Introducing Spectra Energy Corp

Transcription

1 Introducing Spectra Energy Corp Distribution of Common Stock Spectra Energy Roadshow December 2006

2 Safe Harbor Statement Some of the statements in this document concerning future company performance will be forward-looking within the meanings of the securities laws. Actual results may materially differ from those discussed in these forwardlooking statements, and you should refer to the additional information contained in Spectra Energy s Form 10 filed with the SEC concerning factors that could cause those results to be different than contemplated in today's discussion. Reg G Disclosure In addition, today s discussion includes certain non-gaap financial measures as defined under SEC regulation G. A reconciliation of those measures to the most directly comparable GAAP measures is available on Duke Energy s Investor Relations website at Spectra Energy Roadshow December

3 Management Representatives Paul Anderson Chairman Fred Fowler President & Chief Executive Officer Martha Wyrsch President & CEO Spectra Energy Transmission Greg Ebel Chief Financial Officer Alan Harris Chief Development Officer John Arensdorf Vice President Investor Relations Patti Fitzpatrick Director Investor Relations Spectra Energy Roadshow December

4 Separation Update On Target for January 2 nd Distribution Exchange / Ticker NYSE: SE* Key Dates When-issued trading: December 14 Record date: December 18 Distribution date: prior to market open January 2 Regular way trading: January 2 Distribution Ratio 1 share of SE for every 2 shares of DUK Tax Impact Tax-free distribution IRS Private Letter Ruling received November 21, 2006 * Expected ticker. Spectra Energy Roadshow December

5 The Premier Pure-Play Midstream Natural Gas Company in North America Key Investment Highlights Strategically located assets connecting the fastest growing markets with the most diverse supplies Changes in the natural gas industry are creating numerous expansion opportunities Seasoned management team with incentives based on the gas business results Strong balance sheet and stable cash flows Financial flexibility to pursue expansion projects and acquisitions Targeting 5-7% compounded annual ongoing diluted EPS growth from Spectra Energy Roadshow December

6 Strategic Asset Locations Largest Pure-Play Midstream System in North America Spectra Energy Roadshow December Natural Gas Throughput 2.9 Tcf Miles of Transmission Pipe 17,500 Miles of Gathering & Processing Pipe 58,500 Miles of Distribution Pipe 35,000 Storage Capacity 250 Bcf Retail Customers 1.3 million 6

7 Balanced Portfolio Across Midstream Value Chain Natural Gas Value Chain Spectra Energy Businesses Gathering & Processing Exploration & Production Wellhead Gathering EBIT Transmission & Storage Processing Plants Transportation Storage ~50% ~35% ~15% Distribution Distribution (LDC) End User Spectra Energy Roadshow December

8 Natural Gas Flows: Shifting Sources, Growing Demand Spectra Internal Projections: Demand Volume CAGR : Combined SET Markets Florida British Columbia SET Northeast Ontario Lower 48 States Source: CERA. 2.5% 4.1% 2.8% 2.1% 2.0% 1.0% Supply basins Major Spectra markets Current supply flows Future supply push Spectra Energy Roadshow December

9 Business Strategies Our Primary Business Objective: Create Shareholder Value Optimize Optimize returns on existing asset base Continue to diligently manage our cost structure Continued emphasis on customer and other external stakeholder relationships Build Grow earnings and asset footprint through high return organic expansions and greenfield projects Acquire Opportunistically pursue accretive third-party acquisitions Spectra Energy Roadshow December

10 Asset Overview Spectra Energy Roadshow December 2006

11 Gas Transmission U.S. Strategically Located Pipeline Assets Access to multiple supply sources System oriented to high-growth Eastern U.S. markets Strong base of contracts with high-quality customers and a high rate of contract renewal 2005 Natural Gas Throughput 2.0 Tcf Transmission Pipe 12,800 mi Spectra Energy Roadshow December

12 Storage Assets Integrated with Pipeline System Changing supply and market dynamics provide opportunities for growth Majority of capacity is sold under multi-year firm storage contracts Adds flexibility and reliability to pipeline system Total Storage Capacity Salt Dome Storage Reservoir Storage 250+ Bcf 40 Bcf 210 Bcf Spectra Energy Roadshow December

