Spectra Energy Partners CEO Hosts Spectra Energy and Spectra Energy Partners Analyst Meeting (Transcript)

| About: Spectra Energy (SEP)

Spectra Energy Partners, LP (NYSE:SEP)

Spectra Energy and Spectra Energy Partners Analyst Meeting

February 5, 2014 08:30 AM ET


Greg Ebel - President and CEO

Bill Yardley - Director

Pat Reddy - CFO

Steve Baker

Duane Rae

Mark Fiedorek

Wouter van Kempen


Brad Olson - Tudor Pickering

John Edwards - Credit Suisse

Faisel Khan - Citigroup

Matthew Atkins - Scotiabank

Greg Ebel

Good morning everybody. Since it’s just about the assigned time, I think we’ll get started here. And first of all my name is Greg Ebel, I am President and CEO of Spectra Energy and Spectra Energy Partners. And I just thank everybody for being here today, I know with the snow out there it could be a challenge getting in here, so I appreciate you making the effort and I would ask you to be safe out there I know the roads will be really slick, the lock ways are really slick, so please be careful from that perspective wherever your travels might take you today. I also would like to thank to people who are on our webcast, we’re webcasting today and those folks who have taken the time to join us by phone or through the Internet.

I am not going to read the safe harbor statement here, but it is in your books and it is on this page and obviously it contains some important information about the comments we’ll make today, so I'd draw that to your attention.

This morning you are going to hear from our business leaders on the opportunities and the priorities that they see in their respective areas for 2014. We’re going to start those presentations with our SEP segments, so you are going to hear from Bill Yardley, who heads up our U.S. transmission segments within SEP which is the largest natural gas infrastructure business serving the North East and with an increasingly large foot print in the Southeast as well. And then you can hear from Duane Rae who leads our new Liquid Segment which is one of the lowest cost providers of crude oil transportation in North America.

And then we’re going to turn to the executives of rest of the Spectra Energy segments that are outside of SEP, Steve Becker who runs Union Gas which is our Ontario distribution company which is the second largest natural gas utility in all of Canada. Then Mark Fiedorek, who leads our Western Canadian business which is the largest gathering and processor of natural gas in Canada. And then finally Wouter van Kempen who heads up DCP Midstream which is I think most of you know, is our joint venture with Phillips 66 and by far the number one gas processor, number one liquids provider in the United States as well as the number three operator of NGL pipelines now after a great year last year building assets.

Pat Reddy, our CFO will then come forward and give you a three year financial plan for both Spectra Energy and Spectra Energy Partners. And then I will return with a few follow up comments and then we’ll open it up for some questions and answers from you. As most of you know Julie Dill is replacing John Arensdorf who announced his intention to retire this year. John really has contributed amazingly to the evolution and success of Spectra Energy and I have worked with John for a better part of a decade and I can tell you I am really going to miss his counsel, and also his friendship, he’s a great colleague. And I would say he does an excellent job of serving you as investors and making sure that CFOs and CEOs of Spectra Energy actually hear what’s on your mind and that we don’t have a tenure to that. So John thank you very much, I am sure everybody will want to congratulate John and wish him well on his way and he’s at the back here today. So if you get a chance, say hello to him.

Yesterday we shared with you our fourth quarter 2013 and year-end results. I think on all accounts it was a strong year for Spectra Energy and for the investors frankly as well. A year although I think that can be summed up by three numbers. First number is $6 billion, and this is the amount of capital we placed into service during 2013, either through the expansions of our existing assets or acquisitions that we undertook, it included really important great projects like the New Jersey New York project which on a cold day like today, it’s helping to bring new gas into New Jersey and to New York City. The acquisition of the Express-Platte system and an interest in both sand hills and Southern hills NGL lines as well as pretty expensive new projects at DCP property.

Second $7 billion which is an important number about the future, because it’s the value of the projects that we secured last year going forward and that $7 billion is going to translate through real value for you and those that you can count on. The projects are underpinned by fee based contracts with quality customers. So projects like the AIM project, the Sabal Trail project into Florida. TEAM 2014 opened in the Gulf market expansion project that we announced in late last year.

Third number I'd point to is $20 billion, and that’s the drop down enterprise value. The enterprise value of Spectra Energy Partners following the drop down which is now I think the premiere fee based MLP by far in the United States. The drop down of substantially all the U.S. remaining transmission and storage and liquid assets closed late last year, and it really creates significant cash flow growth both for Spectra Energy as the general partner for SEP and for Spectra Energy Partners itself which in turn drives enhanced dividend and distribution growth, and you start to see that as we announced just in -- we announced in January our dividend increase for SCP which was $0.12 increase over the previous year which is previously we had announced we’d be in the $0.08 range per year. And of course just yesterday when SEP declared a $0.03 increase in its quarterly unit increase and then to be followed by $0.01 increase per unit quarterly from here on out.

There is probably one other big number that I’d like to speak to as well and that’s the $25 billion in growth projects that we committed to you if you go out there and attack and get by the end of the decade. Between the $6 billion of projects we put into service last year the $7 billion that we secured were more than half way to that number. But I think the reality is that we continue to see even greater opportunities for growth, thanks to the strong oil and gas fundamentals throughout all of North America.

So instead of $25 billion we believe that opportunity set is closer to about $35 billion, particularly given our expansion into the oil sector with Express-Platte system that we picked up as of the end of the first quarter last year. In some cases it’s still too early in terms of sizing those opportunities in other cases as you hear today we’re well advanced along those. And with our natural geography in Canada and the United States, we see this significant growth potential in our natural gas and natural gas liquids business really showing no signs of stopping anywhere in the near medium term.

So ’13 was a year in which we delivered strong financial results fortified and already solid portfolio with new projects and new prospects and enhanced our financial capabilities by creating the premier fee based MLP. All of which directly translated into significant value uplift for investors.

Now as we look forward, let me start by reminding you that there are several hallmarks that I think we’ve tried to [optimize] in the past and you can expect to see from us at Spectra Energy over the long run. We’re obviously going to continue to operate and maximize the value of our exceptional existing portfolio and to ensure that we have that best platform for investors. Thanks to the completion of the $12 billion dropdown into September we now have what we believe is the idea of structure to finance our U.S. transmission and our liquids business growth while at the same time the structure allows us to efficiently take advantage of opportunities at our Canadian businesses as well. Combined this structure provides track of sustainable, capital and dividend appreciation for investors.

Of course we’re always looking and considering ways in which to adjust our structure to ensure that we’ve got the best possible near term and long term value creation opportunities for our investors. And some of you have asked whether we take a portion of the general partner of DCP public in 2014, in that respect and after a good deal of discussion and detailed review with Phillips 66. We jointly determine that that there is no material value benefit for SC or PS6 inventors to do that at this time.

And as such don’t expect to see us make any major structural changes to DCP this year. Although I think you can expect to see us continue the acceleration of dropdowns since DPM which rapidly increases the GP and LP distributions from DCP to both Spectra and Phillips 66 and Pat outlines this in his presentation which you will see here shortly. With our existing multiple investment currencies, Spectra Energy, Spectra Energy Partners and DPM and the solid investment grade balance sheet we enjoy we think we can support in advance the growth objectives we have but also be able to move quickly and decisively to secure new significant opportunities that are out there.

We’ve committed to growing both Spectra Energy’s dividend and SEP’s distributions by 8% to 9%. And we’ll do that at least that much through 2016. As you listen today I hope that you’ll recognize that our past and our current actions along with the external factors that have positioned us really well to create strong momentum and take advantage of future opportunities.

