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Spectra Energy Corp (NYSE:SE)

Announcement of 2013 Financial Plan

January 16, 2013 8:30 am ET

Executives

John R. Arensdorf - Chief Communications Officer

Gregory L. Ebel - Chief Executive Officer, President and Director

William T. Esrey - Chairman, Member of Audit Committee and Member of Corporate Governance Committee

Mark Fiedorek

Wouter T. Van Kempen - Chief Executive Officer

John Patrick Reddy - Chief Financial Officer

William T. Yardley - President of U.S. Transmission and Storage

Analysts

Craig Shere - Tuohy Brothers Investment Research, Inc.

Theodore Durbin - Goldman Sachs Group Inc., Research Division

Rebecca Followill - U.S. Capital Advisors LLC, Research Division

Paul Bornstein

Gary F. Hovis - Argus Research Company

Andrew Gundlach

Jeff Healy

John R. Arensdorf

Good morning. We're going to go ahead and get started. Thanks for being here this morning. I'm John Arensdorf, the Chief Communications Officer for Spectra Energy. I think I know most of you in the room. Thanks, again, for joining us today as we share our 2013 financial plan and business strategy overview with you.

Let me remind you that today's discussion is being webcast. So we also welcome those of you joining us on the web or on the phone. As you know, some of the things we're going to talk about today will concern future company performance, and those will be forward-looking statements within the meanings of the securities laws. So actual results may materially differ from those discussed in these forward-looking statements and I'd ask you to refer to the additional information contained in Spectra Energy's Form 10-K and other filings with the SEC concerning factors that could cause these results to differ from those contemplated in today's discussion. And in addition, today's discussion will include certain non-GAAP financial measures as defined by regulation -- by SEC Reg G and a reconciliation of those measures to the most directly comparable GAAP measures is available at the end of the packet of information you have before you and on our website at spectraenergy.com.

So let me go over with you, briefly, the topics we plan to cover today. Our President and CEO, Greg Ebel, will begin by providing an overview of Spectra Energy's business outlook, our 2012 accomplishments and the highlights of our 2013 plan. We'll then focus on 4 areas of significant growth for Spectra Energy, the Northeast and the Southeast U.S., Western Canada and the regions served by DCP Midstream. As you're aware, we announced several leadership changes late in 2012. Doug Bloom was named President of Canadian LNG, leading our efforts related to liquefied natural gas infrastructure opportunities in Western Canada, including our joint venture with the BG Group and Doug is here with us today. Mark Fiedorek assumes the role of President of Spectra Energy Transmission West; and Bill Yardley is now President of our U.S. Transmission and Storage business. And Wouter van Kempen is now President and CEO of DCP Midstream, a role previously held by Tom O'Connor. Tom retired at the end of the year but retains his position as Chairman of the Board of DCP Midstream. So today, you'll hear from Bill, Mark and Wouter. They will each provide details about their respective businesses and the significant growth opportunities that they're pursuing. Next, our Chief Financial Officer, Pat Reddy will share the financial details of our 2013 plan; and finally, Greg will return to wrap things up and provide his thoughts on what makes Spectra Energy such an attractive investment opportunity.

So let me just introduce a couple of the other folks who are with us here today. Julie Dill, our Group Vice President of Strategy for Spectra Energy and President and CEO of Spectra Energy Partners; Duane Rae, President of Spectra Energy Liquids; Sean O'Brien, Chief Financial Officer for DCP Midstream; and Roni Cappadonna who many of you know, or most of you know, is with us. Roni, of course, is the General Manager of Investor Relations. In addition, we have several other representatives of Spectra Energy with us today. As always, we'll allow plenty of time for your questions and -- following our prepared remarks. So in addition to the slides we'll cover with you today, you'll find in the books in front of you an appendix of other information that we hope will be helpful to you. And all of the materials that we're going to cover today are available on our website. As a reminder, we'll announce our 2012 fourth quarter and year end earnings on February 5, and host a conference call on that day at which time, we'll reconcile our 2012 results, EPS results with today's guidance. [Operator Instructions] And with that, let me turn things over to Greg.

Gregory L. Ebel

Well, thanks a lot, John, and good to see everybody again at the start of the year. I appreciate you guys joining us as we go over our 2013 plans from both a business outlook and financial planning perspective. The plans that you're going to hear about today really do give us a lot of confidence that we're going to continue to find ways to deliver attractive shareholder returns, not only just in the near term planning horizon but really, over the longer term right through the end of the decade. When we sat down with you last year, we really talked about Spectra Energy's first and last mile advantage, really, the positioning that allows us to connect to growing supply markets, as well as serve in the high-demand markets in our area and to strategically expand our asset footprint to serve future growth. Since then, we've made a lot of progress on both those fronts, both the first and last mile component of that value chain, extending our asset profile to serve traditional and emerging markets and really, finding way to deliver value and growth for investors. Beyond the notable capital expansion projects, which you will hear about today, we're moving ahead in terms of building new growth platforms like LNG in Western Canada and along the Gulf Coast and crude oil infrastructure and we're also continuing to go that extra mile in terms of serving the customers reliably and safely, which is obviously a huge issue these days in the industry, caring for the communities and at the same time, providing the attractive returns for investors. That extra mile advantage that we've got to direct Spectra Energy to long-term growth and to cash generation is really supported by both fee-based businesses, that would be the bulk, but also commodity-sensitive assets with significant opportunities stemming from the existing footprint and the ability to replicate our success in adjacent and frankly, complementary sectors. So as we look at 2013 and beyond, we're really moving ahead and gaining momentum on that front in the important areas that, really, are going to create value for all of you.

The team is very committed to the business plans that you're going to hear about today and executing on growth and value creation that we believe we're uniquely positioned to deliver. But before diving in on 2013, let me give you a quick recap of 2012 and where we see -- have seen some of the highlights in 2012. No doubt our 2012 results, as we've talked about before, have been challenged by commodity prices. We have been successfully delivering not only on the operational safety and reliability front, but also on the business development front. We continue to enjoy a record of serving customers with excellence through long-term, fixed-price contracts and you see that in 2012 with the resulting renewal on Texas Eastern and Algonquin at the 98% level. We commit $700 million to $800 million of maintenance capital, and that will continue to ensure that the assets that we do have operate safely and reliably, and make sure that when our customers need them on those cold days in the winter and the hot days in the summer that they're there when they need them. Obviously, we continue to operate responsibly and I think we've been recognized from that from a lot of top-tier rankings on really notable measures such as: the Dow Jones Sustainability Index; Newsweek's Green Rankings, #1 in terms of the Carbon Disclosure front, corporate responsibility in magazines' top 10 companies; and then, Ethisphere's, one of the World's Most Ethical Companies. So we'll continue to do that. Equally important, to continue to expand the asset footprint for not only just core area expansions but greenfield projects and indeed, acquisitions so the that we can leverage that portfolio to capture the opportunities that not only exist today but again, over the long term. Beyond incremental growth, Spectra Energy continues to evaluate opportunities aimed at creating long-term value, including those in the complementary oil space. Last month, we took an important step forward on that front when we announced plans to acquire Express-Platte System. I'll come back and speak to that, and why that fits so well for us, in a few minutes.

We're realizing significant investment growth at DCP Midstream, our 50-50 joint venture with Phillips 66. In fact, DCP is going to place in service $3 billion of projects over the next 12 months just alone and as a result of that, when we look at DCP, it's raised its growth capital outlook to $6 billion through 2015. You're going to hear more about that from Wouter van Kempen when he comes up in a few minutes. Our MLPs, both SEP and DCP Midstream partners or DPM, are really key components of the overall financial strength and financing of the company. We're able to support growth and raise capital at not only at the parent level, the C-Corp level through the subsidiaries, places like Texas Eastern and the old Westcoast pipeline but also at our MLPs. And in 2012, what we really focused on was the important lock and load of acquiring assets and things like Southern Hills and Sand Hills and Express-Platte Pipeline that really create a really impressive backlog of assets with attributes that are very attractive for MLPs. The next step on that front will be the advance of the drop-down of these assets over the next couple of years while we reload for the next round of drops. Also in 2012, I told you that we'd raise our dividend by at least $0.08 a year through 2014. We did that in 2012, and a little bit more. As you know, our Board of Directors approved a $0.10 per share increase in our dividend, bringing this year's total annualized dividend to $1.22 per share. So the strong performance in all these key areas, I think, really underscores our ability to continue to provide solid, operational performance and generate strong cash flows and operating earnings that allows us to continue to grow dividends.

Let's turn the attention now to 2013 and 2014. The priorities are very consistent with where we have focused in the last 3 years. Directionally, we're on the same course and I think it's an effective course that works, that we know well and that's created positive growth and value. First of all, obviously, we're going to continue to focus on operating safely and reliably, and prudently managing the costs. We will earn $1.50 per share in ongoing earnings in 2013, that's based on an $0.80 NGL barrel for DCP's NGL barrel. That does not include any earnings for Express-Platte Pipeline that we'll acquire a little bit later in the year. When that's done, we'll update our EPS view when we close that transaction. We'll continue the long-standing focus on execution with the goal of really delivering projects on time and on budget, as well as securing contracts for new projects that will further fuel the next stage of our growth. We will advance the general partner benefits of our MLPs with the intention to be and move the NGL lines into DPM and SEP and Express-Platte into SEP over the next couple of years. We'll deliver on our stated pledge of at least $0.08 of annual dividend growth for 2014 and obviously, we're going to maintain and enhance the level of financial strength that really drives the company going forward. So each of the businesses that we have are intently focused on specific priorities. The most significant of which, you'll hear from Bill and Mark and Wouter. But I thought I'd just start by giving you what I see as the #1 and #2 key success factors for 2013 in each of the business units.

For U.S. Transmission, obviously, completing the New Jersey-New York expansion, which is going very well is key, as is contracting up several projects that you see listed on the slide under U.S. Transmission. For Western Canada, beyond getting the Horn River and Montney projects that we've been working on in the last couple of years and service in the next 30 days or so, nailing down another LNG export contract and finding a long-term solution for Empress, are the top 2 priorities. At DCP Midstream, the real sign of success for this year will be the completion and in-service of the 2 NGL lines as they begin their move into our MLPs. And you're going to hear more from the guys about the items that I mentioned, but I feel those are the really the threshold lead issues for success in 2013. Steve Baker, who some of you know, who runs our Union Gas distribution business, isn't here today, but I thought I'd take the opportunity to just give you a little bit of an outline on Union Gas and its focuses which really vector in on regulatory and expansion plans. Most of you are aware that 2013 is the first year post Union's 5-year incentive rate mechanism, which ended on December 23 -- December 31, 2012. As part of the mechanism, Union agreed to rate base -- re-base its rates in 2013. It did that late in the year and is now implementing those new rates. Really, the overall objective of our gas distribution segment is to move to another long-term incentive rate mechanism post 2013. We actually believe that's the best regulatory approach, not only for customers but obviously, for investors in a way in which we benefited for the last 5 years on that front. Not all great at Union Gas; the recent 2013 rate decision from Ontario did give us a $20 million increase in our rates. The decision denied Union's proposal to move to an equity thickness level of 40%. We're going to continue to pursue that moving from 36% to 40%, and see if the OEB will approve that. It's, frankly, very much in line with the rest of the regulated utilities in Ontario. In fact, only 1 other regulated utility, Enbridge Distribution, does not have a 40% equity component. We think that's very doable as we move through the year. Plus, on the side, you'll also recall that the OEB retroactively changed 1 element of our incentive structure around upstream transportation. This resulted in a $30 million charge in the fourth quarter of 2012, but we've actually initiated legal action on that front. The OEB is clearly inconsistent on this front with our 2008 to 2012 incentive regulation deal, which they approved, which had allowed this and really constitutes retroactive rate-making, which is not allowed in Ontario. We'll keep you posted on our progress on that legal front. On the growth side of things at Union Gas, as we move through 2013, we finalized some contracts for a several hundred million dollar expansion on Dawn-Trafalgar and expect to have regulatory approval this year as well and that allows us to put this expansion in-service in late 2015. As we stated before the MLPs, with SEP and DCP Midstream, are key components to the financial strength and flexibility of Spectra, and we're able to support growth and raise capital at the parent level, as I mentioned, through the subsidiaries and through our MLPs.

