Spectra Energy CEO Speaks About His Company

| About: Spectra Energy (SE)

On June 2, The Wall Street Transcript interviewed Greg Ebel, Chief Financial Officer of Spectra Energy Corp. (NYSE:SE). Key excerpts follow:

TWST: Please begin with a brief historical sketch of Spectra Energy and a picture of the things you are doing at the present time.

Mr. Ebel: We have been around for about 16 months now, but the assets have been around that we operate for anywhere from 70 to 100 years. It's an old company that came together, which spun off from Duke Energy. It's a pipeline, transportation, storage, gas processing and gas distribution business that shifts about 12% of the natural gas consumed in North America. We have got about 265 Bcf of storage, which was one of the largest storage positions in North America.

Additionally, we are one of the largest producers of natural gas liquids in Canada. We are one of the largest producers of natural gas liquids gathering and processing in the United States, through a joint venture with ConocoPhillips and we have the second largest natural gas distribution company in Canada named Union Gas.

I understand that you have accomplished a great deal during the 16 months. Would you tell us about it?

Mr. Ebel: Beyond just setting up as a separate public company — which in itself has its challenges that we successfully overcame — we put in place 13 new projects in 2007 from $650 million worth of projects.

We also launched a capital expansion program that will see us expand our various systems by over $1 billion a year for each of the next three years. And then on top of that, in our first year we had financial results that were up 9% or 10% in excess of what our targets were and where the Street was estimating we would come in. So all in all, it was a very successful first year.

TWST: What are your plans for the next three years?

Mr. Ebel: This year alone, we will bring into service some 13 projects worth $1.5 billion. Those projects will provide approximately $200 million in EBIT — earnings before interest and taxes — and then in both 2009 and 2010, you would see us again invest approximately $1 billion or so in expansion projects, and those projects do everything from move gas throughout the Gulf region from the Mid-Continent region down into Florida, from the Gulf up into the Northeast, and all bringing added supply alternatives to the fastest growing markets, meeting our customer needs.

We will be expanding our operations in Ontario, which is an important hub for gas that moves from the West into the Northeast, and then the expansion of our processing business in Western Canada. Again, some 13 projects this year and another $1 billion a year in each of the next two years that will, by 2011, provide some $500 million in incremental EBIT from where we are today.

TWST: What about possible challenges or problems? What might you worry about?

Mr. Ebel:
One of the things I worry about currently would be the economy, although we are in the near-term largely protected on that front because of the nature of our contracts, our transportation contracts, which are very much firm transportation contracts, if you will, fixed price contracts for capacity. Over the long term, if we were to see a sustained economic decline, that could impact overall gas demand. That would be one of our concerns.

In terms of project costs, there is a lot of work being done in the energy infrastructure business and that puts some risks on our project cost. We've been able to manage that quite well and in fact have made a number of organizational changes to ensure that we are watching those closely and can actually deliver our projects on time and on budget. The other big part of our business that I mentioned earlier is the joint venture with ConocoPhillips, which is the largest natural gas processing and gathering business in the US. That has a direct relationship with oil by producing natural gas liquids that trade very much in correlation with oil. Obviously the oil prices make that business and the process and cash generated from it extremely robust. Obviously high oil prices can have impacts on consumption, so that's one of the things we are watching closely as well.

TWST: What would be the two or three best reasons for the long-term investor to look closely at Spectra?

Mr. Ebel: I think the key reasons are, first and foremost, a home grown stable of expansion projects that give visibility on earnings growth to the better-than-the-pack earnings growth and opportunities they see. Also, solid dividend growth opportunity, sound financial management and overall a relatively safe harbor in what is a somewhat dodgy financial market situation and economic situation we see out there today.