I think we’ve done so with pretty conservative assumptions which again you will see. So when we consistently achieve greater than anticipated results, you can be certain that we’ll look to share those upsides with our investors in the form of increased dividends and distributions. We’re not the only midstream player of course that builds and buys and operates infrastructure but we do all three I think very well.

As evidence by our record of achievement and service to customers our record of project execution is pretty impressive as well. And that’s evident by the successful completion of over 60 projects that we brought into service since we launched in 2007 our returns in that 10% to 12% range. We’ve also been opportunistic and I think pretty disciplined when it comes to making acquisitions that really expand the strategic reach and as well as the portfolio of Spectra Energy so that we can create that value for investors in the near term and long term.

Express-Platte is probably the most recent good example of that. We entered the crude pipeline business at just about the right possible time, gained exceptional assets and a lot of talented personnel. And the results we’re seeing so far exceed our original expectations, and I think the initial expectations of investors as well. In fact in the nine months that we owned the Express-Platte and pipeline system to-date the EBITDA that’s been delivered is equal to what we thought we would achieve in the first full year of our owning it. Customers looking for ways to move crude products, are now contacting us because they like the position of our assets, they like the management team and they like the reputations that Spectra has in terms of delivering. I think that bodes very well for long term investment opportunities. Again you’ll hear from Duane about that more today.

So our reach from the strategic Canadian and U.S. basins to markets like Wood River and ultimately to Mont Belvieu put us I think in an enviable position. So, I think investors can count on attractive reliable returns from a top tier company with that continued significance scale and significant growth opportunities as well. As well as financial flexibility to execute on all the growth opportunities you’re going to see about today and I can have that confidence in that outlook based on our track record and the fact that every one of our businesses is either one, two or three in the markets that they’ve served and that’s an enviable position for a company to have as well.

So, we’re on a strong position fully planned to push hard and take full advantage of that position to accelerate our growth and I think success breeds success and you can expect growth momentum to build from a position of strength and expect you’re going to hear a lot about that from the team today. So, let’s get right to it and I’ll ask Bill Yardley to come up and speak about U.S. transmission and how he plans to accelerate growth forms.

Bill Yardley

Thanks very much Greg and it is great to be with all of you here in New York this morning. What a year for our U.S. transmission business. I’d say we did three exceptional things to drive investor values here. One, we turned our strategic thinking into ideas, we turned those ideas in to contracts and we turned contracts into stealing the ground and on all those fronts it was perhaps the most important year in recent memory.

Our top priority continues to be the safe reliable operation of our pipeline and storage assets. And beyond being just the right thing to do in core to our base business it's critical in maintaining our extraordinary level of contract renewals and key to secure new projects. Speaking about our base business, we once again achieved the combined contract renewal rate of 98% on our Texas Eastern and our [indiscernible] systems. As our customers re-contracted for more than $400 million of annual firm demand revenue on our backbone pipeline systems that connect the Gulf of Mexico with New England.

Now this would be remarkable in any year for any pipeline system but we’ve enjoyed results like this year in and year out for the past two decades through the shifting North American supply and demand patterns, through changing basis and through the fierce competition for business in our space. Our base business continues to be rock solid.

Additionally in 2013, we signed contracts for seven new projects turning good ideas in to real construction activities and now U.S. transmission has $4 billion of such efforts in execution. And perhaps our most notable accomplishment in 2013 is placing into service our New Jersey, New York project the $1.2 billion connection into Northern New Jersey and Manhattan.

It’s of course a highly strategic infrastructure project to bring significant economic and environmental benefits to this region and very nice returns to our investors. This project is perhaps the most important piece of new energy infrastructure completed in the U.S. last year and through this we are into reputation as the industry leader in project execution.

2013 is truly filled with accomplishments with a year in which we reaffirmed the strength of our base business, we delivered on our execution promises and we signed substantial new business. So, what’s next? How are we going to build on that?

The supply of natural gas is growing as we all know and it's shifting and demand is growing everywhere our pipeline system reaches. For example, this past winter season, we’ve seen the highest total delivered quantity for the November through January period ever for [indiscernible] the Texas Eastern market area and East Tennessee gas pipeline.

This supply and demand growth is boosting the value of our base assets and giving us continuing opportunities for new projects. For example, in Appalachia Marcellus and Utica supplies continues to grow at a critical inflection point on the Texas Eastern system. Supply there is 14 billion cubic feet per day purportedly growing to around 20 billion cubic feet per day by 2020. Producers in this region are naturally looking to Texas Eastern to move their gas out to high value markets because of our footprint and our [indiscernible] to the markets that they want to serve. This is resulted in expansions to the east, to the southwest and we’ll soon expand North Ontario.

We’ve placed many projects into service to the east and one more will be completed this year, TEAM 2014 which is you know is designed to move gas both east and south to the Gulf. Now, the Gulf by the way is projecting large increases and demand as well with electric generation needs with L&G exports and increasing exports to Mexico. Texas Eastern was originally designed to flow gas from what was the supply source to Gulf to the demand region in Northeast and we’re still fully contracted to do this. This passes in expenses and offers the ability to pick up supply from any location including Appalachia and deliver it to the Northeast.

Now, the vast majority of these four haul contracts are still held by northeast local distribution companies. They like what it offers and they keep renewing those contracts. Last year’s high level of contract renewals means that our base revenues are secure. Through the end of 2015 and now we enjoy an average contract term of about seven years on Algonquin and Texas Eastern.

Now in order to accommodate both our contracts pass from the Gulf to the north and given Marcellus and Utica producers the ability to move gas from the north back down to the south we’ve got to make our backbone system by-directional. The new projects we’ve signed are designed to do exactly that. Over the past few years we deployed over $2 billion in capital to move Marcellus gas to the east, bringing more than 10% returns. And now we have a suit of projects to move Marcellus and Utica gas to the south. The supply and demand dynamics are keeping our base business strong and providing us new expansion opportunities.

So let’s turn to what we’re going to be executing on this year. At the beginning of 2013 we had the New Jersey New York project, TEAM 2014 and case with under contract and in some phases of execution, and we told you we had our eyes on a few others. Well, New Jersey New York is done, check. We expect our TEAM 2014 certificate this month and with construction in summer we’ll have the $500 million project in service on schedule by November 1st of 2014.

Our TEAM 2014 customer Chevron and EQT are eagerly looking forward to having the ability to move their production both to the east and to the south from the Marcellus. The Kingsport’s FERC certificate is expected within the next three months and will be fully in service on schedule for Eastman Chemical with this $120 million expansion on January 1st of 2015.

And as I mentioned throughout last year we secured contracts for seven additional projects that are now in execution with combined projects Rockies that are exceeding 10%. Let me talk about the three new market pool projects first, so perhaps the highest profile project that we secured was SabalTrail which should be the third pipeline into Florida. We were the winning bidder in Florida Power Lights RFP process and we quickly joined forces with [indiscernible] to get this new pipeline built by 2017.

It’s a 465 mile, $3.2 billion effort of which Spectra Energy should wind up with about half. FPL has been retiring older oil fire generation facilities and this new pipeline will get them access to enough natural gas to fuel new gasified generators, meeting the existing and the growing power needs. Frankly we were honored but not surprised to be selected as our reputation for project execution is now well known.

The Algonquin incremental market project or AIM is a $1 billion effort to increase the west-east capacity of the Algonquin pipeline lie by about 350 million cubic feet per day. The AIM project is 100% subscribed by virtually all the major local distribution companies in New England. This is a significant expansion for this area. As you may know, New England City Gate prices are typically the highest in North America, trading a significant premium even to New York City.