So before speaking to the oil infrastructure platform, let me underline our confidence in our MLP strategy and its capacity to actually expand value. Our recent acquisition of 1/3 interest in each of the NGL pipelines that are currently being completed by DCP: Sand Hills and Southern Hills, are great fee-based assets and they've got escalators, which really gives them a get great set of cash flow profile for MLPs. The escalating fee-based nature of Express-Platte that we'll acquire a little later in the year also makes it an extremely attractive drop down into SEP. So over the next 12 months, these 3 pipelines will be in-service or fully acquired in the case of Express-Platte, and generating cash flow. At that time, we will have a drop-down backlog of well over $2 billion at SE or SEP. So through the end of 2014, we expect to drop a sizable portion of these assets into SEP such that it will be a key component, both general partner and limited partner distributions. Therefore, we expect the benefit for more than $300 million between SEP and DPM distributions following the drop downs. And if you just apply a relatively modest multiple of 20x GP cash flows of 5% to 6% yield on those distributions on the LP side, it really allows significant value that will be created for SEP over that time. If you do the math, I think pretty conservatively, that value should equate to $5 billion to $7 billion of additional value in the 2015 time frame. A value that is not fully reflected, in any means, in either SE, SEP or DPM in the market values right now. So with those right assets now in place about to now enter our portfolio, we see tremendous potential to amplify value through the thoughtful and steady strategic use of the MLPs.

Let's turn to some of the other strategic drivers that we see out there driving value going forward. The expansive portfolio remains fundamental to Spectra Energy and its positions, really, a footprint that is enviable both in scope and reach, is not replicable. It really provides a lot of immediate earnings, obviously, today but will continue to provide earnings going forward. However, that portfolio really gives us a great foundation to continue building off as we go forward, it also gives us a lot of financial flexibility and funds, actually, a significant portion of our growth projects through internally-generated cash. And I think as that premium footprint continues to grow, we get to expand our market reach. Our natural gas assets connect to the major producing basins in the United States and Canada with all the major consumption areas as well and they interconnect with substantially, every major pipeline in North America. Also, our natural gas pipeline, storage, Gathering & Processing assets position us to take full advantage of the major developing plays that are now going on in North America: the Horn River, the Montney in Western Canada, the DJ, the Eagle Ford in South Texas and obviously, the Marcellus and the Utica, which we are attached to all of those. These dynamics and our ability to serve the customers' supply and demand needs affirm the value of the assets from a long-term perspective. And DCP Midstream really enjoys premier positions in substantially all the U.S. basins being actively developed. DCP Midstream will place more than $3 billion of projects into service over the next 12 months, as I mentioned. And again, DCP Midstream's looking forward, from a capital perspective, now $6 billion through 2015 allowing it to grow volumes and earnings quite nicely, which you'll see when Wouter addresses the issues at DCP. So we got a great portfolio mix and as you've seen, we've been able to use all of those business lines to get through different market cycles and obviously, different commodity cycles. Equally exciting, though, we're expanding this footprint into the growing crude oil pipeline sector with what we believe is really going to be a Day 1 super acquisition for us. Express-Platte System is one of just 3 major pipelines that are moving crude oil out of Western Canada into the Rockies and Midwest refining and markets and really representing a unique opportunity for Spectra Energy to instantly participate in the rapidly expanding North American crude infrastructure market. We believe the System and the folks that run it do a good job everyday representing a really compatible fit to their existing assets and in addition to our business platform. System's made up of 2 pipelines consisting of about 1,700 miles. First, the Express Pipeline, which transports Canadian crude to refineries in the U.S. Rockies region, specifically, Billings in Lower Montana; Casper, Wyoming. And the pipeline's capacity is about 280,000 barrels per day. The second pipeline is the Platte Pipeline, which interconnects with Express and Casper and then continues to move Bakken and Canadian crude refineries in the U.S. Midwest. That capacity ranges from about 165,000 barrels at the front end down to about 140,000 -- 145,000 barrels a day when you get to Wood River, Illinois. The investment and the transaction is attractive from an earnings and cash flow perspective and we think it will be very rewarding to investors. We expect it to be immediately accretive to earnings with expected full year 2014 EBITDA of approximately $145 million and the first full year EPS accretion to be $0.03 to $0.05 per share. It's likely going to be second quarter before this transaction is closed, but for 2013, we will prorate the full year 2013 EBITDA expectation to approximately $130 million. It's worth noting that there's no direct commodity price exposure on the Express-Platte System because the transportation and storage service that it provides, we don't take title to the products that are shipped. The system's fee-based revenue mix, with escalators, present a favorable cash generation profile through growing the EBITDA, and the addition of the Express-Platte System is really a defining and yet it's a pretty logical move for Spectra Energy to go down. It provides us with an attractive entry to that expanding crude oil transportation storage space, and you get immediate scale and scope. The blueprint for crude oil today is similar to what we've experienced in the natural gas sector. The macro fundamentals that we're seeing clearly points to the fact that crude flows are undergoing dramatic change that rewards companies that have oil assets and pipeline in the ground, ready to reap really what is a similar harvest to what we've been reaping, and will continue to do so, in the natural gas side. Long-term, I think the potential is even greater. And with our continuing natural gas and NGL opportunities, it really gives us a 1, 2, 3 growth punch we've been looking for. On the right-hand of the slide that you'll see, Slide 10, you can see the illustration on the expected flow changes in oil between PADD 2, 3 and 4. The flow volumes expected to change in such dramatic fashion, the opportunity to leverage off existing pipelines and build brownfield and greenfield expansions is immense. If you think about how the same dynamic has actually played out on the natural gas side for the last several years, you can understand our excitement for the oil infrastructure business. Expanding production of unconventional oil is actually driving significant growth opportunities. Increased production from Canadian oil sands, the Bakken and the Niobrara basins, ply sources that we're well-positioned now to serve, really seek market outlets. In the near term, rail and storage terminals are needed. We'll actually consider investment in those opportunities to participate in that expansion as well. Longer-term, we see tremendous opportunity for expanded and reconfigured pipeline infrastructure. And the fact that we've got steel in the ground, the fact that we've got right-of-way, really provides us with what we think is a competitive advantage in terms of cost, in terms of risk and in terms of timing. So we're going to aggressively pursue continuing investments on oil and refined products, pipeline storage tanks and terminals, investments that have proven to create a lot of long-term value for those who have been in the business for some time. Our foray into the crude oil space is very much like the expansion in the natural gas liquid side of things. Consider Spectra Energy before and after the move into the NGL transportation business. In the last 2 years, we've gained a strong and valuable foothold in the NGL transportation space with the addition of Sand Hills and Southern Hills. Now our participation in Front Range and in Texas Express. You'll recall that the NGL transportation move started with DCP's acquisition from ConocoPhillips of a pipeline that became Southern Hills; that really helped lead to Sand Hills. And the competitors who were pursuing NGL pipelines soon became partners by inviting us in to participate in Texas Express and in Front Range. None of which would've happened if we had not made that initial acquisition of the business. Express-Platte really represents the same type of opportunity. So we got a proven track record of entering, merging growth sectors, establishing a competitive asset position and really taking advantage of that and getting compelling results. As we've noted previously, and I want to underline this, while the Express-Platte Pipeline System is being purchased by Spectra Energy, the assets have highly attractive cash flow attributes that really support their drop down to Spectra Energy Partners. So great prospects on the new crude oil side of our business, which in addition to our natural gas and natural gas liquids segments, really provides tremendous forward momentum for Spectra Energy and its investors.

So this slide gives you a snapshot of that momentum. Driven by more than $25 billion of opportunities that we see through the end of the decade. The growth we have under way and on the horizon is substantial, more than $10 billion of that at U.S. Transmission; $7 billion in Western Canada; $6 billion, as I mentioned, at DCP Midstream; at least $2 billion on the liquids front and about $1 billion of expansion opportunities that we see at Union Gas. So the business plan remains on track. We're expanding on the impressive portfolio of assets that we already got. We're continuing to demonstrate our commitment and capacity on fronts through various commodity cycles, business cycles and in finding ways to reward investors with steady, reliable dividend growth while at the same time, accentuating the value proposition through the use of our MLPs and the C-Corp.

So I've asked Bill and Mark and Wouter to come today and really outline some of the opportunities that we see for you, and I think you'll enjoy what they've got to say. We're going to start with Bill on the U.S. Transmission side of things and then, we'll move on to Mark and Wouter. Thanks very much.

William T. Esrey

Thanks very much, Greg, and it's great to be with all of you here in New York this morning. I see some familiar faces. This is a city we've served for over 60 years and it's a city that put its trust in us to do what hasn't been done in decades, and that's to construct a much-needed natural gas pipeline into the heart of Manhattan. U.S. Transmission business is a business that's going strong and we're really growing strong. I'll spend a minute reviewing our 2012 accomplishments and then, talk about the prospects we see ahead here in the States, opportunities that Spectra is uniquely positioned to capture and put to work on behalf of our shareholders.

So let's start with a quick highlight reel of 2012. 2012 was a year of notable progress for the business, progress that prepares us to continue expanding and excelling in vital markets. First, our top priority continues to be the safe, reliable operations of our pipeline and storage assets. Last year, we maintained the gas transportation services that our customers depend on with no system reliability issues or customer interruption during the peak periods. Second, we delivered new infrastructure growth to our portfolio with another successful year executing projects. Our TEAM 2012 project focused on moving Marcellus supplies from Southwestern Pennsylvania to the East is now in-service, it's fully contracted and it's generating revenues. This project came into service on time and under its $200 million budget. Now this expansion gives range resources, the ability to get their production from the Marcellus to the East Coast. And it serves Chesapeake Utilities, which is a brand-new growth market for us in diversifying their supply and their pipeline portfolio. Before TEAM 2012 was even under construction, we executed agreements with 2 shippers for a second TEAM project and we'll talk more about TEAM 2014 a bit later. Also in services, our Philadelphia Lateral Project, and it's a last-mile expansion designed to reach the growing industrial load on our system into Philadelphia. And here, the position of our pipeline in a major metropolitan area gives us that last-mile expansion win, and in this case, for a cogeneration facility and a refinery. And as you'll hear shortly, this sort of last-mile experience will repeat itself in the Gulf with the resurgence in petrochemical and other gas-intensive facilities there. Our New Jersey-New York expansion is well underway and it's arguably the most important piece of new natural gas infrastructure and construction in North America today. We began construction immediately after receiving the first certificate back in May 2012. Since then, we've remained on schedule, hitting critical targets week after week and we're well on track towards our projected in-service target in the fourth quarter of this year. And just last month, we achieved a project milestone and I think, a major engineering feat completing the Hudson River section of the project between Jersey City, New Jersey and Manhattan. Needless to say, we are pleased with our progress there.

On existing business, we achieved a combined contract renewal rate of about 98% on our Texas Eastern and Algonquin systems as our customers renewed over $400 million of annual firm revenue on our backbone systems that run from the Gulf of Mexico to New England. And finally, we saw record throughput across our system, which we're going to cover in more detail on the next slide. So really, a great year in which we delivered on our execution promises and we saw the evidence of our hard work, to attach both supply and market, come to fruition. So how do we keep getting these opportunities to build incremental infrastructure?

It all begins with a very strong base business. As you know, the vast majority of our capacity is sold out and the reservation charges, and it has been for years. This is especially true for our Texas Eastern and Algonquin pipelines to the Northeast and our SESH, Gulfstream and East Tennessee systems to the Southeast. So our customers, year after year, are telling us that they see value in our services is demonstrated by repeat business and that 98% renewal rate. We keep getting these renewals because we evolve. We adapt to the changing supply flows, reach out to the customers and craft some services that are going to meet their needs and keep our services competitive and valuable. So not only are they paying for this, but they're using it.

