Ended September 30,

 

Nine Months
Ended September 30,

 
       

2016

 

2015

 

2016

 

2015

 
                       

Operating Revenues

 

$

628

   

$

612

   

$

1,870

   

$

1,821

   
                   

Operating Expenses

 

348

   

293

   

961

   

869

   
                       

Operating Income

 

280

   

319

   

909

   

952

   
                       

Other Income and Expenses

 

73

   

72

   

181

   

183

   

Interest Expense

 

53

   

59

   

165

   

179

   
               

Earnings Before Income Taxes

 

300

   

332

   

925

   

956

   

Income Tax Expense

 

4

   

1

   

13

   

8

   
                   

Net Income

 

296

   

331

   

912

   

948

   

Net Income - Noncontrolling Interests

 

21

   

10

   

52

   

27

   

Net Income - Controlling Interests

 

$

275

   

$

321

   

$

860

   

$

921

   
 

 

 

Spectra Energy Partners, LP

Condensed Consolidated Balance Sheets

(Unaudited)

(In millions)

 
               
         

September 30,

 

December 31,

         

2016

 

2015

               

ASSETS

           

Current Assets

   

$

761

   

$

544

 

Investments and Other Assets

 

4,418

   

4,180

 

Net Property, Plant and Equipment

 

15,317

   

13,837

 

Regulatory Assets and Deferred Debits

 

355

   

290

 

Total Assets

   

$

20,851

   

$

18,851

 
               
               

LIABILITIES AND EQUITY

       

Current Liabilities

   

$

2,261

   

$

1,471

 

Long-term Debt

   

5,454

   

5,845

 

Deferred Credits and Other Liabilities

 

204

   

189

 

Equity

     

12,932

   

11,346

 

Total Liabilities and Equity

 

$

20,851

   

$

18,851

 
 

 

 

Spectra Energy Partners, LP

Distributable Cash Flow 

(Unaudited)

(In millions)

Reported - These results include the impact of special items

 
   

Three Months Ended
September 30, 

 

Nine Months Ended
September 30, 

 
   

2016

 

2015

 

2016

 

2015

 

Net Income

 

$        296

 

$        331

 

$       912

 

$        948

 

Add:

                 

Interest expense

 

53

 

59

 

165

 

179

 

Income tax expense

 

4

 

1

 

13

 

8

 

Depreciation and amortization

 

78

 

74

 

232

 

220

 

Foreign currency loss

 

-

 

2

 

-

 

5

 

Less:

                 

Third party interest income

 

-

 

-

 

2

 

1

 

EBITDA 

 

431

 

467

 

1,320

 

1,359

 
                   

Add:

                 

Earnings from equity investments

 

(35)

 

(49)

 

(92)

 

(134)

 

Distributions from equity investments

 

35

 

59

 

132

 

183

 

Non-cash impairment at Ozark Gas Gathering

 

-

 

-

 

-

 

9

 

 Other 

 

9

 

2

 

12

 

8

 
                   

Less:

                 

Interest expense

 

53

 

59

 

165

 

179

 

Equity AFUDC

 

38

 

23

 

84

 

50

 

Net cash paid for income taxes

 

2

 

1

 

7

 

8

 

Distributions to non-controlling interests

 

7

 

7

 

22

 

23

 

Maintenance capital expenditures

 

70

 

119

 

178

 

220

 

Total Distributable Cash Flow

 

$        270

 

$        270

 

$       916

 

$        945

 
 

 

 

Spectra Energy Partners, LP

 

Reported to Ongoing Earnings Reconciliation

 

September 2016 Quarter-to-Date

 

(Unaudited)

 

(In millions)

 
                   

SEGMENT EARNINGS BEFORE INTEREST, TAXES, AND
DEPRECIATION AND AMORTIZATION

 

Reported Earnings

 

Less: Special 
Items

 

Ongoing  Earnings

 
 
                   
                   

U.S. Transmission

     

$

392

   

$

(38)

 

A

$

430

   

Liquids

     

60

   

   

60

   

    Total Reportable Segment EBITDA

   

452

   

(38)

   

490

   
                   

Other

     

(21)

   

   

(21)

   

    Total Reportable Segment and other EBITDA

   