13 Gas Distribution Union Gas One of the Largest LDCs in Canada Provides retail distribution services to residential, commercial and industrial customers in Ontario Storage services to utilities and others in Ontario, Quebec, and Central and Eastern U.S. Strategic transmission link for gas moving to eastern markets Total Retail Customers 1.3 million Annual Net Increase in Customers 25,000 30,000 Distribution Pipeline 35,000 miles Storage Capacity 150 Bcf Transmission Capacity 5.0 Bcf/d Transmission Pipe 3,000 miles Spectra Energy Roadshow December

14 Gas Transmission and Processing Western Canada LEGEND Pipeline and Field Services Empress System Spectra Energy Income Fund BC Pipeline and Field Services Fee-based transmission and processing assets Large BC gathering system with substantial footprint Pipeline system offers inter-regional access Empress System Integrated system of NGL extraction, fractionation, transport and storage assets Spectra Energy Income Fund Fee-based processing plants Spectra Energy retains 46% ownership Gathering Pipelines 2,500 miles Transmission Pipelines 1,800 miles Total Natural Gas Transmission / Processing Capacity 2.7 Bcf/d Total NGL Processing Capacity 2.4 Bcf/d Spectra Energy Roadshow December

15 DCP Midstream 50% Interest in JV with ConocoPhillips New England Wholesale Propane #1 NGL producer in North America Typical production of 355,000 bbls/d A leading gatherer of raw gas Critical mass in key producing basins Recently formed DCP Midstream Partners, LP Additional asset contribution expected in 2007 ($250 MM) Processing Plant (54 plants, 11 fractionators) 56,000 miles of Natural Gas Gathering Pipeline 8 Propane Terminals Well Connects 34,000 Gathering & Processing Pipelines 56,000 miles Processing Plants 54 Fractionators 11 High Deliverability Storage Capacity 9 Bcf Propane Terminals 8 Spectra Energy Roadshow December

16 Well-Positioned for Growth ~$3 Billion of Expansion Opportunities Gas Gathering Pipelines Processing Plant Expansion St. Clair Power Dawn Area Storage Dawn Storage Deliverability Canaport Dawn-Trafalgar Phase 2 3 Cape Cod NE Gateway Time II Islander East Project Strategy Lebanon Connector Ramapo Market Pull TEMAX/Lebanon East Accident Supply Push Mid-Continent Crossing Egan Expansion Moss Bluff Expansion Copiah Storage SE Supply Header Gulfstream 3 & 4 Spectra Energy Roadshow December

17 Significant Growth Projects Organic Growth Projects Cape Cod Time II Expansion Projects Dawn-Trafalgar Pipeline Phase II, III Ramapo Canaport Maritimes Expansion St. Clair Power Gulfstream Phase III, IV TEMAX / Lebanon East Western Canadian Plant Expansion / Growth Western Canadian Gas Gathering Projects Estimated Total Capital Status Execution Execution Execution Execution Execution Execution Execution Execution Development Development $1.5 - $1.8 B In-Service 2H07 2H07 2H07 & 2H08 2H08 2H08 2H08 2H08 / 1H09 2H09 2H07 & 2H08 2H08 Execution agreement with shippers completed, currently in permitting process and/or in construction Development in various stages of negotiation Spectra Energy Roadshow December

18 Significant Growth Projects Greenfield Projects Expansion Projects Northeast Gateway Status Execution In-Service 2H07 Islander East Execution 2H08 Southeast Supply Header Execution 2H08 Lebanon Connector Development 2H08 Mid-Continent Crossing Development 1H09 Estimated Total Capital $1.5 - $1.9 B Execution agreement with shippers completed, currently in permitting process and/or in construction Development in various stages of negotiation Spectra Energy Roadshow December

19 Significant Growth Projects Storage Projects Expansion Projects Accident Storage Status Execution In-Service Dawn Storage Deliverability Execution 2H08 Egan Storage Execution Moss Bluff Storage Execution Dawn Area Storage Development Copiah Storage Development 2009 Estimated Total Capital $0.6 - $0.8 B Execution agreement with shippers completed, currently in permitting process and/or in construction Development in various stages of negotiation Spectra Energy Roadshow December