This chart shows the utilization of the system in our critical last-mile markets, and the numbers represent the increase in throughput in certain areas over the average of the prior 3 years. Now these throughput numbers are important because if customers are paying for something but not using it, it's only a matter of time before they'd give us back that contract. It's critically important that we focus on both ends of the equation, supply and the market. Attach supply so that our end-use customers have choices for the reliable, cost competitive natural gas and attach new customers build to growing high demand centers so the producers and the gatherers and processors, want to contract on our system to get to those customers. We go the extra mile to build that last mile, getting to electric generators, industrials, high-growth local distribution companies and yes, largest city in North America. We've added over $300 million a year in incremental EBIT since 2007 in new pipeline projects. So bear these throughput numbers in mind as we look at our Northeast and Southeast growth plans. Where you see high utilization rates, that's where you're going to find the opportunities for Spectra Energy expansions. Note especially the 29% increase in deliveries to customers in the Gulf region as demand for gas and power generation and industrials has surged. Those questioning the value of our Gulf system in the wake of evolving shale plays across North America should help you understand why we're confident that we're not only going to retain value here, we are going to grow this region. We're responding to both customer needs and the macro environment dynamics and we're building on a strong and a sustainable foundation. So our U.S. Transmission business will remain dedicated to serving our customers, maintaining our reputation for reliable and flexible operations and we're not only going to remain committed to keeping our assets fully subscribed in securing our customer contracts, but also continue to optimize and grow the asset base. And the next 2 years, we're going to place into service the projects that are currently in execution and develop these new opportunities, moving several of them into the execution phase. Dampening our U.S. EBIT growth has been the decline in storage values over the past 2 years, and our MHP assets and Bobcat are the market leader in Gulf Coast salt cavern storage and our team is working very hard to create services to regain that value. And we feel that with our advantageous footprint, the expanding use of gas in the Gulf, we really do have the opportunity to do just that. Our U.S. footprint is uniquely positioned to take advantage of the most prolific supply basins and demand growth from the south of Texas to the easternmost provinces of Canada. The value of our portfolio is substantial and, we believe, without rival. We couldn't build or buy this asset portfolio today. It's a result of decades of investment effort and unflagging service. Importantly, our miles of pipeline in storage assets provide a springboard for the continued future growth and value creation with over $10 billion of capital expenditure opportunities along the U.S. footprint over the next few years. So let's drill down on that number, a little bit more detail looking at each region individually.

In response to both the changing supplies and growing demand, Spectra is pursuing an extraordinary suite of potential Northeast projects representing more than $4 billion of investment opportunities in that 2013 to 2016 timeframe. And here are 5 of the projects that deserve a closer look. The New Jersey-New York expansion, major addition for both our company and key Northeast markets. And when it's complete, this 20-mile expansion will provide 800 million cubic feet per day of additional capacity to the region, an estimated $700 million in total and annual energy savings for New Jersey and New York, millions of dollars in tax revenue and of course, quantifiable environmental benefits to this region. TEAM 2014 is yet another major expansion of our Texas Eastern mainlines, designed to give Marcellus producers access to the Northeast, the mid-Atlantic, the Midwest and the Southeast market. The project is fully subscribed by Chevron and EQT and due to go into service in the second half of 2014. Many pipelines have been vying for the ability to build out of Marcellus. We secured these wins by taking advantage of our existing locations and being flexible enough to craft services that allow these producers to access as many of our premium markets as possible. These 2 projects are in execution mode now while these next 3 will be moving to execution this year starting with OPEN, or the Ohio Pipeline Energy Network. This is a new infrastructure driven by the rapidly developing Utica play, OPEN will connect Utica production to all the Texas Eastern markets and importantly, provide Ohio Gas, Ohio power generation and energy markets. For Utica to really be a factor, more pipeline capacity must be built and we expect to finalize OPEN agreements within the next month to go into service in the second half of 2015. AIM, or our Algonquin Incremental Market project, it's both a supply pull -- I'm sorry, supply push and a demand pull project. The oil-to-gas conversion growth at local distribution companies in Connecticut, Rhode Island, and Massachusetts along with increasing gas-fired power generation, fuels the demand for this project. Recall that 17% increase in utilization that I showed you on Algonquin has completed a very favorable open season for AIM, expect to have contracts finalized by June and are targeting bringing the project into service during the second half of 2016. Our NEXUS Transmission project is an opportunity to provide much-needed supply diversification to the Ohio, Michigan, Ontario and Québec markets and one we're pursuing with partners, DTE Energy and Enbridge.

Natural gas supplies and associated deliveries from Western Canada to Eastern Canadian U.S. -- Eastern Canadian and U.S. Midwestern markets have declined significantly over the past few years for a variety of reasons, and these markets are in need of new supply options. NEXUS is focused on connecting Utica and Marcellus producers directly to the Dawn Hub in Ontario, and will serve various gas users along the entire path and beyond. These are very strong growing markets and NEXUS will allow the market participants to restructure their supply portfolio through the Alberta supply and transportation dynamics. The Utica and Marcellus producers can't wait to serve these markets that are right next door, shooting for late 2016 in service here.

So the growth for U.S. Transmission is really just beginning, Appalachian supply and demand growth has given our Northeast region many opportunities, and now we're seeing the next phase of growth in the South as well. Back to Northeast, Spectra is proactively responding to the changing supply flows and growing demand from the Southeast. We're targeting more than $4 billion worth of investment opportunities over the next few years. You may have seen Monday's announcement of an expansion of our East Tennessee pipeline to serve Eastman Chemical's Kingsport, Tennessee facility. The project will provide an additional 85,000 Mcf per day of firm capacity to Eastman, representing about $120 million in capital investment. The first phase of the service is expected to begin in November 2013 with the remainder anticipated to be in service during the first quarter of 2015. Harken back again to that slide on throughput. 13% higher this year on East Tennessee combined with a mostly sold-out system necessitates the need for new pipe as demand increase. It's a great win for East Tennessee, and since East Tennessee is held in the MLPs by Spectra Energy Partners, it demonstrates our ability to grow the MLP organically in addition to through drop downs. So the growth story in the Southeast continues to be driven by huge increases over the next few years, 4 Bcf a day and an incremental gas-fired generation with Florida alone expecting 1.4 Bcf a day of fuel conversions by the end of the decade. Florida continues to be a leader in new natural gas-fired generation and its natural gas consumption is second only to Texas. It's continued commitment to natural gas is underscored by Florida Power & Light Company's December issuance for a request for proposal to build a third major natural gas pipeline into Florida by 2017. Responses are due in April. We are ideally positioned to compete for this business and we expect to deliver contracts in the third quarter of this year.

Another project that we plan to get papered up by midsummer is our Renaissance project, and it's a major new lateral that will link the prolific supplies on Texas Eastern to the growing natural gas power generation market and distribution markets in Georgia, Alabama and Tennessee. Renaissance is slated to come into service during the second half of 2016, in time to serve about 1.8 Bcf a day of coal conversions and incremental growth. It's got an MOU with 1 anchor customer. We're looking forward to signing firm agreements shortly.

So while we've been investing heavily and signing contracts in the Northeast and the Southeast U.S., there's been an awakening happening in the Gulf. The Gulf is undergoing a welcome growth in industry that relies on ample supplies of natural gas and given our exceptional footprint in the region, we stand ready to help fuel that growth. This demand growth is going to be driven by multiple market segments both domestic and abroad, including LNG exports, GTL, or gas-to-liquids facilities, power generation, industrial and petrochemical resurgence and exports to Mexico. We see this as a 10 Bcf a day demand potential and it's going to need supply from a variety of sources. The Gulf Coast and midcontinent shales, yes, but most likely, the Appalachian shales as well. This map doesn't lie, we're ideally positioned to be the conduit of choice in the Gulf between supply and demand, and again, our integrated flexible storage assets has the unique advantage that will provide critical balancing needs to these diverse markets. We believe these large increases in demand will serve to restore storage values over the next 2 to 3 years. We're all aware of the potential for exporting LNG, liquefied natural gas, abroad and we're seeing concrete signs of progress in that direction. 14 LNG export terminals have been proposed along the Gulf Coast. Yes, dozens of import facilities were proposed years ago with only a handful constructed. Those few included Canaport, Neptune and Northeast Gateway, giving Spectra Energy over $1 billion in complementary pipeline investment for Repsol, Suez and Accelerate Energy. We feel the same way here, not all export facilities will be built, but we're going to find a way to take advantage of our location and our service offerings to generate growth capital investments for the multitude of global LNG market participants in this region. Similarly, major players such as Sasol are proposing gas to liquids plants that we think could add an additional 3 Bcf a day of demand to the Gulf Coast in that 2016 to 2019 timeframe. We're seeing highly favorable signs of industrial and petrochemical renaissance in the Gulf region, the slate of facilities announced and progressing totaling almost 2 Bcf a day of demand.

So from top to bottom, we have substantial opportunities that we're executing on and many others who are winning the business. The momentum of our U.S. Transmission business is slowing -- it's not slowing, it is growing. We have great confidence in our outlook, confidence grounded in a high caliber portfolio and a proven ability to deliver. Our track record of execution speaks for itself. Between 2007 and 2012, the U.S. Transmission and storage team has placed 32 projects into service totaling $3.4 billion. Over that stand, 19 producers, 37 marketers and 36 end use market customers have put their faith in us to construct their infrastructure. We have not let them down and that reputation is earning us new and repeat business. So we serve premium markets, demand for our services is growing and we've got the reputation and the people to win the business and continue to execute on our promise.

And with that, I'll turn things over to Mark Fiedorek, to speak to you about our Western Canadian business.

Mark Fiedorek

Thank you, Bill, and good morning to everybody. It's certainly been a rewarding year full of opportunities and challenges in Western Canada but before I begin, I would like to acknowledge the contributions of my colleague, Doug Bloom. As John mentioned, Doug has moved to a new position for Spectra Energy as our President of Canadian LNG effective January 1, the task of securing large scale infrastructure investment opportunities for our companies. During the past 5 years, Doug has led a remarkable period of growth, which saw Western Canada execute on $2.2 billion of expansion capital. As I assume my responsibilities at SET West, I continue to be impressed by Doug's legacy which is reflected not only by impressive corporate metrics but also in the quality and dedication of our team.

So in 2012, SET West continued to deliver safe and reliable operations. We are keenly aware that our customers depend on us to process and transport their products. To that end, our pipelines' reliability exceeded 99%, similar performances in our Gathering & Processing assets. Although the industry continues to feel the effects of low natural gas commodity prices, we are optimistic that there are indications for improvement as we enter into 2013. Utilization rates across our systems remain strong as volumes have stayed relatively unchanged from 2011. Reduction from unconventional gas reserves continues to drive throughput as production from conventional reserves decline. For example, we currently process 100% of the new production from the Horn River Basin in our Gathering & Processing assets both existing and newly constructed after the majority of both conventional and unconventional resources currently developed in British Columbia. Our project execution team continues to build momentum in executing projects. During 2012, our expansions of the T-North system and at our Dawson plants were put into service. This, plus substantial completion of our Fort Nelson North project, represents the successful execution of over $1.5 billion of growth capital. We also announced in 2012 the execution of a project development agreement with the BG Group to pursue the joint development of a 4.2 Bcf a day natural gas transmission system in northeast British Columbia, in the Prince Rupert area for access to Asian export markets. We are confident SET West is on the verge of a period of sustained and profitable growth as we continue in our role to build the necessary infrastructure to deliver new production to both domestic and export markets.