$

431

   

$

(38)

   

$

469

   
                   

EARNINGS

             
               

Total Reportable Segment EBITDA and Other EBITDA

 

$

431

   

$

(38)

   

$

469

   

Depreciation and Amortization

 

(78)

   

   

(78)

   

Interest Expense

 

(53)

   

   

(53)

   

Income Tax Expense

 

(4)

   

   

(4)

   

Total Net Income

 

296

   

(38)

   

334

   
                   

Total Net Income - Noncontrolling Interests

 

(21)

   

   

(21)

   
                   

Total Net Income - Controlling Interests

 

$

275

   

$

(38)

   

$

313

   
                   

A - Inspection and repair costs related to Texas Eastern pipeline incident in Pennsylvania

 
 

 

 

Spectra Energy Partners, LP

 

Reported to Ongoing Earnings Reconciliation

 

September 2015 Quarter-to-Date

 

(Unaudited)

 

(In millions)

 
             

SEGMENT EARNINGS BEFORE INTEREST, TAXES, AND DEPRECIATION AND AMORTIZATION

 

Reported/

Ongoing 
Earnings

   
 
             
             

U.S. Transmission

     

$

401

     

Liquids

     

79

     

    Total Reportable Segment EBITDA

   

480

     
             

Other

     

(13)

     

    Total Reportable Segment and other EBITDA

   

$

467

     
             

EARNINGS

       
             

Total Reportable Segment EBITDA and Other EBITDA

 

$

467

     

Depreciation and Amortization

 

(74)

     

Interest Expense

 

(59)

     

Other Income and Expenses

 

(2)

     

Income Tax Expense

 

(1)

     

Total Net Income

 

331

     
             

Total Net Income - Noncontrolling Interests

 

(10)

     
             

Total Net Income - Controlling Interests

 

$

321

     
             
   
 

 

 

 

Spectra Energy Partners, LP

Reported to Ongoing Distributable Cash Flow Reconciliation

Unaudited

(In millions)

 
   

Three Months Ended

 

Three Months Ended

 
   

September 30, 2016

 

September 30, 2015

 
   

Reported

 

Less:
Special Items

 

Ongoing

 

Reported

 

Less:
Special Items

 

Ongoing

 

Net Income

 

$         296

 

$       (38)

 

$       334

 

$       331

 

$          -

 

$       331

 

Add:

                         

Interest expense

 

53

 

-

 

53

 

59

 

-

 

59

 

Income tax expense

 

4

 

-

 

4

 

1

 

-

 

1

 

Depreciation and amortization

 

78

 

-

 

78

 

74

 

-

 

74

 

Foreign currency loss

 

-

 

-

 

-

 

2

 

-

 

2

 

Less:

                         

Third party interest income

 

-

 

-

 

-

 

-

 

-

 

-

 

EBITDA 

 

431

 

(38)

 

469

 

467

 

-

 

467

 
                           

Add:

                         

Earnings from equity investments

 

(35)

 

-

 

(35)

 

(49)

 

-

 

(49)

 

Distributions from equity investments

 

35

 

-

 

35

 

59

 

-

 

59

 

 Other 

 

9

 

-

 

9

 

2

 

-

 

2

 
                           

Less:

                         

Interest expense

 

53

 

-

 

53

 

59

 

-

 

59

 

Equity AFUDC

 

38

 

-

 

38

 

23

 

-

 

23

 

Net cash paid for income taxes

 

2

 

-

 

2

 

1

 

-

 

1

 

Distributions to non-controlling interests

 

7

 

-

 

7

 

7

 

-

 

7

 

Maintenance capital expenditures

 

70

 

5

 

65

 

119

 

-

 

119

 

Total Distributable Cash Flow

 

$         270

 

$       (43)

 

$       313

 

$       270

 

$          -

 

$       270

 
 

 

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To view the original version on PR Newswire, visit:http://www.prnewswire.com/news-releases/spectra-energy-partners-reports-third-quarter-2016-results-300355465.html

SOURCE Spectra Energy Partners, LP

Media: Creighton Welch, (713) 627-5806, (713) 627-4747 (24-hour media line); Analysts and Investors: Roni Cappadonna, (713) 627-4778