20 Financial Overview Spectra Energy Roadshow December 2006

21 Business Segment Overview NYSE: SE Gas Transmission - U.S.* Gas Distribution* Gas Transmission & Processing Western Canada* Field Services Texas Eastern Transmission Algonquin Gas Transmission East Tennessee Natural Gas Maritimes & Northeast Pipeline (77.53%) Gulfstream Natural Gas System (50%) Market Hub Partners Union Gas BC Pipeline & Field Services Empress System Spectra Energy Income Fund (46%) TSX: SET-UN.TO DCP Midstream (50%) DCP Midstream Partners (21%) NYSE: DPM * Represents Spectra Energy Transmission ( SET ). Spectra Energy Roadshow December

22 Prudent Financial Policies Guiding Principles Investment Philosophy Minimum return thresholds Returns appropriate to risk / regulatory requirements Additive to asset base / competitive position Seek Lowest Cost of Capital Yield equity (MLP, Income Fund) Project finance / JV where appropriate Leverage Investment grade profile and flexible Consistent with asset base Target 55%-60% debt-to-total capitalization over time Dividend policy Sustainable, growing dividend Approximately 60% payout ratio over time, with beginning 2007 dividend of $0.88 / share Spectra Energy Roadshow December

23 2007 Ongoing Earnings Expectations $1.40 ongoing, diluted EPS for Target Incentive Payout ($MM) Gas Transmission U.S. (1) Gas Distribution Other TOTAL Ongoing Segment and Other EBIT Expect 7-9% CAGR in Spectra Energy Transmission ongoing segment EBIT for 2007 through 2009 Other financial metrics: Interest Expense = $595 MM Effective Tax Rate = ~32% SET Separation Costs = $30 MM (not included above) EBIT $ Gas Transmission & Processing Western Canada 285 Field Services (2) 555 (100) $ 1,885 No New Equity Issuances Planned. Fully Diluted Shares Outstanding = 632 MM 2007 EBITDA $ 1, (100) $ 2, EBITDA includes Spectra Energy s half of Gulfstream s DD&A and Interest of approximately $40 MM. 2. EBIT represents Spectra Energy s Equity in Earnings of DCP Midstream. EBITDA determined by adding half of DCP Midstream s DD&A and Interest. Spectra Energy Roadshow December

24 2007 Projected Cash Flow Summary ($MM) Primary Sources: Net Income (based on $1.40 per share target and 632 mm shares) Depreciation & Amortization Proceeds from Vending Assets to MLP TOTAL Sources Primary Uses: Capital Expenditures Dividends Changes in Working Capital Equity Earnings in Excess of Distributions & Other TOTAL Uses: Net Sources / (Uses) Cash Flow $ $ 1,755 $ (1,605) (550) (235) (155) $ (2,545) $ (790) Spectra Energy Roadshow December

25 Strong & Flexible Financial Position S&P s BBB rating reaffirmed 2007 Solid Credit Profile S&P business risk profile of 3 Baa2 Moody s rating under review for upgrade FFO / Debt FFO / Interest 13.4% 3.0x Strong Liquidity Position Strong, stable cash flows Four revolving credit facilities in two currencies Total facilities: US$950 MM and C$600 MM Total utilized: US$350 MM, leaving significant unused capacity CP program in place Spectra Energy Roadshow December

26 Master Limited Partnership Spectra Energy intends to form an MLP by the end of the first half of 2007 Expect to raise $300-$400 million in total proceeds MLP will hold a portion of Spectra Energy Transmission s assets (specific assets not yet determined) Source of alternative low-cost capital to be used in future acquisitions Spectra Energy Roadshow December

27 Commodity Exposure Overview DCP Midstream has little exposure to natural gas prices due to natural hedges the primary exposure is NGL prices +/- $1.00 / Bbl crude = +/- $15 MM EBIT* Empress is exposed to changes in frac spread +/- $0.50 / MMBtu = +/- $12.5 MM EBIT Canadian earnings are exposed to exchange rate risk +/- C$0.01 / US$1.00 = +/- $2.5 MM Net Income No hedges currently in place Base assumptions for 2007: DCP Midstream: average price of crude oil is $68.50 / bbl Empress: average frac spread is $3.00 / MMBtu Exchange rate: C$1.11 : US$1.00 * Represents Spectra Energy s Equity in Earnings of DCP Midstream. Spectra Energy Roadshow December