As we move into 2013, the SET West team is focused on continuing our history of operational excellence. In addition, we are committed to achieve a breakeven result at our Empress business. After living through high extraction premiums and low product values in 2012, we are optimistic we can run our business to mitigate significant downside potential as we expect to see a more traditional market response for products in our market area. We continue to focus on the longer-term value of our Empress assets in light of the changing supply and demand environment. Our project execution team is expected to place our Dawson II facilities into service in the first quarter of 2013, and are under way on our new North Montney project, which will be phased into service in 2014 and 2015. More exciting is the advanced development that is occurring with our Gathering & Processing business and our team's focus on LNG infrastructure. As producers continue to exploit the new unconventional reserves, significant processing facilities are required. We anticipate in bringing to execution up to $4 billion of projects in the next 2 years. This includes our 50% interest in our project with the BG Group. Further, we feel that our footprint will continue to bring additional opportunities throughout the decade for new infrastructure around our G&P and pipeline assets to the tune of an additional $3 billion. Going back to 1957, the natural gas industry in British Columbia was initially developed around the conventional gas reserves in the Fort St. John area with the construction of our McMahon Gas Plant and the completion of Canada's first Big Inch pipeline to the U.S. border. Building on the strengths of the Western Canadian sedimentary basin and conventional reserves, further developments of new areas in the Fort Nelson and the Grizzly Valley area occurred. West Coast transmission system and our sour gas processing plants were originally constructed to connect all these reserves to markets in the lower mainland, British Columbia and the U.S. Pacific Northwest. More exciting for Spectra is the appearance and development that has come in 4 world-class unconventional gas resources that have been identified in northeast British Columbia. They are: the Horn River Basin, a predominantly dry gas basin with a resource potential of approximately 450 Tcf; Montney, a liquids-rich resource, which is currently the most actively developed and accessible area in northeast B.C., it is estimated to be of similar size to the Horn River with a resource potential in excess of 400 Tcf; and further, the Cordova and the Liard are areas in exploration stage and are each expected to contain a resource potential in excess of 100 Tcf. These resource areas bode very, very well for the future of Spectra Energy. The growing gas supply environment in the northeast B.C. is attracting significant foreign investment. The Conference Board of Canada estimates that the total investment in B.C. natural gas sector alone could reach close to $250 billion over the next 20 years. Spectra anticipates that approximately $40 billion to $50 billion of this total will go towards the development of LNG terminals and pipelines to serve them. Further, $150 billion or more will be invested in the upstream natural gas industry to commercialize these unconventional gas reserves. This growth potential is attracting international attention as companies position themselves to participate in these emerging opportunities. Examples of recent transactions include the announcements of CNOOC's acquisition of Nexen; Exxon Mobil's acquisition of Celtic; Encana's joint ventures with Mitsubishi and PetroChina and Petronas's acquisition of Progress Energy. Most of you recognize that we are in the early days of the development of B.C.'s natural gas infrastructure for the use and export markets. Spectra believes that further rationalization of LNG asset developments will occur in the marketplace, and we are confident that we will be a significant player due to our existing footprint and legacy of doing business right in British Columbia. SET West's assets are strategically positioned to process and transport the emerging unconventional resource plays through existing North American and emerging export markets. We own and operate approximately 1,800 miles of Big Inch transmission pipelines to a supply basin takeaway capacity of up close to 3 Bcf a day. Our pipelines currently connect the emerging unconventional gas supplies to markets in the lower B.C. mainland, U.S. Pacific Northwest via interconnects to the Alberta markets. Our gas processing business consist of 17 gas plants and pipeline gathering systems, with total processing capacity of 3.6 Bcf a day and growing. Our extensive infrastructure footprint provides an exceptional platform to capture growth through expansions of our existing facilities such as Dawson Creek in the Montney and Fort Nelson in the Horn River. What presents the most promising and largest opportunity for SET West in the coming years is the LNG export market. We are excited to be a participant in this market and Spectra Energy's partnership with the BG Group to construct a major pipeline connecting our northern transmission system to the BG Group's LNG terminal located at Prince Rupert, drives significant opportunities for capital growth. It's expected that $6 billion to $8 billion will be required to build this 4.2 Bcf a day pipeline. We expect to reach final investment decision with our partner by mid-decade. LNG players like BG and others will drive significant E&P development in the coming years and will require traditional Gathering & Processing services that are Spectra's expertise. We anticipate producers will actively develop their acreage positions in the years prior to LNG being in service; this market will ramp up drilling and production beginning in 2014. Spectra's well situated to utilize its existing footprint in bringing the most cost-effective and timely solutions to the market. SET West is in the best position to provide gas processing and pipeline transportation to all major markets in the growing gas supply in the North East B.C.

Moving on. Our legacy of over 55 years of infrastructure development in British Columbia, we are by far, the best positioned to lead the development of world-scale, unconventional gas resources onto the international gas marketplace and we'll play a major role in providing the infrastructure to achieve this goal. Approximately $7 billion of growth opportunities have been identified over the next 5 to 10 years. In the near term, SET West has approximately $300 million in growth projects in execution. These projects will be brought into service over the next few years providing stable fee-based revenues to the company. We have a demonstrated track record of executing our growth projects in Western Canada under some of the most challenging weather and geography anywhere, with $2.2 billion in expansion capital deployed in the last 5 years. SET West is the backbone of the natural gas industry in British Columbia, and provides safe and reliable operations. We are keenly aware our social license to operate must be earned and we are committed to the safety of our employees, contractors, communities and the environment.

In closing, I would like to leave you with the following: world-class unconventional gas reserves have been found in northeast British Columbia, which is driving market development in North America and abroad. We have seen the arrival of diverse international capital players. SET West is extremely well-positioned to capture significant growth and fee-based opportunities as we gather, process and transport this supply to markets. I'm very excited to lead SET West during this period of growth and look forward to capturing these opportunities.

I'll turn it over to Wouter.

Wouter T. Van Kempen

Great, thank you, Mark, and thanks for everyone -- being here today. I first want to start by taking this opportunity to thank Tom O'Connor for his leadership over the last 5 years. And although Tom has retired from his day-to-day responsibilities, I'm really, really glad that we continue to benefit from Tom's leadership as the Chairman of DCP Midstream and DCP Midstream Partners. So Tom, I'm not sure if you're listening to this webcast but if you do, thanks, from all of us here in New York.

Let me start by talking about our 2012 accomplishments. First thing I would like to highlight is our safety performance. Our commitment to safety runs really, really deep and I'm extremely proud to report that we've had another record year in safety performance and we continue to lead our industry in this area. 2012, as you know, was a pretty rough year for NGL prices. First, we saw substantial planned and unplanned outages at our crackers, which significantly impacted ethane demand. Secondly, record warm winter reduced propane consumption. So if you take those 2 factors combined, that put a lot of pressure of about 70%, 75% of the NGL barrel. But even so, we were able to achieve low double-digit returns on capital within DCP. We continue to grow our gas volumes, our NGL production reached our highest level ever and we maintained our ranking as the #1 NGL producer in the country. Our growth has been transformational in nature. Changing DCP into a full value chain midstream logistics company by deploying significant levels of capital both on the gathering and the processing side, as well as on the marketing and logistics side of our company. With our current footprint, with the growth projects that we have under construction and in development, we're well-positioned to continue to be a leader in the midstream space for years and years to come. We've been able to fund our growth by attractive financing at both DCP Midstream, as well as DCP Midstream Partners providing us liquidity and a very competitive cost of capital. We continually demonstrated access to the capital markets and we're committed to our investment grade ratings both at DPM, as well as DCP Midstream. And lastly, and most importantly, we continue to believe in the long-term fundamentals of our industry. The long-term growth outlooks for the domestic oil and gas industry looks very promising. Bill spoke about the resurgence of the petrochemical industry in our country, and as one of the largest midstream service providers, we are perfectly positioned to capitalize on that. There are a couple of key things that I would like to leave with you today. As I just mentioned, we strongly believe in the long-term fundamentals. Shale development for oil and natural gas is a game changer. DCP is an energy logistics company that sits squarely between the growing resource base and expanding petrochemical and energy markets, and it really doesn't get much better than that. Our high-quality Gathering & Processing business is experiencing significant growth. We're leveraging the power of that portfolio to extend down the value chain into complementary NGL pipelines and other marketing and logistics infrastructure. For MLP, DPM is integral to our growth. DPM is an attractive source of financing through co-investment and is expected to fund a very significant part of our growth. These co-investments will benefit DCP Midstream and Spectra Energy through increasing general partner and limited partner distributions. So we have alignment with our owners, and on our strategy, our focus continues to be grow our earnings, deliver strong cash distributions to our owners and our unitholders and maintain industry-leading returns on capital.

Turning to the map of our assets, I think it will help you understand why I have so much confidence in our outlook. We believe this is a business where size and scale matters, and as the nation's largest NGL producer and the second largest gatherer and processor, we have it. This size and scale enhances our ability to offer customers superior value and services up and down the value chain. Midstream assets are like real estate, location matters. And when you look at our map, you'll see that the majority of our Gathering & Processing assets are very well-positioned in most of the major liquid-rich and oil driven shale plays and that's providing us with a rapidly expanding set of investment opportunities and via our integrated NGL pipeline systems: Sand Hills, Southern Hills, Front Range, Texas Express, we link our liquids-rich GMP super systems to the growing Gulf Coast market.

Let me now talk about our priorities for the coming years. The projects that we have under construction and on the drawing board, we expect to execute on about $6 billion of capital expansions through 2015, and approximately 1/3 of this will be coming in-service during 2013. Like we did in 2012, we'll continue to utilize our co-investment strategy with DPM to fund a significant portion of these growth opportunities. We're going to go more into these growth opportunities here shortly but I'll also add, we have a very robust pipeline. The successful execution of those projects will further our strategy and our transformation into a full-service midstream company.

Lastly, we measure ourselves every day on how we deliver for our customers. We call that operational excellence, and in its most basic form, it's about getting the day-to-day right every single day. So if you look into 2015, you'll see a transformed DCP enterprise driven by our suite of very attractive growth projects. And the change is really pretty striking if you kind of look at the details. We have the potential to construct as many as 10 new processing plants. We have completed over 1,900 miles of new NGL pipelines, which makes us one of the largest NGL pipeline owners in the country. Our NGL production will have grown over 25% to over 0.5 million barrels a day, and we don't expect to stop there. Expansions of today will provide us with the next round of projects to carry the company on a sustainable growth trajectory throughout the decade. So in summary, we have a very clear vision of where we're going and we have great momentum in executing.

Let's take a more detailed look at our businesses. Let me start with our Gathering & Processing business segment. 62 processing plants, 63,000 miles of gathering lines. Our G&P footprint is the foundation of our company. So it provides us with the infrastructure to vertically integrate the company to provide NGL services from the tailgate of our plants into the market centers of Conway and Mont Belvieu. What excites us most is that we're seeing growth in all regions, the DJ in the Niobrara; to the mid-continent; to the Permian to the Eagle Ford. And to capture that growth, we lever over our existing systems versus having to chase high multiple acquisitions. So basically, we are in a great place to grow the company, to grow it organically, build. However, when it makes sense again, and we will acquire, we can be very selective. We can pick the very, very best opportunities both for our owners and for our investors. All of our key operating areas, we have interconnected our plants and our gathering systems into very competitive and flexible networks, and we call these super systems. These integrated networks allow us more operating flexibility, they deliver better reliability for our customers during both planned and unplanned downtime. Additional super systems give us a great competitive advantage since a lot of the new production and a lot of the new gas is found in places where gas is already flowing. And we have steel on the ground, we can compete on speed, we have predictability and we have existing relationships that we can lever. We've created these super systems in the DJ and the Niobrara, in the Eagle Ford, in the Permian and in the mid-continent and there's no other midstream service provider in this country that has these super systems on such a scale as we have.

Now let's take a quick look, kind of, going back 2011, 2012. We placed in-service through building, restarting, expanding 5 plants with approximately 350 million a day of capacity, and hundreds of miles of gathering lines. Next phase of our G&P expansion will come into service through 2013. We expect to start up to 200 million a day Eagle plant in the Eagle Ford in the next couple of weeks; the Rawhide plant in the Permian; the La Salle plant in the DJ, both of those are progressing very well towards our expected Q3 startup.

And lastly, our National Helium conversion is expected to come online somewhere later this year. So in addition to these new plants, we've also built major new gathering systems in the Eagle Ford, the Granite Wash in the Mississippi lime and in the Woodford Cana and all of these investments are supported by long-term contracts and long-term acreage dedications from producers.

Next phase, the G&P expansion includes the already announced 200 million a day Goliad plant in the Eagle Ford and additional expansions in the Permian and the DJ are on the drawing board. So all told, we expect to place $3 billion to $4 billion of Gathering & Processing growth projects in service through 2015.

Now let me go over to the marketing and logistics business segments. Just as we've created super systems within our G&P business unit, we're in the process of creating NGL super systems, trying to gather all of DCP's processing basins to the premium Gulf Coast NGL markets. By building out our NGL systems, we will offer well ahead [ph] to market services to our G&P customers while ensuring the reliability of NGL takeaway from the tailgate of our plans.