The AIM project will increase capacity through Algonquin’s traditional constraint point by almost 30% and will be a great first step towards softening City Gate prices in New England. Another key last mile effort in New England is our lateral in Salem, Massachusetts for footprint power. As they look to replace a soon to be retired coal-fired electric generator with a much needed natural gas plant. This is a $60 million investment for us.

Now these next four projects all involve moving gas south on Texas Eastern open, Union Town to Gas City or U2GC for short. Gulf Markets and Team South combined for 1.6 billion cubic feet per day of north to south contracts on Texas Eastern and when complete will make the system nearly 100% by-directional between Ohio and Louisiana. This north to south contracting is a wonderful display of the market marrying the most prolific supply region with the most promising demand area.

The contracts have been signed by a combination of producers in the Marcellus and the Utica and LNG exporters in the Gulf. So one-by-one open is a $500 million 550 million cubic feet per day project for Chesapeake and other Appalachian producers. We're going to build a 70 mile Greenfield land through the backbone of the Utica and Eastern Ohio and deliver Utica gas as far south as Louisiana. Union Town to Gas City is a short haul path for producers out of the Marcellus, west to the Ohio, Indiana area for 425 million cubic feet per day, [range, consult] these three sources, EQT and Rice Energy are all putting their faith in us to complete this $60 million effort to get their gas to Midwest markets.

Gulf Markets is a 500 million cubic feet per day project for two Marcellus producers, EQT and Range and from Mitsubishi, Mitsui and [indiscernible] participants in chem and LNG.

In our latest effort the Team South project we completed an open season in December of 2013 alone, the project is now fully subscribed, that’s 300 million cubic feet per day from the Marcellus to the Gulf and we’ll be in service later this year. CONSOL Energy and Rice Energy contracted for terms exceeding 20 years at our maximum tariff rate.

We actually received bids on this project by the way of 1.2 billion cubic feet per day in the open season, four times the capacity of this project. And I would say that’s an extremely good sign for further development along this path. So nine projects in execution, representing $4 billion in new investments, this is going to add $450 million in annual EBITDA by 2017 increasing to 550 million annually as the Sabal Trail contracts ramp up.

So the dynamics that led to a terrific 2013 are still in play and we have identified $7 billion in new opportunities. And we’re confident that by the end of the year we’ll have signed $3 billion of these from mid to end of decade in service. So first we will sign contracts for the Nexus project, which will bring supply diversity to Eastern Canada by delivering Utica and Marcellus supply. Nexus is a partnership between Spectra Energy, Enbridge and DTE.

Change in supply dynamics suggested that Ontario distribution companies pursue more supply diversity and the Utica and Marcellus are right on Ontario’s back door. This project is expected to be 50% market pull from Eastern Canadian and Midwest LDCs, with the remaining capacity to be subscribed by Appalachian producers. We have made excellent progress on the LDC contracts and expect to announce those very soon with producer commitments following shortly thereafter.

Second, with our AIM project underway significant capacity is coming to the New England stage by the end of 2016, super. But that’s clearly not enough. There is a need for even more capacity in 2017 and beyond for distribution companies and the electric generation sector. All the distribution companies in this area and New England are experiencing backlogs of customers that want to convert from higher priced oil and propane to natural gas. And of course New England's been increasing its reliance on gas fired generation but today the market rules haven’t created incentives for the generators to sign up for firm transportation. And we think there is going to be a solution to that fairly shortly.

Our [indiscernible] and Maritimes in Northeast pipelines are perfectly positioned to meet this region’s needs and today we’re very pleased to announce the Atlantic Bridge project. We've executed an agreement with Unitel to participate as an agro shipper around this project. Unitel is a natural gas distribution company which serves -- it serves parts of New Hampshire and Massachusetts but it's the largest distribution company. We have just commenced an open season and we expect a good deal more interest. Now this project will increase [indiscernible] capacity by 100 to 600 million cubic feet per day over and above AIM, and can be placed into services early as 2017. We’re well positioned to also serving volumes in 2018 and beyond with more [indiscernible] Maritime expansion or a new Greenfield line and those plans will materialize shortly. We were the first to market in 2016 with AIM and we’ll be the first again in 2017 and 2018.

Moving to the Gulf; we have been in contact with the majority of the LNG export participants signing Mitsubishi and Mitsui LNG which is the first LNG related transaction and we’re in active discussions with the others. Also in the Gulf, market dynamics have pointed need for more pipeline infrastructure for electric generators. And exports to Mexico are taxing existing capacity to the border as Mexico’s demand continues to rise and if supply declines. So looks for us to be very active in these Gulf markets.

Lastly in the Midwest, Southeast and Mid-Atlantic look Spectra Energy to be involved in significant build outs there as well as cold weather this winter has really confirmed the need for new capacity for electric generators in these regions as well. So generators in the Mid-Atlantic have already been considering diversifying their supply and gaining better access to the Marcellus and our Marcellus producers are looking to further leverage their position on Texas Eastern to serve those markets, a nice marriage, we will provide a solution to the Mid-Atlantic power needs.

So that just brings me to wrap up with our priorities for 2014 first. To build on the 2013 successes by pursuing $7 billion of opportunities and closing on 3 billion of new projects by the end of the year at 10% Rockies or better.

Second, to execute on our existing projects putting June 2014, Kingsport into service and continuing with the execution of all projects so that we deliver attractive returns to our investors on schedule.

And third to maintain the strength of our base business again, renewing all of our transmission revenues through 2016. Beyond this we’ll further develop new ideas to have more projects in the queue for 2020. We’re in the midst of a tremendous build out of the best collection of pipeline assets in the United States. We're looking forward to delivering on these promises in 2014.

And with that I will turn it over to Duane Rae who will fill you in our Liquids business.

Duane Rae

Thank you Bill. Liquids transportation is a relatively new business for us. It's one that we’re pretty excited about. 2013 marked our entrance into this business with the acquisition of the Express-Platte system and the commissioning of the Sand Hills and Southern Hills NGL pipelines. We not only experienced early success in the business this past year, we established a platform for future growth in the sector.

Our initial 4A into the liquids business in 2013 really couldn’t have gone any better; we acquired the Express-Platte system in March and have now successfully transitioned it to full Spectra Energy operations. We had a successful open season this past year on the Express system selling out all available capacity and securing increased cash flow under long term contracts.

Our crude oil pipelines are operating at or near capacity and the financial performances is exceeding our expectations. Sand Hills, Southern Hills, and NGL lines were placed in service last summer ahead of schedule and under budget. We are pleased to report that both the crude and NGL systems have been operating safely and reliably from the beginning. Finally, the businesses as we enter into this year have proven to be a solid platform for future growth as we are actively pursuing multiple opportunities in the liquid sector.

Before we talk about our performance and our opportunities, I would like to remind you what our current liquids assets are. The Express-Platte crude oil pipeline system is one of only three major systems delivering Canadian crude oil into the US. The Express-Platte system consists of two distinct pipelines; the Express pipeline and the Platte pipeline. The Express pipeline standing from Hardesty Alberta to Casco Wyoming is the largest pipeline bringing Canadian crude oil both light and heavy into the Rocky Mountain States to feed local refineries and to connect the infrastructure further downstream that feeds other markets.