28 Leadership Spectra Energy Roadshow December 2006

29 Experienced Management Team Depth of Experience Each member of senior management has 10 to 30+ years Managing Growth SET Growth since 2000: $10 billion in acquisitions successfully integrated Spectra Energy Transmission grown from 12,000 to 17,500 miles Gas storage capacity has increased from 100 to 250 Bcf DCP Midstream Growth since 1998: $2 billion in acquisitions successfully integrated NGL production has increased from 110 to 355 Mbbl per day Delivering Results Leadership team incentives based on Spectra s results $1.40 ongoing diluted EPS employee incentive target Spectra Energy Roadshow December

30 Board of Directors Paul Anderson Chairman Spectra Energy Corp Roger Agnelli President & CEO CVRD William T. Esrey Chairman Emeritus Sprint Corporation Dennis R. Hendrix Retired Chairman PanEnergy Corp. Michael E. J. Phelps Chairman Dornoch Capital Former Chairman & CEO Westcoast Energy Fred Fowler President & CEO Spectra Energy Corp Martha Wyrsch President & CEO Spectra Energy Transmission Spectra Energy Roadshow December

31 Investment Considerations Premier pure-play midstream natural gas company in North America Attractive industry dynamics Positioned in fastest growing markets Diverse supply base Seasoned management team Strong balance sheet and stable cash flows Financial flexibility Spectra Energy Roadshow December

32 Spectra Energy Corporation Non-GAAP Reconciliation for SEC Regulation G December 2006 Investor Road Shows Anticipated Ongoing Diluted Earnings-per-share ( EPS ) Growth Percentages The materials for Spectra Energy s December 2006 Investor Road Show presentations include a discussion of the anticipated growth in ongoing diluted EPS through at least 2009 for Spectra Energy, the proposed stand-alone company consisting of Duke Energy s natural gas businesses, slated to be spunoff entirely to Duke Energy shareholders on Jan. 2, These growth percentages are based on anticipated ongoing diluted EPS. Ongoing diluted EPS is a non-gaap financial measure, as it represents diluted EPS from continuing operations adjusted for the per share impact of special items. Special items represent certain charges and credits which management believes will not be recurring on a regular basis. The most directly comparable GAAP measure for ongoing diluted EPS is reported diluted EPS from continuing operations, which includes the impact of special items. Due to the forward-looking nature of this non-gaap financial measure for future periods, information to reconcile this non-gaap financial measure to the most directly comparable GAAP financial measure is not available at this time, as management is unable to forecast any special items for future periods Employee Incentive Target Measure The materials for Spectra Energy s December 2006 Investor Road Show presentations include a discussion of the 2007 ongoing EPS employee incentive target for Spectra Energy. The EPS measure used for employee incentive bonuses is based on ongoing diluted EPS. Ongoing diluted EPS is a non-gaap financial measure as it represents diluted EPS from continuing operations adjusted for the per-share impact of special items. Special items represent certain charges and credits which management believes will not be recurring on a regular basis. The most directly comparable GAAP measure for ongoing diluted EPS is reported diluted EPS from continuing operations, which includes the impact of special items. Due to the forward-looking nature of this non-gaap financial measure, information to reconcile it to the most directly comparable GAAP financial measure is not available at this time, as management is unable to forecast any special items for future periods.

33 Forecasted 2007 Total Ongoing Segment and Other EBIT and EBITDA The materials for Spectra Energy s December, 2006 Investor Road Show presentations include a discussion of forecasted 2007 ongoing EBIT and EBITDA for Spectra Energy s reportable segments and for Other, which represents the remainder of Spectra Energy s operations. Forecasted 2007 ongoing segment and Other EBIT and EBITDA amounts are non-gaap financial measures, as they reflect segment and Other EBIT and EBITDA, adjusted for the impact of special items. Special items represent certain charges and credits which management believes will not be recurring on a regular basis. The most directly comparable GAAP measures for forecasted ongoing segment and Other EBIT and EBITDA are reported segment and Other EBIT and depreciation and amortization from continuing operations, which includes the impact of special items. The most directly comparable GAAP measure for total ongoing segment and Other EBIT and EBITDA is reported earnings from continuing operations before income taxes, which includes the impact of special items. Due to the forward-looking nature of these non-gaap financial measures for future periods, information to reconcile these non-gaap financial measures to the most directly comparable GAAP financial measure is not available at this time, as management is unable to forecast any special items for any future periods. FFO Interest Coverage Ratio and FFO to Debt Percentage The materials for Spectra Energy s December 2006 Investor Road Show presentations include a discussion of expected 2007 Funds From Operations ( FFO ) interest coverage ratio and expected 2007 FFO to Debt Percentage. These items reflect non-gaap financial measures. FFO is calculated principally by using forecasted net cash provided by operating activities on a GAAP basis, excluding forecasted changes in working capital. The numerator of the FFO interest coverage ratio includes FFO plus forecasted cash interest paid plus capitalized interest (including any AFUDC interest). The denominator in the FFO interest coverage ratio is principally GAAP interest expense increased by capitalized interest (including any AFUDC interest). Debt in the FFO to debt percentage calculation represents forecasted 2007 ending balance of long-term debt and current maturities of long-term debt, notes payable, and commercial paper.