All of our pipeline projects are nearing completion. All of them are on schedule and on budget. So let me give some details around each of these projects. First, Sand Hills. The Sand Hills pipeline connects the Permian and the Eagle Ford to Mont Belvieu. We saw our first flow on this pipeline from the Eagle Ford in October and we're now flowing all the way into Mont Belvieu. The second phase, which is the Permian piece of the pipeline, is more than 50% completed and we expect to be in-service by the second quarter of 2013 with the full pipeline. Our other NGL pipeline is Southern Hills and that pipe provides DCP and our mid-continent producers with access to the premium NGL markets in Mont Belvieu. We started landfill operations and commissioning on Southern Hills, Oklahoma City into Belvieu. We're very encouraged by the overall volume buildup that we've seen on Southern Hills, and we expect the capacity for Southern Hills to increase to 175,000 barrels per day, which is up 17% from our initial design capacity. Both Sand Hills and Southern Hills are underpinned with long-term contracts, and 50% to 70% of the product flows on both of these pipelines will be DCP-owned and controlled barrels.

We've also made really good progress on our equity investments in the Texas Express and the Front Range pipelines, and we expect those pipes to go in service in the second quarter and the fourth quarter of 2013 respectively, and those pipelines will provide integrated, competitive service offerings for our producers in the DJ Basin and the Niobrara. With Sand Hills and Southern Hills, Front Range, Texas Express all coming online in 2013, our NGL barrel composition is shifting from a 50-50 Conway Belvieu in 2012 to approximately 60% in Belvieu by the end of 2013 and approximately 80% Belvieu by the end of 2014. This shift really allows us to capture some -- more of the premium pricing in the Belvieu market.

Looking into the future for the marketing and logistics segment, with our leading position that we have in NGL production, we can see where additional fractionation ownership will be a very natural and logical extension further into the downstream value chain. We're in advanced stages of our analysis on this, and we expect to make a decision somewhere here in the first half of 2013. And similar to Sand Hills and Southern Hills, our DCP-owned and controlled NGL volumes make fractionation a very attractive opportunity for us.

So flipping over to Slide 37, we've discussed a lot about growth opportunities. What I would like to discuss now is the financing and the value that all this growth is -- will bring to the Spectra Energy shareholders. With our increasing growth opportunities and coupled with weaker near-term commodity prices, we look to our owners to fund a portion of Sand Hills and Southern Hills. Spectra Energy and Phillips 66 recently made direct investments expected to total approximately $1.5 billion in the Sand Hills and Southern Hills pipelines, basically demonstrating continuing strong owner support for the DCP enterprise. These direct investments by our owners will result in very significant fee-based earnings to Spectra Energy shareholders. Another approximately $1.5 billion of our growth fund -- of our growth capital will be funded by DCP Midstream through internally generated cash flow resulting into 4% to 5% price-neutral earnings growth at DCP, up from our earlier guidance of 2% to 4%. And lastly, we will continue to execute on coinvestment opportunities with DPM. With our recent announcements of coinvestment in our Eagle Ford business, which includes the new Goliad plant, DPM's coinvestments have totaled well over $1 billion in 2012. We expect DPM to continue to fund a very significant part of the growth capital for the DCP enterprise going forward, including the remaining 1/3 of Sand Hills and Southern Hills.

All said, DPM's growth will continue to be strong, and we expect to deploy about $3 billion through 2014 at DPM, which will support the 6% to 10% distribution growth for the DPM unitholders. We believe the effective execution of this coinvestment strategy will translate into significant value creation for Spectra Energy shareholders. With the growth at DPM, we could see an increase in annual cash flows from our ownership of the general partner and the limited partner units will be well north of $200 million by 2015. And if you were to apply MLP and public company GP valuation multiples, you can easily see a valuation for DCP Midstream's general partner and limited partner holdings of $3.5 billion to $4.5 billion by 2015.

So let me summarize. Our growth portfolio delivers value to our owners and shareholders in a number of different ways. Directly funded growth will support DCP Midstream's 4% to 5% price-neutral earnings growth; and secondly, our coinvestment strategy will underpin 6% to 10% distribution growth at DPM; and then lastly, our owners realize earnings growth from the direct partial ownership in Southern Hills and Sand Hills, as well as from gains on the DPM equity issuances. When you combine all of those things together, we expect to deliver low double-digit, price-neutral earnings growth to our owners over the coming years.

To wrap it up, let me end it where I started. Long-term fundamentals for this industry remain very attractive and in its various forms, DCP enterprise has been around for over 80 years. We continue to build this business for the long run. We have a tremendous set of growth opportunities underpinned by very solid foundation of well-run and strategically-located assets. We're focused on operational excellence in our base business, and we provide the best value for our customers every day. We provide the safest work environment to our employees. We're focused on growth to deliver those growth opportunities on time and on budget. We're focused on cash distributions to our owners and to our unitholders. We're focused on delivering the highest long-term returns in our industry, and all of these are how we measure the value we deliver to our customers, to our investors and to our employees.

So with that, let me turn it over to Pat to go through the financials.

John Patrick Reddy

Well, thank you, Wouter, and thanks to Bill and Mark as well. As you've just heard, we're in the midst of a focused growth phase. It represents a number of attractive opportunities to leverage our existing assets to serve growing demand markets and emerging supply basins, both within and beyond the natural gas sector. 2012 was a good year for us despite a challenging commodity price environment. We bolstered an already solid foundation in our base businesses, expanded our asset portfolio with 2 significant transactions, and we executed well on our expansion projects.

Now let me share our objectives for long-term value creation with you. We set our 2013 ongoing diluted EPS target at $1.50 compared to 2012 EPS, which we currently expect to report in the low $1.40s range. Included in the 2013 amount is $0.06 of earnings from expansion projects at SET, an additional $0.05 of project growth at DCP Midstream, and our target 2012 to 2014 EPS CAGR is about 6% annually. In 2013, we'll continue executing on our ambitious growth plan by deploying expansion CapEx of about $1.4 billion. This is in keeping with our objective to invest about $1.5 billion annually in growth CapEx through 2015. We expect to continue to deploy this growth CapEx with average EBITDA multiples of 6x to 8x, just what we have averaged on our historical projects. We're going to advance drop-downs to our MLPs beginning with the MLP-friendly assets that we're adding to our portfolio, including our direct investments in Sand Hills and Southern Hills, and our acquisition of the Express-Platte crude system.

We now have a backlog of $2.25 billion of attractive assets to drop into SEP. This is consistent with our philosophy of using the MLP to finance expansion of our asset portfolio through accretive acquisitions or investment either directly or initially at the Spectra Energy level. For example, by Spectra Energy investing in the 2 NGL pipelines that DCP is developing, we can incubate these projects until the pipes are completed, and we are through the initial ramp-up of volumes, at which time they can be dropped down to SEP. Similarly, because the Express-Platte system involve the purchase of a Canadian company with tax attributes, including net operating losses, it would have been challenging for an MLP to acquire the company directly or to value it fully. We said previously that we would increase the dividend. As you're aware, we recently increased our quarterly dividend by $0.10 per share or about 9%, taking our 2013 annual dividend to $1.22 a share. And we expect to increase our dividend by at least $0.08 a share through 2014.

I know you're interested in seeing the details supporting our 2013 EPS target of $1.50, so let's take a look at the underlying EBIT projections. This chart provides 2013 EBIT and EBITDA detail for each of our business segments with the information you need to arrive at our target of $1.50 per share.

Let's turn now to our non-commodity assumptions for the year. This year's EPS target reflects solid growth in our fee-based businesses and continuation of our successful capital expansion strategy. At the same time, our plan is also based on certain key assumptions, including expansion CapEx this year of $1.4 billion; maintenance CapEx spend of $790 million, which is slightly higher than our 2012 maintenance CapEx but still in line with our overall DD&A; break-even EBIT results at Empress; no earnings impact from the Express-Platte acquisition since we've not yet closed on that transaction; SEP ownership holding constant at 62%. We haven't included any drop-downs to SEP in our financial plan. So as we execute drop downs, this percentage may change; the Canadian U.S. dollar exchange rate, we've assumed to be at parity, which is about where it is today; and no Spectra Energy equity issuances for the year are reflected in our plan.

Most significant assumptions affecting our EPS are the commodity assumptions underlying projected results at DCP Midstream. For 2013, we've assumed an average NGL price of $0.80 per gallon. As Wouter mentioned, DCP's realized price for NGLs assume a 40% Conway, 60% Mont Belvieu split. As Wouter also said, we expect that to move to 20% Conway, 80% Mont Belvieu by the end of 2014. We've assumed natural gas prices of $3.75 and crude oil averaging $90 per barrel. Our sensitivities for the full year are approximately $6.5 million in EBIT for every $0.01 change in NGL prices, $3.5 million EBIT variance for every $0.10 change in natural gas prices, $2.5 million variance per $1 change in the oil price; and our Canadian earnings are partially exposed to the exchange rate with the U.S. dollar as we finance our Canadian operations with Canadian dollar denominated debt partially hedged for those earnings. We'd expect every $0.01 change in the dollar rate that we've assumed to translate into a $4.5 million change in net income. The sensitivities developed at the net income level to give effective changes in EBIT, interest and Canadian taxes. Because our stable fee-based earnings cover our dividend outlay, we're able to realize the earnings upside from the exposure to the commodity cycle without sacrificing consistent dividend growth for our investors. This schedule shows our expected primary sources and uses of funds this year.

We expect to generate approximately $2 billion in cash from net income adjusted for depreciation and amortization and deferred taxes. Our primary uses of cash will be for maintenance CapEx and to pay our common stock dividend with a significant contribution to expansion capital expenditures left over. We'll internally generate about 1/3 of the cash needed to execute our 2013 expansion CapEx plan.

Greg spoke earlier about our strong foundation and how it enables our expansion plans. We have a strong and growing base of assets from the natural gas side of the business. Through that base, we're adding investments in NGL pipelines and a new crude oil segment. Combined, we see attractive investment opportunities of at least $25 billion through the end of the decade. Our corporate structure with a strong parent and general partner of our MLP gives us financial strength and the flexibility to facilitate growth and shareholder value creation.

The increasing portfolio of assets increases the backlog of potential MLP drop-down opportunities. Growth in our stable and fee-based assets supports our objective of ongoing dividend growth, which in turn contributes to attractive shareholder returns.

With that, let me turn this back over to Greg so we can wrap up and take your questions.

Gregory L. Ebel

Thanks, Pat, and we will get to your question. I know that's a lot of information to folks to take in, in a little bit more than an hour. But hopefully, what you've heard from us today are the many ways which Spectra Energy can add value both in the near term and the long term, really driven by that premier asset position that not only provides the mass bulk of our earnings from fee-based assets but also the NGL upside opportunity that we see there.

So let me maybe summarize what you've heard in 3 or 4 points. First of all, Spectra Energy really has a strong core business built over the course of about a century. We continue to see steady growth in that core with projects like New Jersey, New York, projects like TEAM 24, OPEN, Dawson 2 and AIM. We're also expanding beyond that core and really finding ways to move into additional areas. Look at projects like NEXUS, projects like Renaissance and our announced BG Group LNG project on the West Coast, it really lets us expand further, and put on top of that as well a third pipeline into Florida, which we expect to realize. We're also building on new growth platforms as well, and with that expansion and of complementary NGL in crude market areas. So those 3 key points. And the fourth point I hope that you'll take away is that we're really advancing the MLP drop-downs, further enhancing the general partner position and strengthening the currency of the MLPs overall. We've built up that backlog now, as we said, a little bit more than $2 billion, and that opportunity now presents us. So it's really a virtuous circle that allows us to utilize all elements at our disposal whether they're the core expansions, brownfield and greenfield projects and expansions into new and existing demand markets, even new lines of adjacent business; and when appropriate and when we see opportunities that are attractive to us, acquisition. All of it really self regenerating, thanks to the ability to be able to use C-Corps, the MLPs and of course, even our subsidiaries from a financing perspective.

So I hope that what you've heard today reaffirms our ability to move forward and gain momentum. We're in a good place, but we're always looking for a better place and I think with the assets that we have, the opportunities, the new growth platforms, we're going to continue to be able to provide shareholder value, grow the dividend, grow earnings and obviously, continues to be an upside as the NGL market comes back in line with the fundamentals that we see out there. So with that, let me have John moderate the Q&A session.

Question-and-Answer Session

John R. Arensdorf

Okay, thanks. You've heard from our teams, and now we're interested in hearing what's on your mind and what questions you might have for us. Before I take your questions, I'm going to remind you that we're webcasting, so if you'll wait for a microphone and state your name and the company affiliation, we would appreciate that very much. And we're also going to offer the folks on the phone the opportunity for questions. So operator, if you'll provide instructions for that now, we'll pause briefly for that and then we'll come to the room for questions.