Platte pipeline is the largest pipeline from the Rockies to the Midwest taking some of the Canadian crude along with both Bakken oil and local Rockies production eastward to Midwestern markets. The newly constructed Sand Hills and Southern Hills pipelines bring NGLs from the Eagle Ford Permian area and the midcontinent producing area respectively down to the Gulf Coast. SEP owns a one third interest in these systems while DCP owns a third and Phillips 66 owns the remaining third. As DCP operates these assets, I will let Wouter address the prospects for these NGL lines in his presentation.

To maximize revenue from the Express-Platte system we are focusing on ensuring that we flow as much volume as possible on all pipeline segments. To enable that, we are connecting to rail and barge terminals wherever possible. Now while rail and barge raft seen as competitors to pipeline, we see them as enablers for our business allowing our pipeline to serve the refinery customers far beyond the end of the pipe. We are also focused on expanding our storage and terminal operations across the system. The expansion of terminal at Buffalo Montana is nearing completion and we are currently evaluating a handful of other terminal opportunities on our system.

We are seeing increased demand for Express service from Rocky Mountain area refineries, but we also see a bigger uplift -- we will see a bigger uplift this summer when a third-party rail terminal currently under construction is placed into service. We had a very successful open season last summer when our traditional on system refinery customers combined with rail terminal users, that is major refiners from outside the region to bid on all available capacity on Express.

With that open season we almost doubled our contracted capacity and increased our average contracted term from about 18 months to more than 11 years. With these firm take or pay contracts we’re replacing older contracts which had tolls that were heavily discounted uncommitted rates with new contracts of much higher rates. We are also very confident of continued steady revenues in the Platte system. Demand for service on the Platte pipeline is far in excess of physical capacity and on a monthly basis pipeline nominations are roughly three times the capacity.

With more throughput, more committed capacity and higher tolls we are experiencing a significant increase in EBITDA from the Express-Platte system. A 19% three year compounded annual growth in EBITDA will be achieved with minimal capital investment and with a reduced risk profile as revenues increasingly derived from committed take or pay contracts. Furthermore the volumes contracted and flowing on Sand Hills and Southern Hills are ramping up considerably.

Taken together the liquid segment EBITDA will more than double by 2016 representing a 32% compounded annual growth rate over the three-year period? This incremental $170 million of EBITDA is largely secured by long-term contracts on both the crude oil and NGL pipelines and requires little in the way of incremental capital.

Spectra Energy has entered the crude oil transportation business at an opportune time. Unconventional oil production in the form of oil sand and shale oil is ramping up and these resources are located in areas that are ill-served by existing infrastructure. As the North American transportation grid is not properly plunged to get these new sources of crude oil to where it’s needed, market dynamics have been turned inside out and upside down.

The pricing dislocation between various locations in North America is both a symptom and a driver of these market dynamics. The map here shows average 2013 spot prices for various crudes around North America. We can see that on average a barrel of heavy oil was worth more than $20 more on the Gulf Coast or the West Coast than a similar barrel of heavy oil in Alberta. A barrel of light sweet crude was worth about $15 more on the East Coast or Gulf Coast and was in North Dakota, and these are averages for the year. At times during 2013 spreads were much, much wider.

These spreads obviously mean that there is a significant arbitrage available for those who can move oil from supply areas to market whether by pipeline, rail, barge or some combination thereof. On this chart the blue arrows indicate increasing flows by pipe, rail or water. The red indicates decreasing flows. We will witness a continued increase in the flow of crude oil from oil sands, shale oil producing areas to major refining markets along with decreasing water borne imports from overseas. And in some cases, the predominant flows within the continent are being reversed. This change in market dynamics has been dramatic and these continuing changes are leading to opportunities for owners and developers of crude oil infrastructure.

Spectra Energy entered the liquids transportation business in the belief that it would serve as a spring board for a much greater opportunities, we have not been disappointed. Potential customers and partners have approached us with myriad opportunities and we’ve identified over $10 billion of potential capital investments in the liquids transportation and storage business.

These are long term opportunities that span the continent from supply basins to refinery markets and they extend and accelerate our double-digit EBITDA growth trajectory. With our partner [indiscernible] Energy Solutions, we’re proposing to build the synergy pipeline, a new pipeline to further link growing oil sands production to the Edmonton hub. Preliminary engineering is complete and we’re in discussions with multiple oil sands producers.

A bigger project we have on the drawing boards entails the twinning of the entire Express-Platte system from Alberta to Illinois to bring growing oil sand supply to the Midwest and beyond. Similar to the synergy project, we have completed preliminary engineering and the project looks compelling. We’re currently in discussions with several large U.S. refiners. Smaller but equally attractive project is the Inland California Express, which we’re exploring in partnership with Questar Corporation.

The project includes a new rail terminal in Southern California, together with the reactivation of an existing pipeline into the Los Angeles Long Beach refining complex. Early discussions with potential refinery customers indicate that this maybe a cost effective alternative to supply these refiners with low cost North American crude. Thus further evaluating expansions to the Express-Platte system itself and we believe that opportunities exist for the expansion of both the pipe and associated terminals. And as well as we have noted on multiple occasions the Sand Hills and Southern Hills NGL lines were designed to be easily expandable. We have every intention of doing so in the coming years as throughout increases.

Our liquids businesses has really exceeded all expectations on all fronts in the brief time it’s been in operation. Express-Platte volumes and cash flow will continue to ramp up as we provide access to low cost Canadian and Bakken crude for our refinery customers, with transportation costs that are favorable to all available alternatives. Volumes on Southern Hills and Sand Hills are ramping up and these assets will deliver material EBITDA this year and into the future, as increasing NGL supply flows to the Gulf Coast.

We’re pursuing opportunities to expand our pipeline, in terminals across the system as we continued to optimize our business. And finally we expect to make significant progress this year on the next step of developing this business as a major platform for Spectra Energy’s growth. We have integrated and optimized this new business line and now it’s time for step out growth to capitalize on the significant opportunities available to us.

On our major growth projects we anticipate and in the latter half of this year we’ll obtain shipper support to advance the binding commitments in late 2014 or early 2015. These are long term initiatives that will start adding significantly to our cash flow in the second half of this decade.

We have been tremendously successful in the short time that we have been engaged in the liquids transportation business. However this is just the beginning. Our current asset base is a launching pad for future growth in this dynamic sector. I’m sure you can understand our excitement driving forward this new business. And now I’ll hand it off to Steve Baker, who will discuss our plans for Union Gas.

Steve Baker

Thanks, Duane, and good morning, everyone. On the distribution side of the business, 2013 was an extremely busy year on the regulatory front. We received Ontario Energy Board approval of a new five-year incentive rate framework, it was a product that will form comprehensive settlement will all of our customers and stakeholders. In addition, Union Gas along with the other two major local distribution companies LDC and Eastern Canada negotiated a long term tolling settlement with TransCanada pipeline. This settlement provides long term tolls during these large customers in Eastern Canada but more importantly that provides a commercial and regulatory framework to support building new infrastructure in Ontario, this is specific Union Gas a major expansion in 2014 of Dawn-Parkway transmission system.

And we’ve made significant progress moving this 2015 expansion through the regulatory process and remain on target to deliver and construct these new facilities and put them into service in the fourth quarter of 2015. Then we have for more than 100 years we’ve continued to operate our system safely and reliably and recently that included operating our system in one of the most extreme weathers -- winters and weather conditions that we’ve seen in many, many years. The new five-year regulatory framework as negotiated with our customers and stakeholders was approved by our regulator, the Ontario Energy Board, in the fourth quarter of last year. This incentive rate framework is based on our current approved regulated capital structure of 64% debt and 36% equity and an approved return on equity of 9%.