34 Spectra Energy Corp Consolidated December 2006 Investor "Road Show" Cash Flow Reconciliation Required by SEC Regulation G ($ in Millions) Forecast 2007 Primary Sources: Ongoing net income (Based on $1.40 per ongoing diluted share target) (1) a $ 880 Depreciation & amortization a 525 Proceeds from Vending Assets to MLP c 350 Total Sources 1,755 Primary Uses: Capital expenditures b (1,605) Dividends c (550) Changes in Working Capital a (235) Equity Earnings in excess of Distributions a (90) Other sources/(uses), net a (65) Total Uses (2,545) Net Cash Changes (represents combination of cash and cash equivalents and short-term investments) $ (790) Reconciliations to amounts per U.S. GAAP reporting: Operating cash flow components from above [summation of (a)] $ 1,015 Reconciling items to GAAP operating cash flow (2) 55 Net cash provided by operating activities per GAAP Consolidated Statement of Cash Flows $ 1,070 Investing cash flow components from above [item (b)] $ (1,605) Reconciling items to GAAP investing cash flow - Net cash used in investing activities per GAAP Consolidated Statement of Cash Flows $ (1,605) Financing cash flow components from above [summation of (c)] $ (200) Reconciling items to GAAP financing cash flow (3) 735 Net cash provided by financing activities per GAAP Consolidated Statement of Cash Flows $ 535 Notes: (1) (2) (3) Forecasted net income of $880 million for 2007 is based on Spectra Energy's 2007 employee incentive earnings target of $1.40 per share. The measure used for employee incentive bonuses is based on ongoing diluted earnings per share (EPS). Ongoing diluted EPS is a non-gaap financial measure as it represents diluted EPS from continuing operations adjusted for the per-share impact of special items. Special items represent certain charges and credits which management believes will not be recurring on a regular basis. The most directly comparable GAAP measure for ongoing diluted EPS is reported diluted EPS from continuing operations, which includes the impact of special items. Due to the forward-looking nature of this non-gaap financial measure, information to reconcile it to the most directly comparable GAAP financial measure is not available at this time, as management is unable to forecast all special items for future periods. Amount consists of distributions to minority interests. Amount consists of net other financing activities including debt issues, debt retirements, changes in amounts of commercial paper outstanding offset by an adjustment for distributions to minority interests.

35 Spectra Energy Corporation Non-GAAP Reconciliation for SEC Regulation G December 2006 Investor Road Shows Balanced Portfolio Across Midstream Value Chain The materials for Spectra Energy s December 2006 Investor Road Show presentations include a discussion of the natural gas value chain and the components that comprise Spectra Energy s operations within the midstream sector of that value chain: gathering and processing; transmission and storage; and distribution. This discussion provides an estimate of the relative contributions of each of these components to Spectra Energy s forecasted total ongoing segment EBIT over time. Spectra Energy s reportable segments of Gas Distribution and Gas Transmission & Processing Western Canada include business operations within multiple components of the midstream sector. Ongoing segment EBIT amounts are non-gaap financial measures, as they reflect segment EBIT, adjusted for the impact of special items. Special items represent certain charges and credits which management believes will not be recurring on a regular basis. The most directly comparable GAAP measure for forecasted ongoing segment EBIT is reported segment EBIT from continuing operations, which includes the impact of special items. The most directly comparable GAAP measure for total ongoing segment EBIT is reported earnings from continuing operations before income taxes, which includes the impact of special items. Due to the forward-looking nature of these non-gaap financial measures for future periods, information to reconcile these non-gaap financial measures to the most directly comparable GAAP financial measure is not available at this time, as management is unable to forecast any special items for any future periods.