Operator

[Operator Instructions].

John R. Arensdorf

Okay, great. Well, let's -- I'll start in the room here and see who has questions. And the first one here, looks like Craig?

Craig Shere - Tuohy Brothers Investment Research, Inc.

Craig Shere, Tuohy Brothers. Just want to get into the basin and order of drop-downs that are possible, one thing that wasn't discussed was the other half interest that SE has in Maritimes and the Northeast U.S. And given the tax position at Express-Platte, would one assume that maybe that's a latter period drop-down maybe with the DCP pipes coming in ahead of that so that you can consume those NOLs?

Gregory L. Ebel

So, let's look at this -- and first of all, we've got to get Express-Platte in the house. So probably, I'll just start kicking off, let's say, we get the Express-Platte asset in the house in the middle of the year, and then we can move forward from there. I'd actually -- when we looked at the valuation, that $5 billion to $7 billion, I'd say kind of implies just over the next couple of years, what we think is pretty modest, call it, $1.2 billion. So out of that backlog of $2.3 billion of potential drops to SEP, call it, just about 1/2 at that point in time. I think Express-Platte is actually the first candidate, Craig. The real value for Spectra of buying the NGL pipelines or 1/3 of the NGL pipelines, those ramp up. So as we get into '14 and '15, those will be better drops at those times. We can do the other half of Maritimes whenever we want. I'd say the real value creators though are really that focused on Express-Platte and the NGL pipeline. So let's get them built. Let us get them in the house, but I think you'll hear from us we'll probably come back to you in midyear and say, all right, here's laying out the plant in terms of drops. The MLP market works, you probably can't do much more than $400 million, $500 million at a time. SEP is not an MLP, the size of some of the other ones. But we feel very confident, feel that, that will help us improve the distributions going forward, but we'll come back to you guys in the middle of the year once we've got those assets in the house and lay it out more directly. And the key is we didn't have $2 billion plus of backlog a year ago. Today, we do. And I think that puts us in a really good opportunity. As we said before, we want to use the MLP, we wanted to use it to grow organically and to do acquisitions and drop-downs. Now we've got a combination of both. I think that East Tennessee project that Bill talked about, that's another opportunity that will keep reloading that drop-down capability. So I think, you got a couple of years of drop-downs, but maybe Pat will speak to the tax issue as well with respect to Express-Platte.

John Patrick Reddy

Craig, Greg is right. And I think Express-Platte would be the first asset to drop down. And the tax attributes really, the reason I mentioned that was explained why perhaps another MLP or an MLP didn't acquire directly. And that's because what we actually bought with the Canadian company to add attributes like net operating losses. And so what we need to do is close on the acquisition at the Spectra Energy level and then pull that entity apart and then be able to drop the assets down to an MLP, and there really isn't a lag in terms of our ability to use NOLs and get partial value to that, which I think an MLP would not have been able to do. And some of you may have read from one of us [ph], it was actually sold by a group of 3 entities, including some Canadian pension funds at preferred returns. And so I think it was hard to tell from the public disclosure what the EBITDA was, the $130 million, roughly $135 million that we've been talking about. So that really I think will be the cleanest one for us to drop down. And the other consideration, of course, is this buy with SEP, so drops in the $.5 billion range or probably about the right size, although we've got flexibility around that. And as Greg said, we'll certainly come back later this year after we close to talk about that.

Craig Shere - Tuohy Brothers Investment Research, Inc.

A very quick follow-up. After all this is done, and I know it's a lot to swallow just with this, I think for the first time you talked about growth projects that aren't just addendums to your existing pipeline infrastructure that when they're completed, you'll have a high cost basis and 3, 4 years down the road maybe you have a new kind of inventory of potential drops. Can you speak to kind of keeping this going past the middle of the decade?

Gregory L. Ebel

I think you've hit on the nail. That's what we've talked about before, and I think if, Craig, some of our discussions with you and some others previously have been, okay, so those projects in the future will be good but what comes in between, and now we've got that $2 billion of drops in between. So you're right, there's some really great projects. And I think with the Florida project, that's why Bill is working so hard to get that win in the Florida area because we already have the Gulfstream assets into that MLP. Obviously, similar type customer, similar type contract structures, that's the next round. So that was my point about it's a virtuous circle. We got this couple of years of drops, build the new projects with, as you say, a very nice tax situation for us to continue dropping. And there's some big projects. Obviously, it's going to be a competitive bid into Florida, but it is a multi-billion dollar project at a 100% level to be able to do that. So that's a good example. NEXUS could be a good example as well. So I think there's no doubt we'll be able to reload that opportunity beyond the 2 years or so of drops that we've got with the assets from Southern Hills, Sand Hills and now the Express-Platte pipeline as well.

Unknown Analyst

A couple questions. Bill, if you can maybe speak to the dynamic in terms of getting power generators in the Northeast to support some of these projects, where I think they are having a tough time committing to firm transportation for a project on Algonquin where you're expanding there. Would you be willing to do that project even if you only had a certain amount of baseload capacity committed despite the fact that spreads are obviously dictating the project that needs to be done there? And similar, I guess, with OPEN and NEXUS, would you be willing to kind of be a first mover there and take some lower returns upfront just to -- because spreads again probably will be there?

William T. Yardley

So specifically in the Northeast, the Algonquin project, I would actually think of that primarily as a project to address the oil-to-gas conversion market. You've heard the governor of Connecticut making a true pitch for natural gas for the state. Massachusetts has been adding customers on an LDC basis left and right. So we feel that the majority of the subscription will actually come from local distribution companies. You raise PowerGen, and that's a -- it's a big deal in the Northeast and that, I think, generators there are not necessarily incented by the scheme today to sign up for firm capacity. I think I have seen Glenn [ph] is actually addressing that little by little and perhaps, by the end of the decade, we'll get there. I would think of AIM specifically as addressing the oil to gas conversions with perhaps a producer push as they're interested in serving that electric jam load. I would suggest no, we're not looking at taking lower returns in terms of guaranteed revenues right upfront. I think these projects do have to support themselves with the base volume, but there is a big advantage to being that early mover.

Unknown Analyst

And Greg, if I can follow up with a question, in terms of the GP cash flows coming both from SEP, as well as from DCP Midstream there, clearly a lot of publicly traded GPs out there with a lot lower than $100 million or $200 million in annualized cash flows. Kind of hesitate to ask it because it adds another layer of complexity to JV with DCP, et cetera. But down the line, would you consider taking it public, particularly, when there may be the case, you have more cash flow in the door at DCP Midstream with NGL prices bid well?

Gregory L. Ebel

Right. I mean, look, obviously, if we believe it's got the right size and we see opportunity to continue growing, if that's the best way to get value, I'm open to that. As you say, it does point out a variety of complexities and challenges. I still believe that at some point in time, there will be an MLP consolidation because not everybody is going to have the same type of backlog. You've seen increasing move to see Corps holding -- C-Corps GP is holding MLPs, and I think that's because of this virtuous circle, which is tougher for smaller MLPs. And at some point, you'll see that consolidation. With a public GP, that becomes increasingly tougher and as you know, the various different pieces that you got there. But down the road, but my focus right now is getting that value for SE shareholders today, growing it, we're at, call it $100 million between DPM and SE, call it the GP/LP -- SEP, GP/LP cash flows more in the $180 million range going to $300 million. So let's get to there, and then we'll have that discussion again.

Theodore Durbin - Goldman Sachs Group Inc., Research Division

It's Ted Durbin of Goldman Sachs. To come back to MLP drop-downs, you've done some of the drops at, call it, 10x or 11x EBITDA Maritimes and Northeast around there, and you just bought Express-Platte for about the same multiple. Is that the multiple we should expect? Is that what's to come down to SEP? And then the corollary to that is do you expect to continue to take cash for these acquisitions? Would you be willing to take more equity in SEP for future drops?

Gregory L. Ebel

Well, you're getting a little further than I would go right now, Ted. But look, I think it all depends, as you know, on where SEP units at the time, et cetera. Remember what you drop it down for from an MLP -- from an LP perspective gets juiced by the DP side of things. So it's not a straight calculation. I think what you'll see is that we'll move it so that it's accretive, obviously, for the MLP and obviously very cash accretive for SE/the GP. That's the way I would look at that. So I wouldn't get locked into one multiple or another. As you know, we've never made a change in any -- and I don't foresee that today, but you've got a lot of flexibility around GP distributions and all that kind of opportunity. You can take back more LP units if you wanted to. I think everything is on the table from that perspective. For me the key is I've got $2.5 billion backlog now and we're going to work that to the greatest advantage both the SE, SEP and DPM.

Theodore Durbin - Goldman Sachs Group Inc., Research Division

And then just on distribution here in Union. Do we think of this new $375 million of the new run rate given, say, the way the regulatory scheme is in, how do we think ahead to say, 2014 if you get some of the things you want on the regulatory front there, what the earnings power is?

Gregory L. Ebel

Well, I'd say that's the new base from which to start off. It appears a bit of a basket case from an energy perspective. The government doesn't know what it's doing, to put it kindly and you've got a regulator that seems to be focused just on electric. I think they've actually priced themselves out of the market from a manufacturing perspective, that's going to change. It has to change. It's the industrial heartland of the country, and I think you'll see some changes in policy that will be more favorable to gas. And that's where, I think, Union will see these opportunities like the expansion on Dawn-Trafalgar and some other expansions in the area, like NEXUS to help drive opportunities not specifically for distribution. So I guess, what I'd say, Ted, it's -- look at Union now as that base $375 million, we've always been able to do typically a little bit better than that. And when we put a long-term rate deal in place, it typically gives us a band to earn with, which I think you can look at over the last 5 years, we've done pretty well on that front, ex the retroactive rate making that happened last year. And the real upside on distribution, and Steve wouldn't like it if I said this, but having run that entity, and really running that entity, it's really about weather, not so much about management. And so with cold weather -- well, Julie, maybe you're the exception. So with weather, it's where you really see the upside. So think about a little bit better than GDP growth up there, I think that's what you have to look at for a distribution company. I will say, obviously, at Union, they've taken some hits on the storage front, and that's an opportunity. As storage margins come back, as they will, I think there's some opportunity on that side. So key is get through 2013, get a long-term incentive structure in place and go from there. Obviously, the equity piece is a big focus for them, getting bigger equity, that's an opportunity that continues to provide -- I think that's probably a $15 million or $20 million of earnings, so if you can make that move, Ted. Becca?

Rebecca Followill - U.S. Capital Advisors LLC, Research Division

Becca Followill, U.S. Capital Advisors. Can you speak to the payout ratio? You've previously got a target of 60% to 65% payout ratio, obviously, well north of that this year and then based on your guidance for next year. How long are you willing to sustain a payout ratio much above that? And then second, on the effective tax rate in your guidance is 25% versus the guidance this year is for 20 -- 29.5%. Can you talk about that delta?

Gregory L. Ebel

Sure, well, I'll speak to the first and Pat can speak to the second. You're right, we had set a 60%, 65% payout ratio. I think, for the last several years, we actually hadn't get anywhere near 60% because of the high NGL pricing, and I think that's allowed us to build up a little bit of headroom on that perspective. For me the way I look at it is as long as we're continuing to pay out fee-based earnings, it doesn't concern me on that front, and we're still underpaying out our fee-based earnings. You could make an argument, even some of your commodity earnings, you could pay as well. So it doesn't bother me if it stayed high for a couple of years. My view is you will see the NGL market coming back. You will see some of this growth that we've got going on, at least, from a cash perspective and the benefits you get from an MNLP GP perspective, so that absolute number, call it 80%, Becca, it doesn't concern me given it's still coming out of fee-based earnings.

John Patrick Reddy

That's on a tax front. You're right, we are going from about 28%, 29% down to 25%, I would say that in '14 and '15 we'd expect to be back up to last year's rate, at 28%, 29%. This year we're enjoying 2 things. One is a tax provision that the federal government in Canada is enacting that will give us a one-time, kind of a catch up benefit. It's about 1/2 of the reduction and then the other half reflects the fact that in Canada we're on flow-through accounting for tax purposes, so that yes, we have some large investments for Nelson and Dawson that are being completed in this year. We get to take some large deductions on a current basis. We don't levelize or normalize those and we're not expecting that to reoccur in '14, so...