And well similar in summary specs to prior five-year incentive rate framework, our new approach has some very attractive features that benefit both the company and our customers. First, we have an earning sharing mechanism that rewards productivity but providing the company an opportunity to earn 150 basis points above or allowed return on equity each and every year. Second, the framework provides for predetermined rate adjustments to recover the cost related to major capital asset expansion that are placed into service during the five-year term of the deal. And third, our rates will increase every year at an amount equal to 40% of inflation. Overall, the new incentive rates framework maintains our earnings stability for providing a platform to support capital and earnings upside through 2018.

From a microenvironment perspective Union Gas and the broader Ontario and Eastern Canadian market continues adjust for the natural gas supply and flow changes that continue to be experienced as a result of significant shale gas development all across North America. Ontario itself has seen a reduction in net gas volumes from Western Canada to supply the Eastern Canadian market over the last number of years. And this reduction is in the range of approximately 3 billion cubic feet a day, and a result, supplies from the Marcellus and Utica shale place are very much needed by Ontario to offset the supply decline.

These new supplies from the Marcellus and Utica shale can move into Ontario at two primary locations. The first option is through Niagara Falls and there is some gas moving in Ontario today on existing pipeline infrastructure at the Canada-U.S. border, which delivers gas into Ontario. This supply then connects to the Union Gas transmission system where that gas can then access the Dawn supply hub to the west or consuming markets in east. The second option is around the western side of Lake Gerry through Ohio and Michigan and into Ontario and to the Union Gas Dawn Hub. You’ve heard Bill Yardley speak about the NEXUS pipeline project which is a project to build a new pipeline to move Marcellus and Utica supplies into the Michigan and Ontario markets, and this pipeline would again connect these new supplies directly to Union’s Dawn Hub.

As I hope you can see the Union Gas Dawn Hub and Union’s transmission system will play a very significant role in both attracting and moving these new supplies the Eastern Canada and US consuming markets. With these changes in supply and flow patterns, we’re continuing to see robust customer demand for new supplies at the Dawn Hub supply point, which is in turn creating demand and customer support for new infrastructure growth on our transmission system. As I mentioned at the outset, we’re in a process of executing a significant 2015 compression and pipeline expansion of our Dawn to Parkway transmission system to support our customers’ desire to contract for more supply at the Dawn Hub and to move these new supplies east on our transmission system to downstream eastern markets.

Looking beyond 2015, we’ve commenced a new capacity open season in the fourth quarter of last year for additional capacity on our transmission system for 2016 and 2017 contract years. That open season closed on January 22 and we received significant customer interest for new capacity.

And while we still need to review and assess this open season bids we could see additional capital expansion growth of up to $500 million for the construction of new facilities over the 2016-2017 timeframe. And the CapEx associated with all these expansions will flow through to rates and be recovered under a new incentive rate framework once the necessary facilities are reviewed and approved by the Ontario Energy Board. The expansions that I just mentioned are amongst the largest in the history of the company and we are extremely excited about the prospects that we see in front of us.

In addition of the large transmission growth and expansion we continue to see retail and industrial customer growth. We consistently add about 20,000 new residential customers per year across our strong franchise area and in addition as Ontario continues to change its fuel mix for power generation we continue to believe there are opportunities for additional power generation in Ontario.

Finally we are seeing and pursuing new emerging opportunities related to compressed natural gas and liquefied natural gas in the transportation and mining sectors. These sectors want to take advantage of the price and environmental benefit that natural gas offers relative to gasoline, diesel and electricity. This presents some exciting new opportunities for us that we believe that help grow our unregulated earnings and business.

Further there continues to be growing interest in combined heat and power applications for certain selected business sectors in geographic areas in Ontario that offer further growth opportunities. So we’re definitely seeing new emerging growth on the horizon again driven by the strong fundamentals of natural gas. And altogether this capital growth drives approximately $100 million dollars in EBITDA by 2018.

As we look forward to 2014 we will continue to build lot of strength and stability on our base assets. We are focused on meeting and executing the milestones related to our 2015 Dawn to Parkway transmission expansion. In our NAT note I’m pleased to report that late last week we received a positive decision from the Ontario Energy Board approving or 2015 Dawn to Parkway expansion project, so very positive news to start the year.

Further we will advance our 2016-2017 transmission expansion based on our recent open season results and we will be filing a facilities application with the Ontario energy board for approval of these additional facilities to meet these markets is later this year. In summary the Union Gas distribution business continues to deliver stable and secure earnings combined with growth opportunities to respond to Ontario’s and our customers need for access to new supplies and supply diversity within a rapidly changing North American marketplace.

And with that let me turn things over to Mark Fiedorek to cover our Western Canadian business.

Mark Fiedorek

Well thanks very much Steve and good morning everybody. It’s been another busy year in our Western Canadian businesses and we have high expectations for our future. Let me first take you to our 2013 highlights.

Over the past 57 years we have established ourselves as the number one natural gas infrastructure service provider in North-east British Columbia by maintaining the safe and reliable services our customers have become accustomed to. As promised to our investors in 2013 we conducted a review of our Empress business and its value proposition to Spectra Energy. As a result of this review we determined that these assets could produce a stable lower-risk return to a revamped business model. This new model plus strong fundamentals in the market delivered strong positive earnings for Western Canada in 2013.

In addition we completed our Fort Nelson expansion program by physically placing the Fort Nelson North processing plant into service as well as completing the second phase of our Dawson expansion. These two new plants added 350 million cubic feet per day of incremental gas processing capacity to our portfolio. I’m pleased to report that we continue to advance our West Coast connector gas transmission project. This is our LNG pipeline project with BG Group. Today we have completed extensive public consultations and an environmental assessment and are well on our way to obtaining major environmental permits for the projects by the end of 2014.

Let’s take a quick look at our three businesses in Western Canada. First our gathering and processing business, which is the largest of its kind in Canada. In this business we provide gathering and processing strictly on a fee-for-service basis. Over 90% of our revenues comes from take or pay contracts. With all of our newly expanded facilities now fully in service we expect our earnings from the base business will provide consistent growth over the foreseeable future.

Next is our pipeline business, which is the backbone of the BC natural gas industry. Our pipeline serves most of British Columbia, more than half of the U.S. Pacific Northwest and his connections into Alberta and beyond. This system is well-positioned as the header system to serve proposed LNG export terminals on both the West Coast of Canada and in the U.S. This is a flow-through cost-to-service business that provides solid returns at relatively low risk. We are in the process of finalizing a negotiated toll settlement with our customers and expect to announce the details in the next few weeks.

Last is our NGL business centered on our Straddle plant at Empress? This is a business based on strong fundamentals and run by a team with vast expertise in NGL logistics and marketing. We earn a margin by extracting and selling NGLs using our proprietary liquids pipeline system, a 4 million barrel underground storage complex and a fleet of more than 500 tank cars. Beginning in 2014, in our efforts to minimize the volatility and cash flows at Empress, we initiated a risk management program which allows us to deliver stable ongoing annual EBITDA earnings from this business in the $40 million to $80 million range.

I would like also to point out that the financial results of the Maritimes and the Northeast Canadian assets will now be included as part of the Western Canada’s earnings. Operationally and strategically these assets along with the Maritimes in Northeast U.S. assets will continue to be managed Bill Yardley’s team.

We already know that Western Canadian shale resource basins are some of the largest in North America and in the world. Confirming this point are the results of a recent joint study from the National Energy Board and the British Columbia oil and gas commission which estimated that the Northeast British Columbia’s Montney potential alone is almost 2,000 trillion cubic feet of original gas and play and based on today’s extraction technology over 270 trillion cubic feet of marketable reserves.