Rebecca Followill - U.S. Capital Advisors LLC, Research Division

Right, and then can I ask one more question on the gas pipelines? If you look at the last 3 years, you guys have spent about $3.5 billion. EBIT has been basically flat. You've had some offsets with lower storage like on processing revenues. At what point do we start to see the benefit from all this CapEx start to flow through to growth in EBITDA and what kind of long-term growth rate do you see on the pipe on -- that based on the growth projects you've outlined?

William T. Yardley

I think -- I actually think you're seeing the EBIT from those growth projects today. We are protecting that long-haul base revenue. What's dampening the EBIT that you're speaking to so yes, we're probably should have over $300 million showing up, but between the storage and the processing revenues I think we're being -- it's dampening it a bit. There are a couple of other smaller factors. I think that we believe very strongly in the storage market recovering. We're certainly in a oversupply market and the -- your oversupply situation in the gulf today. Volatility is not too great. If demand picks up, again in the next 2 or 3 years, we feel very good about that. And then, you're really not investing capital, and you're going to see that EBIT return. All right, I'll let Greg speak to the expected returns but feel very good that they're going to be at historical levels.

Gregory L. Ebel

Yes, and I think you'd probably, the next couple of years, in line with that EPS growth of more -- 5% or 6%. But -- you haven't really got much downside left on the storage side and processing side of things. I think those hits have been taken. And so you should see more of a steady growth, that 5% or 6% over the next couple of years. And with some of these bigger projects, come on, Becca, with -- when I think about Nexus, when I think about the Florida projects and Renaissance, those are really major projects that I think you'll see that bigger kickup in earnings, and I would expect, since that's kind of mid-decade, and that's the time which I would expect to start to see some that storage values come back, particularly in the Gulf, as LNG becomes more and more of an issue and the power projects kick in and the conversions happen from some of the big guys, call them the Southerns of the world, et cetera. You're going to see about the, I think realized benefit on the storage side there, and on the LNG side, boy, ambient temperature swings are a big factor for LNG facilities, and storage become important. So I think over those -- the next couple of years though, you get growth in that business more in line with what we see for EPS overall.

Paul Bornstein

Paul Bornstein, Black Diamond. I'm just curious if you could shed some light on the competitive nature you're seeing out there now versus a couple of years ago. As you look at all these projects and then, including LNG, which is a lot of talk, we were at a conference yesterday and no one really could tell what the amount of LNG projects will be out there, given the dynamics of the marketplace. And I'm just wondering what kind of returns you're expecting on various projects that you're seeing. Are they much greater than they were a couple of years ago?

Gregory L. Ebel

I don't think returns on projects are greater than they were a couple of years ago. I think the spread on capital though remains about the same, right? I mean, if you look at the change in -- well everything from, obviously equity prices are better than they were a couple of years for most of the companies, MLP prices have done pretty well than a few years ago. Interest rates continue to decline, so I think your cost of capital has definitely declined, probably by well over 100 basis, might be 150 basis points for a company like Spectra Energy. So your spread remains the same. I would expect projects to be more in the 9% or 10% return on capital employed over the next couple of years as opposed to what we've been able to enjoy, call it a 12% type return on capital employed. I don't think the competitive market is that much different, actually. It still is all about who's got assets on the ground, who can be able to extend across an existing footprint, and from a size perspective, that's equally helpful as well, so. And I don't sense a difference from a competitive perspective. The MLP market has been around for long enough and virtually everybody has one form or another of an MLP that they can use. On the ground, I think we always have to remind ourselves, regardless of where these pipelines end up being owned, [indiscernible] it's Texas Eastern versus Tennessee in the Northeast. It's not Kinder versus Spectra and it's TransCo and Spectra battling out, maybe in the Southeast and up into the Northeast as well, it's not actually Williams and Spectra. So the battle's still on the ground and with the customers, it's really about those pipes, not the different entities that are out there, and you might have some comments on that, Bill. The LNG front, look, this is -- I don't know what number we're up to, 16, 20, maybe 25 projects, but that's not going to happen, right? And I guess, we look to be with large partners, but more importantly, we look to be involved with guys who have done this on a global basis. And who understand the overall value of our asset chain from an LNG perspective. And in the West Coast, I think we're wonderfully set up on that front. We really are the only major pipeline system in British Columbia and perhaps, more importantly, as the largest property taxpayer in that province, and by far the largest pipeline employer in that province, knowing how to get projects done there. I mean this is definitely deepest, darkest British Columbia where these projects are going to be built, and if you don't know the land, and you don't know the people, you're not getting your project done. And I think you see that with a lot of people trying to build greenfield projects in different jurisdictions, including British Columbia. That's the cap to the reputations are getting things done, can't get it done. And so we think that's a real advantage for us and I think as Bill laid out in the Gulf coast, you've got assets there as well. Gulf Coast LNG opportunity's nowhere near as big as it is in some other places, mainly because the pipelines are largely there. It's much bigger from a terminal perspective.

William T. Yardley

And maybe one complementary aspect of that LNG in British Columbia is that we are the largest gatherer and processor of natural gas. So we've got 17 plants and more than 3.5 Bcf a day of capacity. So we win in terms of -- there's the attractiveness of building the pipeline and the returns on that, but it's also important to not only keep our processing plants full, but to expand them and so that's another benefit to us and them [ph].

Gary F. Hovis - Argus Research Company

Actually, maybe, if I could just key off the LNG, these are very long term issues, but you noted that we're not -- not all these are going to get built. We're obviously in a race. We now have 2 projects announced in Prince Rupert. Do you -- as you risk adjust, and you look to through possible spending in the future, do you see any risk that these projects at Petronas BG get merged together, and then obviously there's the pipeline up into the air.

Gregory L. Ebel

Yes, I -- look, I think jurisdictions are going to be looking for when it's greenfield pipeline for common corridors, and this is virtually all crown land or government-owned land that you do operate in, so nobody's going to have the lock on any piece of land. That just doesn't happen in Western Canada. So yes, I think that's possible. I don't know if I would see that as a dilution in any respect if you actually merge pipelines. Doug, he might now, and Kitimat, there's probably half a dozen projects being proposed, they're not going to be half of those in LNGs, projects built there, some of the sleeping giants still haven't spoken on this issue, and watch for those guys, Gary, because those are big plays. They've made some acquisitions in Western Canada. For us, remember, the real value in Western Canada, like the pipeline business, but 2/3 of the value up there is in the gas processing business. We own 60% of that market. We process 60% of the gas up there. And so -- and these are world-class giant plants, and as the pipelines get built, what you really see is the opportunity on the processing side as the real value enhancer, so that's -- I will say, much as I like the LNG projects in there, they will be wonderful, stable, fee-based generators of cash, which is great for dividends, real value enhancements on the processing side.

Gary F. Hovis - Argus Research Company

One followup if I could, actually, Bill, this is for you. All the rage over the last 12, 18 months has been a sort of pipeline repurposing, right? You guys in El Paso were sort of first to the party with maps and like. And Platte Express was sort of coming into the Spectra family, was there any piece of gas pipe that you saw, I mean in spite all of the increase in utilization that you pointed out on the map, were there any pieces of the puzzle that you think are being underutilized that you said, boy, would this make, even if it's 5 years down the road, a great complementing fit to this oil pipeline, a logistical bridge we want to bring as you touch a lot of places in the Northeast?

William T. Yardley

Good question. I think the best way to answer that is that we're principally full, on every one of our gas lines. So difficult to repurpose most of it. I would say the only pipeline where we struggle to fill it up is probably Ozark, and I'm not sure that's a repurpose fit right now. So I would say that the easy answer to your question is no.

Gregory L. Ebel

I think the interesting element though is we sure have some pretty valuable right-of-way from Ohio through to New York City. Now that is not why we bought Express-Platte. But we didn't buy the Seaway Pipeline to turn it into sand -- to Southern Hills to get into Texas Express and Front Range, but that's what happened. And so I think there'll be opportunities that'll come in and, people and phoning in to Wayne everyday saying, what can you guys do with right-of-way? What are the other opportunities? I think it's pretty ambitious for us to say we're going to build a pipeline from Wood River to New York City on the oil side. That being said, as you know, and we've seen on the gas side, knitting pieces together has been incredibly valuable. We did try to do that with Tennessee on an NGL line, as you know, down from Ohio, call it down into the Gulf Coast. Now for a variety of reasons, that didn't work, but I think those opportunities are definitely possibilities and something we thought about when we bought this. We didn't pay for any of that, and I think that's an important aspect of that, but we're definitely going to get after that kind of stuff.

Unknown Analyst

Yes, I just had a question on DCP Midstream. In the pie chart at the front of the presentation, it shows DCP EBITDA 50% basis of $580 million, and then in the appendix it shows 90. What is, 1, what's the difference between 2 numbers are, and 2, with the increase in CapEx and decreases in EBITDA in the NGL pricing, I'm just curious what distribution's out of DCP, the parent company would be, going forward.

William T. Yardley

I'm like, that the reconciliation I think, between the 2 numbers is the equity gains.

John Patrick Reddy

I think that's the difference, yes.

William T. Yardley

So what we do in the number that we showed you at start is 100% at the DCP level, and the number that you see further in the back includes equity gains. As we told you, we are using DPM significantly to growth -- our growth overall, and when you do that, and you issue equity at DPM that results into equity gains that are being realized at the Spectra Energy and the Phillips 66 level. So that's the delta between the 2 numbers, and it goes back to -- when people try to realize and try to reconcile, what -- where is all the growth coming from, they're spending $5 billion, $6 billion, $7 billion, and where does all of that show up? And I explained that some of that shows up at the DCP Midstream level. That creates a forward 5% growth at the DCP Midstream level. Some of it, and a lot of our growth is being funded at the DPM level. That's why at the DPM level you see the distribution growth at 6% to 10%. And then the third piece is, the piece that shows up at our owners. So the interest that our owners took into Sand Hills and Southern Hills, that's creating fee-based earnings for our owners, and then while using DPM for drop downs, the equity gains that are going to be realized, those end up at the owners as well. So that kind of built those 3 components together, create a kind of low double-digit type of growth in the overall value chain.

John Patrick Reddy

The equity gains don't go through their income statement, but they do ours.

Gregory L. Ebel

And the growth and distribution's on the outer slide, you're showing distributions of about $475 million this year, and those would grow in proportion to -- that the 4% to 5% net income growth you get as a percentage of net income that's paid out.

Unknown Analyst

As the gas prices continue to weaken or stay where they are, what effect would it have on the fee income, now with the income from your activities with natural gas going down 6 months a year from now?

Gregory L. Ebel

I think there's a -- we assume commodities just stay flat, so but there is in the book an impact for each $0.10 move in natural gas, I think it's $3.5 million to us, on a full year basis, so each $0.10 move. And that really just affects DCP, but for the rest of the business, color us [ph] the 80% of the business that's fee-based, we sign up long-term contracts. So a single year move in natural gas prices is not really a huge driver from that perspective. And in fact, one could argue, and you see it in power, you see it in the conversions from oil to natural gas up here in the Northeast, it drives demand, people like that lower price versus, obviously a high price perspective, and it becomes a demand pull as opposed to supply push. Obviously, if you get $10 natural gas, it becomes a production push or supply push. So it doesn't really have an impact in the short term. Obviously we always look for that balance and our assumption that it is, over the medium term, you probably run gas in the $4, $4.25 type range. Longer time, your kind of $3 to $5 is kind of a nice spot, where I think, particularly with so much gas being produced in liquids-rich area, where producers actually can get a good return, but also the consumers of the natural gas side of things, it adds a really valuable fuel source, and obviously from both an environmental perspective, but from an economic perspective.

Unknown Analyst

[indiscernible] Caesar, TD Asset Management. I see you have [indiscernible] Empress to breakeven, I understand pricing is down, can you give us more color on what's going on there, like, do you hit the volumes, long-term demand, supply?

Gregory L. Ebel

Sure, well maybe, Mark, you can start and I'll...