These reserves alone will be able to supply up to eight BCF of market demand, which could be the equivalent of four large scale LNG export facilities. As a reference the Marcellus basin has been estimated to have 140 trillion cubic feet of marketable reserves. The results of this study highlight the fact that producers are developing the Montney resource in Northeast BC instead of many less economic conventional reserves found in Alberta.

In the near term additional gathering, processing, NGL and pipeline capacity will be required to support development of these mega shale resources and to deliver gas to support the current markets. We believe our integrated network of gas gathering and processing assets located on top of these unconventional basins and our high reliability give producers an attractive value proposition that will result in near to mid-term growth potential in our various lines of businesses.

It is no secret to the size, scale and economics of these resources in Western Canada have attracted significant investments to date from many multi-national E&P companies. These companies are active in developing these resources with the objective to export LNG from the West Coast to British Columbia.

This market development presents the most promising and largest opportunity for Spectra Energy’s Western Canadian businesses. These multi-national players are in various stages of development and regardless of which projects go ahead significant E&P development in the coming years will require traditional gathering, processing NGL and transmission services that are Spectra Energy’s bread and butter. When one of these projects goes the midstream potential opportunities alone could top $6 billion by the end of the decade. We anticipate producers will actually develop their acreage positions in the coming years prior to LNG being placed into service.

As producers prove out these reserves Spectra Energy is well situated to utilize its existing footprint to bring the most cost effective and timely solutions to the marketplace. We currently have about 60% of the GMP market in BC and we will win more than our fair share of these new opportunities.

I am pleased to report today that Spectra Energy’s partnership with BG Group to build a Greenfield pipeline from the Northeast BC into Prince Rupert is making significant progress towards obtaining the necessary regulatory approvals for the West Coast connector gas pipeline. By year end we anticipate we will reach a major project milestone by receiving our environmental certificate from the British Columbia Environmental Assessment Office.

Spectra Energy is in the best position to provide gas processing and pipeline transportation to existing as well as future export markets for the growing gas supply here in Northeast BC. As we look forward we’re excited about the advance development that is occurring with our gathering and processing business and our team's focus on LNG infrastructure.

We anticipate bringing to execution up to $2 billion worth of projects in the next few years as well as new GMP and large scale pipelines to the tune of additional $6 billion throughout the decade.

Before I conclude my remarks today, I thought it would be important to leave with you the 2014 priorities of Spectra Energy’s Western Canadian team. We will continue our history of focusing on operational excellence and are in a strong position contractually and operationally to provide consistent growth to our base business. We will fully implement our risk management program at Empress with the objective of capturing good margins and de-risking our commodity price exposure. We will place into service our North Montney project in the second quarter of 2014. This project will bring an additional 210 million cubic feet per day of gas processing to serve our customers' needs in the prolific Montney play.

As mentioned we will continue to advance our LNG pipeline project with BG Group and you should expect to see significant permit approvals for these projects by the end of 2014. And lastly and in many ways most excitingly for Spectra Energy we will actively pursue and capture large scale infrastructure opportunities in British Columbia. The continued development of the unconventional supply resource in Northeast BC to support growing North American markets and the new LNG export facilities will require Spectra Energy’s expertise and skills. We will leverage our footprint, our customer focus, our stakeholder relationships and our project execution skills to capture these large scale investment opportunities that will drive Spectra Energy’s growth throughout the decade.

Now with this, let me turn it over to Wouter for our discussions about our DCP business.

Wouter van Kempen

Great, thank you, Mark, and thanks everybody. Good morning. Really excited to be here today to talk with about the DCP Enterprise about fundamentals that we’re executing on and the value that we’re creating for our owners and our investors. Our story is a story that’s formed with from being premier operator of midstream assets with a disciplined growth strategy and us having a terrific footprint. Let me start by reminding of you some of our 2013 accomplishments that underpinned our own ongoing strategy. We just came off a tremendous year of execution, a year that saw us late claim two prestigious industry rankings of the number one gas processor, the number one natural gas liquids producer, and the third largest NGL pipeline operator in North America.

We now are a fully integrated midstream service provider and with Sand Hills and Southern Hills, Texas Express and Front Range pipelines all in service, we’ve optimized our footprint to offers premier services to our customers from the Rawhide to the market centers. We have project execution down to a science and to put that into perspective for you, we put over $3 billion of project and service in 2013 alone, that’s about 8% of the total MLP capital spend in the entire industry. And the vast majority of our projects have come service ahead schedule and below budget. We also believe it’s very important to manage the things that we can control. So with that in mind, we held cost flat in 2013 while we grew both DCP Midstream and DCP Midstream partners.

And we did all of this while continuing to be industry leading in our safety performance and were being focused on being a premier operator, getting it right every single day. We believe this is a business where size and skill matters and at DCP Midstream we’ve got it in spades. DCP Midstream is internal for growth through country’s energy needs we process about 12% of the notation’s gas supply through each of our 64 different plants, and on a side note I’ll share something with you that was even a little surprising to me and it didn’t occur to me right away. When you look at the industry spread, DCP Midstream partners in its own right is well anchored in the top 10 processors and NGL producers in the nation that’s shows you how much we have grown DPM in the past three years.

And looking at our map, the majority of gathering and processing assets are very well situated in most of the major liquid rich and oil driven shale place in many of those key basins we’re the larger GMP Company and it’s our plan to maintain our leadership position. The potential ramp of our footprint is tremendous. With our marketing and logistics strength were I’m looking additional organic opportunities. For example you just saw that we announced that we will be adding another plant in the growing and prolific DJ basin increasing our number of plants in that area to 9 and our total DJ capacity to over 800 million cubic feet per day. We just started up our 200 million a day Goliad plant in Eagle Ford which nice start of an integrated system providing about 1.2 bcf a day of capacity and was already committed long lead time capital to develop a new 200 million a day plant in the Permian Basin that will integrate our systems and deliver barrels into Sand Hills pipelines.

Our geographically integrated system of plants and pipelines gives us competitive advantages like no other, not only are we’re into key basins we’re into prime areas of those key basins, and our projects are underpinned with long term contracts, strong production profiles from large and reliable customers. We are in an enviable leading position which enables us continued strong pipeline of growth opportunities for the foreseeable future. So let’s talk about the progress that we’ve made here over the last couple of years.

In 2010, we laid out our aspirational five-year plan and as we stand entering the 2014 we’re already on the five-year plan but we’ll touchdown in the five. We’re now looking out 2016 and we’re feeling a satisfaction that we’ll have checked off three of the five aspirations by the end of this year by growing our NGL production, our miles with NGL pipeline infrastructure and our processing volumes, and I feel very-very comfortable that we have to playbook to achieve the rest of goals and much-much more by 2016.

We already are fully integrated midstream company and we’re extending ourselves further down the value chain, Sand Hills, Southern Hills, Texas Express, pipelines are already a reality [indiscernible] pipeline just get into service this week and we’re continuing to integrate our assets to build systems that gives us a competitive advantage at a more logistic laterals and extensions in Sand Hills and Southern Hills. The Eagle Plant, the O’Connor Plant, the Rawhide Plants all came online last year. And as I’ve mentioned over the past days the Goliad plant and the O’Connor expansions have also started up.