Mark Fiedorek

Yes, being kind of new to the file on Empress, the new role, and clearly 2012 was a huge challenge for us, coming off of a winner a year ago, record inventories and then the marketplace, where extraction premiums were bid at a kind of all-time pricing. So those 2 things kind of collided negatively for us last year. This year, we targeted 0 budget, and kind of a couple of beliefs. One, we're in the midstream of a maybe an average winter, the record just -- the jury's still out on that here in the next month or 2 on how propane will be consumed in North America. We're still bullish about kind of the export potential and the ramp-up of demand on the international scene for propane here in North America and how that will ripple back into our Empress business. And then further, we've gotten smart on how we operate out there in terms of the plant range. We've got a very large facility that was built for a very high-end capability years ago. Now we've got some flexibility, we think, with the facilities to turn down to lower rates, relative to the market and supply situation. And in the past few weeks, we've actually seen kind of a return to the historical pricing we've seen in the last 4 or 5 years prior to '12 on extraction premiums. So that's boding well in terms of attracting supply to the plant. If we can just kind of hang in there on the propane and see some uplift in the second half of the year, we should probably, optimistically do better than on a flat budget.

Gregory L. Ebel

I think throughout the other thing. I mean that we're looking at all options there. You may get some new players that have bought some assets up there, the fact that they're still over capacity there and can we rationalize on that front as there are different structures, et cetera. And that's an important focus for us this year as well, but as Mark said, one of the important factors is, we don't have some contracts that -- now were written up in the past or deep out in the money and had some -- that were far more advantageous to the counterparty than they were to us, and I think we've shown you that graph, how those run out. Now you do sign up some new contracts, but you'd sign up contracts and the money and as Mark says, we haven't got the extraction premium stereo that was going on there the last few years.

Andrew Gundlach

Andrew Gundlach, Arnhold and S. Bleichroeder. Some quick questions on DCP and then one as a follow-up to Becca's question. I heard you say that 70% of the volumes on the 2 big pipes are your, in effect, equity volumes, right? And I assume that underpins the trading at the DPM level of these NGLs and tradings on the fair world where it gets more marketing. But when you drop down these assets and MLP investors, basically going to be counting on that pricing on DCP Midstream, is that correct, to underpin the earning power? You're saying that correctly?

Gregory L. Ebel

No, we've got -- the pipelines have their own -- so there's a fee-based structure, so when we look at the return, think about Spectra, or third [ph], or 66 or even how Wouter looks at, it looks like you've got the fee-based structure that produces an earnings stream that's stable. The uplift that we get, that you're talking about from the marketing is really by moving those barrels from mid-con down to Belvieu, and that's a separate stream that we don't count in how we're looking at the project. Now, if you look at the overall project when it was approved, obviously you saw the fee element, underwritten by it, but also you saw the uptick. So DPM folks aren't going to be or Spectra Energy partner folks aren't going to be exposed to that change in commodity prices to those assets as they're structured for the MLPs.

Andrew Gundlach

That I understand, but they will have 70% of their revenues coming from DCP marketing. If I understood you correctly, the pipeline's, 70% of the transportation capacity is reserved for DCP itself?

William T. Esrey

What we've -- I mentioned 50% to 70%, it's going at roughly to -- between the pipes and between different pipe areas is owned and controlled barrels by DCP, which means that some of those are barrels that we completely own, and some of those are barrels that we control, but that our producers take in kind at an endpoint. So the 50% to 70%, basically what it does, it underpins, kind of, the fee structure and the fee base for these pipelines, and that's how things work and like we are not -- there's other people in this industry that make their money from kind of spreads between different areas. That's not how we set these pipelines up. These are open access pipelines, and we are getting paid and in the future, Spectra Energy, Phillips 66, everybody gets paid based upon a transportation fee on those pipelines.

Andrew Gundlach

Understood, it makes sense. And I assume that when you do your drop-down strategy, you either want to get cash and not -- or share, is that also fair?

Gregory L. Ebel

Well we look at that at the time. I think that's typically the way we've done things, but, we'll see if the situation at that time, I mean, that's a whole discussion about, you want your cash flows directly, or do you want MLP/GP units, and I think that's a separate discussion at the time, maybe different from 1 drop to another.

Andrew Gundlach

Right, so that also makes sense. So I guess one of the things that I'd -- question is DPM is crucial to your drop-down strategy as you said, and you in effect, by the transportation barrels control a lot of, not only the drop-down strategy but also the revenues. I just wonder, when you look at the MLP market, and the decrease in quality of earnings, decrease in coverage ratios, DPM basically should have traded to 6.5% yield, it's too good a company. You've got too many control factors over earnings of that company, and your investment grade credit, which, in itself, is rare in MLP layer, I wonder if you shouldn't really have a broader strategy as you do, as you point out, $500 million of issuance is about the max, where you can promise not only a higher growth rate but also a drop-down strategy where the issuances are always at high prices, it's not always done in the MLP layer, because I think, ultimately, it's in your interest to have less [indiscernible] issue in the MLP market, not more, because these are permanent dividends that are being paid. I'm just curious to why you're holding back on DPM, given what a 4% yield would do for you as opposed to 6.5%?

Gregory L. Ebel

Yes, I don't think we're all in that -- when we talk about to what -- seriously, think about -- we're talk about the $2.3 billion plus we're talking to as SEP, that has got $1 billion of [indiscernible]. Same thing as DPM.

Andrew Gundlach

You should have best yields, not best-in-class yields.

Gregory L. Ebel

What -- I agree, so my view is that the market recognizes now a backlog, or should recognize a backlog of MLP units -- of MLP drops, which we did not have a year ago. That should help the MLP unit price, which obviously means, because people can see a steady flow of several years of drop downs, which should help the unit prices, which means you issue less units, right? I think it's a virtuous circle, but you've got to have that backlog before the market's going to pay you for that.

Andrew Gundlach

Right, but the market's not stupid, they also know that -- the market also knows that there's more issuances, that they don't know that it's always at higher prices, there's always the temptation to wait for the aftermarket, because these are sloppy issuances and the -- for the next deal. I just point that out.

Gregory L. Ebel

Yes, what I mean that's the -- I would say that's the theme with any equity issuer. It's going to have some element of that...

Andrew Gundlach

But your ability to control it with all these factors is substantially higher than any...

Gregory L. Ebel

That's right. And ultimately, I guess, that's it's better if it got so poor with anybody's MLP, you'd hold it at the C Corp. if you're going to get better value there, so. I think you've got issues, do you have the option to do that? If you're 100% MLP, I'm not sure you've got the option to do it. If you've got a combination of C Corp., and the C Corp. GPs, then you get the option to pick the market target.

Andrew Gundlach

I think that's absolutely correct. I was -- so the other question, I was looking -- Becca focused on the pipes, but if you would know a lot about this company and you would just be coming here for the first time today, which I'm not, as you know, but -- and you look at the CapEx schedule over the past 5 years, you see about $5 billion spent through 2011 and about $7 billion -- $7.5 billion through '13. And if you look at the increase in EIBT or EBITDA over that time, 5 years, you would see about $250 million in pipes, about $140 million in the fee-based and in the business, just $390 million, all of your commodity earnings in Canada have gone to 0, so that's a loss of $390 million, basically, right? And so DPM or I would say the field services business is up maybe $300 million over that time, so maybe even more. Do you see -- a total newbie would say $5 billion spent, $300 million of new incremental is not a very good return, and obviously you'd agree with that, you're not known as being a capital undisciplined company, you spend -- your projects tend to be on time and on budget, right? How -- and you've explained some of it was storage and other factors, and obviously some of it's commodities. You have to have expected better than that for your business. I'm curious because that's not your target. So what's -- how come we're not seeing -- so Becca's point was on pipes, my point is on the broader company, how come we're not seeing substantially more earning power out of your projects, which are all underpinned by customers, there's no lack of customer demand, there's no lack of capital discipline, there's no lack of good management, I don't understand what I'm missing, unless my math is wrong.

Gregory L. Ebel

I think what you're missing is there is volatility in the earnings throughout the stream from the commodity side of things. So think of things that -- about Empress, so in 2011, we had record earnings, you're in $1.80 or so, that was not where the Street expected to see. That wasn't the growth path that we had sighted, but we benefited from the commodity side of things. So while you're getting the benefit, and I think we've shown kind of 12% return on capital employed on the projects, we hadn't been putting capital into the commodity-based businesses until recently, but with commodity swings, you're going to see a hit to those earnings on that side. So I think what you see really is that some of the growth that you've got from the pipelines and the projects getting masked by the hits on the commodity side. And that's why you're going to go through a cycle, which is also why I said, typically what you're going to have is, or you might have 60% to 65% dividend payout, you're typically going to be well below that or well above that, and so we try to look to those through commodity cycles, but there's no doubt that creates some volatility in the earnings, so I would agree with you on the disciplined approach to capital. I would agree with you on the returns that we're getting from our projects are actually quite good, but I would also agree some of that gets masked by the volatility from NGLs at this point in time, which is also why, you go out and -- I think the nice thing about the oil pipeline is obviously a steady fee-base with escalators, which we don't get on the gas side of things, and I think most people would agree that the fundamentals around changing flow dynamics in North America are positive for that infrastructure side of things. I think it would also underline that out of the $6 billion or so that Wouter's got lined up or already in flight, call it 30% to 40% of that's fee-based, and you'll see the benefit from that, too. So there's no doubt, look at this, this company has some commodity exposure. We think that leverage is to the upside but you're going to go through some swings in that on occasion.

William T. Yardley

And maybe I can just add a couple of seconds, Andrew, as it relates to DPM. If you look at how we've used DPN over the past years and then how we accelerated the use of the DPM in 2012, it's pretty impressive. And then, looking at '13 and '14, we continue to see a tremendous opportunity for DPM to help fund our growth overall, so. Just want to make sure that we talk about that.

Jeff Healy

Jeff Healy from AIG. Just a question on DCP Mid, in terms of the breakout on the types of revenues on the contract bids and so forth, had you guys obviously in [ph] and it somewhat, I think, ties in while we're kind of talking the whole commodity price weakening. You obviously seem to be shifting more towards a fee-based. Do you have any sort of targets for how much more you want to get in terms of fee-based, I know you guys don't hedge, or whatnot, as sort of another way to kind of damp the volatility in the earnings going forward. Do you have any targets on, for say, for the next couple of years?

William T. Yardley

No, I think what's interesting about that is that in a commodity environment like we currently are, people talk about fee-based and a year ago, 2 years ago, things were -- our POP, our percent of proceeds contracts that we have, have been tremendously, tremendously well for our company and for Spectra Energy and Phillips 66. If you look at historically, the type of returns that DCP has, compared to other people in the industry, our returns are significantly higher than anybody else in the industry, and the percent of proceed contracts that we have are a very significant part of that. If you look currently, we're probably, as a whole, about 40% POP, that is down a little bit from where we were, probably a year ago, 2 years ago, and we really look at how do we align best with our producers. In the end, that's kind of if the producer gets value, then we get value, and we like to be very aligned with the producers. So we see changes in different areas, depending on who we're dealing with, not who we're competing against. But there's probably some areas like the Eagle Ford, some areas in the mid-continent that really start to kind of migrate more towards a fee-based type of environment. So that's on the G&P side is what you're seeing. Then obviously, we're looking at these pipelines, and these pipelines, the NGL pipelines, Sand Hills and Southern Hills, are all going to be fee-based assets, so that increases our fee-based nature of our earnings, and then as we continue to go further down the value chain, I've mentioned things like fractionation, those types of investments would be fee-based as well. So net-net, we're really trying to balance things. We like to be in alignment with our customers and our POP contracts have been very, very beneficial for the returns of our company.

Gregory L. Ebel

I think another way to say it, too is, the G&P business is going to continue to be a POP-type business or commodity exposed business. The NGL pipeline business is a fee-based business, lower-risk, but lower returns and fractionation, you're probably in that boat as well. So it'll be a mix back and forth, but to see it, we'd have a target and I -- I wouldn't say we'd have a target, it's really driven by what do our customers need, and what does the market provide in terms of how producers want to have a risk-reward system as well.

John R. Arensdorf

As usual, great questions. Thanks, again for participating and for being here today, and for your interest in Spectra Energy. And we'll -- I'll remind you that our 2012 earnings are going to be announced on February 5, and we'll have a conference call on that day and so we'll be speaking with you at that point. Thank you.

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