So with the projects that we have under construction and on the drawing broads, we expect to execute on about $4 billion to $6 billion of capital expansions through 2016. All said, we have a very robust pipeline of opportunities around our footprint. And we can say that really confidently because we have such a strong record of project execution. So picture a magnitude of this, we put into service one bcf of new capacity in the past two years alone and that capacity is almost 85% utilized as I stand here today. And that additional capacity by itself dwarfs the total size of many companies in our space, and that is just the last 24 months for DCP Midstream.

We had a little bit of a different approach than other companies in how we tell our story. Beyond issued press releases and fantasies, we are a company that executes, a company that delivers. And then when we tell you when all is said and done that we got to job done. We look at what our customers are and partner with them to ensure that our growth plans are aligned so that we can create a long term win-win for both our customers and for DCP. And we do all this while continuing to operate the day-to-day really well focusing on what we call operational excellence and delivering value for our customers, our owners and our unit holders.

So let me spend a little bit time on our underlying industry fundamentals, including our commodity outlook and our 2014 price assumptions. First of all, long term fundamentals for this industry remained very-very attractive. The DCP enterprise has been around for 80 years in many different ways, shapes and forms, and we continue to manage this business for the long run. And commodity prices always fluctuate. But as we’ve proven throughout the various cycles, we continue to successfully execute on our long term strategy. So let’s go into the NGL pricing.

On the top right of this slide you see our commodity price assumption for 2014 and the NGL assumption is an area where I want to spend a little bit more time with you. Our NGL barrel composition has transitioned over time. Before Sand Hills and Southern Hills came online, our NGL composition was about 50 Conway, 50 Belgium. And that had moved to 60 Belvieu, 40 Conway in 2013, and now at about 70,000 of our Mid-Continent barrels flowing on Southern Hills, we expect our composition to be closer to 100% Belvieu barrel in 2014. And this shift allows us to capture more of the long term premium pricing in the Belvieu market and it also changed our NGL barrel pricing in 2014. The biggest driver of the change of our barrel prices however is that in 2014 we have budgeted about 20,000 barrels to 25,000 barrels a day of ethane rejection. So basically what that does it makes our barrel heavier by lowering the overall C2 components.

Great. So, I hear all of you say $0.94 in 2014 but $0.75 realized in 2013, let me go plug that into my different models and that’s going to show me some margin growth. And trust me I wish [indiscernible] simple to run this business. But obviously it isn’t. So to be clear while our barrel profile has changed our margin impact has not. And essentially what happens is we lose margin from ethane rejection because we produce and sell less barrels. The same time by leaving the ethane in the gas stream, we increased our overall gas volumes and recoup the margin we lost from the rejection by increased natural gas sales. So after all the sudden done pretty much is [indiscernible] some gain on margins as it’s shown in the example on the bottom right hand side of the chart. So overall the DCP barrels now [lose] lot more like an industry barrel and that in a little bit will cover our sensitivities.

Now I would like to take a minute to walk through DCPs expected growth over the next three years. I’m going to use three slides to show how the performance of the overall DCP enterprise translates into value for our owners. So let’s start with DCP’s net income and EBITDA. You can see on the price neutral basis at the 100% DCP level we expect to grow EBITDA by 11% and net income by 4% compounded annually from 2013 to 2016. We have been delivering industry leading returns over the past several years and we constantly deliver better than our peers on an average Rocky. Basically we handled downside exposure really well and we outperformed in the high commodity price environments. So let’s step down a little bit further and talk about rest of our growth and our financing strategy.

Since 2010 we’ve been on a journey of very strong growth and execution which is all being self-funded growth. And while we have been funding these growth we generated almost $5 billion of EBITDA since 2010. We made gas distribution since 2010 to our owners well over $2 billion. Since the inception of this venture our owners have made their investment in DCP bag many-many-many times over. So how do we do that?

We use a strategy that we call growth for growth, to describe the synergistic relationship between DCP midstream and the growth at DCP midstream partners. As we grow the enterprise we grow DPM, kind of like riding a tandem bicycle. And since we are self-funded DCP midstream raise its capital through dropping down assets to DPM and in return DPM will fund these drops by issuing equity and debt and delivering the proceeds from those to pay for the drop downs for growth.

Now we have been deliberate in our strategy to pace and balance these drop downs, with about $1 billion of drops in each of the past two years. But given all the growth the proceedings at midstream over the past years and the growth to come I feel very comfortable that will accelerate our drop-downs to DPM in 2014 to a number well above the $1 billion that we have guided to before. And over the next three year period we foresee continued significant growth of midstream requiring drop downs in a potential range of $3 billion to $5 billion. And that could double, more than doubled the size of p.m. once again. And it drives over 30% compounded GP and LP distribution growth from DPM to DCP midstream.

So let me summarize some of this. We are steadily growing midstream earnings and EBITDA. We self-funded the $4 billion to $6 billion capital program via drop downs. We grow DPM, our partnership at a 30% CAGR and we grow our distributions to our owners at 6% CAGR. So let’s take a look at the distribution growth and how that translates into value for our owners.

In 2013, about 25% of the cash distributed from DCP to our owners came from DPM with the remaining cash flows coming from DCP, value kind of somewhere in the 9 to 11 times range. By 2016 we will have grown distributions by well over $115 million with the majority of about 55% of DCP midstream's cash flow to Spectra and Phillips 66 coming from high multiple GP and LP cash flows from DPM distributions. That is nice, stable growing cash flow due to gamble.

I’m just thinking about how to value the DCP enterprise, just apply the favorite market multiples to the GP and LP distributions and DCP would easily be in the $15 to $20 billion enterprise value range. And for Spectra and Phillips this translates into a $4 billion plus value evaluation uplift when you apply these higher multiples from the GP and LP distributions. With a value like that you can see why our growth for growth strategy works. And why DCP have delivered significant and sustainable value to our owners and shareholders and continues to be a great investment.

Let me start to wrap things up. We are just over 30 days into this year, we’re out of the gate fast and I want to leave you with some milestones that we’re committing to for 2014. But let me first talk about some points that are not on the slide, that are part of our standard operating procedures. We now operate safely and responsibly, the essential mark of a leader in the industry. We will control what we can control; cost, improving efficiencies, and investing in our existing infrastructure to keep our assets running reliably.

Now let me go to the specific priorities. All told we expect to place $3 to $4 billion of GNP growth projects and service over the next years and that includes the already amount $200 million a day Goliad plant in the Eagle Ford, the O’Connor expansion of 50 million a day serving the DJ. So I mentioned we already started construction for our new 200 million a day plant in the DJ, Lucerne 2; that we announced earlier this week. And as I mentioned earlier I feel very-very confident that we will soon announce another 200 million a day plant in the Permian to further expand our market leading franchise in that region.

On the marketing and logistics side, a jointly owned Front Range Pipeline just went into service this week. And let’s talk about Sand Hills and Southern Hills which we are targeting to drop down into the partnership this year. At Sand Hills which provides bromine customers with access to Mont Belvieu, we anticipate volumes will be about 145,000 barrels per day by the end of 2014, that’s an increase of about 130% year-over-year. And we are encouraged by the volume build up in Southern Hills, which connects mid-continent producers with access to Mont Belvieu. And we expect to have about 85,000 barrels flowing by the end of 2014. And lastly we will continue to add laterals and potential expansions to tie into new plans and new areas continuing to ramp up the volumes in both Sand Hills and Southern Hills.

Again we are sprinting into 2014 and we can already put a number of checkmarks next to our goals. We have great momentum. We have a great footprint build around and we have a growth-for-growth strategy that delivers significant value to our owners. So with that thank you for your time and let me turn things over to Pat.

Pat Reddy

Great, thank you, Wouter and good morning everyone. It was good to speak with you yesterday on our fourth quarter earnings call and even better to be safe and warm here today with you in-person. As you heard from our business leaders Spectra Energy is in the midst of a period of focus growth with a number of attractive opportunities to leverage our existing asset, to serve growing demand markets and emerging supply basins both within and beyond our current footprint with the drop down to SEP of our U.S. Transmission and Liquids assets late last year, we believe we have the optimal structure to place, in place to efficiently finance the significant growth in front of us and to deliver very attractive value for our investors.

And while that transaction is diluted to earnings per share due to non-controlling interest, it is cash accretive and that’s why we are moving away from emphasizing EBIT and EPS to instead focus on EBITDA and distributable cash flow that support our attractive dividend and distribution growth. So, let me share our objectives for our near-term and long-term value creation with that focus on cash. We told you last August that we expect to grow Spectra Energy’s dividends by at least 9% a year and we are in to position to grow at that rate now through 2016. We expected Spectra Energy Partners' distributions will grow by at least 8% to 9% annually through 2016.

SEP’s distribution growth will be supported by fee based distributable cash flow which we expect to grow at a compound annual rate of more than 13% through the planned period. Those increasing distributions will result in significantly higher GP and LP distributions to Spectra Energy, where that cash will be used to support our own dividend growth. Similarly as Wouter just explained we will also see significant growth in the GP and LP distributions from DPM which will provide further support for Spectra Energy dividend increases. And as you heard from my colleague this morning we are executing on CapEx expansion plan larger than ever before.

As we move forward on these expansion opportunities, we expect to invest about $1.3 billion in expansion capital this year, wrapping up to an average of 2 billion annually through 2016. SEP’s share of the CapEx will be about 70% this year and 60% in 2015 and 45% in 2016. And we plan to invest our growth CapEx at average rocky returns in the 8% to 10% range that will provide us with returns on capital employed for about 200 to 300 basis points above our cost of capital creating real and lasting shareholder value. And we expect to finance that capital expansion without issuing Spectra Energy common equity during the planned period while maintaining our investment grade credit ratings.

All of the U.S. transmission and liquids growth will be financed at SEP. DCP finances its own growth with its own balance sheet and Canadian growth will be financed using available cash from the SEACOR parent and Canadian debt. We are going to exercise prudent financial management maintaining the balance sheet flexibility and investment grade credit metrics that will allow us to competitively and efficiently execute on growth projects and for still new opportunities. So, let’s go to the numbers now in our three year plan.

With the dropdown of U.S. transmission and liquids on November 1, 2013, SEP is now our largest business segment, so it makes sense to start there. For 2014 we estimate Spectra Energy Partners distributable cash flow to be about $935 million and you may remember that that’s $35 million higher than the level we projected last August. And as you can see this DCF grows very nicely through 2016 at about a 13% compound annual rate. This growth gives us comfortable coverage ratios right at 1.1 times which is really in the middle of our 1.05 to 1.15 times targeted range assuming distribution growth of $0.01 per quarter going forward following the $0.03 increase that we just announced.

We expect strong EBITDA growth from both of SEP’s two operating segments U.S. transmission which include all of our U.S. pipelines and storage asset and liquids which includes the Express-Platte system and our one-third interest in the Sand Hills and Southern Hills pipeline. We expect our U.S. transmission segment to deliver close to $1.4 billion in EBITDA in 2014, supported by recent organic growth projects placed into service. And we look forward to 9% annual growth in the planned period.

We expect liquids to deliver EBITDA $210 million and to grow a compound annual rate of more than 20%, thanks to the significant contract restructuring that we captured in 2013 which Duane spoke to and a ramp up of Sand Hills and Southern Hills volumes and revenues that Wouter discussed. The other segment shown here is comprised primarily of allocated corporate governance costs, related to the new assets acquired as well as SEPs standalone entity level costs.

We expect interest expense to remain relatively flat and maintenance capital to increase moderately due to some anticipated pipeline integrity and the plant work over the three year period. With that let’s take a look now at our expectations around SEP distributions. The anticipated strength in SEP distributable cash flow through 2016 affirms our expectation of an 8% to 9% compound annual growth rate and distributions through 2016.

We made a great start yesterday when we announced a $0.03 distribution increase for limited partner unit to be paid this quarter and as we previously said we expect increases of $0.01 per quarter going forward but we will of course aim to do even better. SEP intends to continue to deliver on its solid track record of reliable growing distributions which will accelerate the growth in general partner distributions to the Spectra Energy.

So what does all this signify for our investors? GP distributions will grow from $41 million in 2013 to about $300 million in 2016. This translates to a $6 billion valuation uplift for Spectra Energy assuming a GP multiple of 25 times and an implied increase in the share price of $9. Combined GP and LP distributions to Spectra Energy will grow from $715 million this year to more than 900 million in 2016.

So this is a very exciting time for all SEP unit holders as we move forward from the position of strength to continue delivering unit holder value in the coming years.

Now let’s turn from SEP to our plans for Spectra Energy. On this next slide we provide 2014 EBITDA projections for each of our business segments which takes you to our enterprise slide EBITDA number of more than $3 billion. For the 2014 to 2016 period we expect to realize average annual EBITDA growth of about 7%. I won’t drill down through each of the segments since the head of the business units gave you a very good description of what’s driving the results of their respective businesses, but we have summarized their targets here. You might notice that our portion of DCPs EBITDA is relatively flat over the three year period which reflects the year-to-year accounting for the expected equity earnings in DCP and the non-cash equity issuance gains at DPM. But what isn’t flat however is our expected growth in cash distributions from DCP over the three year period, growing from about 230 million in 2014 to 260 million in 2016, and that’s a compound annual growth rate of 6%.

You may have also noticed that our EBITDA in Spectra Energy for 2014 is flat to what we reported yesterday for 2013. But as you know and as I have experienced in my time at Spectra Energy we tend to be relatively conservative in our forecast assumptions and that would certainly be true for 2014 as well. When you look at Western Canada for example we have assumed 30 million of EBITDA at Empress in our guidance. But as you saw yesterday Empress reported EBITDA for 2013 of $80 million. And as you have heard from Mark this morning he believes we can repeat that achievement in 2014.

The same is true at Union Gas, where we benefited by $11 million in 2013 from colder than normal weather, but we budgeted for normal weather this year and so far we’re enjoying a cold start to the winter. Another example would be at DCP, where we assume that equity gains would be about $50 million less this year than we enjoyed last year. So the assumptions we have used in our 2014 budget have about 100 million in EBITDA conservative and built down.

Let’s turn now to Spectra Energy’s distributable cash flow. For 2014, we’re providing an estimate of SE’s distributable cash flow or DCF. With all if our U.S. assets now residing in the MLP and our ongoing focus on dividend growth, we believe DCF provides investors with a clear view of how we expect to fund our dividends. While this schedule is fairly self-explanatory, I would like to make a comment about cash taxes. 2014 will benefit from some carryover of bonus depreciation, but as with other infrastructure companies in our space, we don’t expect that benefit to continue into 2015 and ‘16. So we would expect our cash tax rates to go from about 5% this year to about 25% in ‘15 and ‘16.

At the same time we deduct equity AFUDC is not producing cash in the period earned but it is certainly a leading indicator of future cash generation as projects come online. Even with the significant increase in cash taxes we are able to stay comfortably within our targeted coverage ratio of 1.1 to 1.2 times assuming annual 12% increase within the Spectra Energy dividend. With the increase we announced in January and annual $0.12 per share increases thereafter we expect our annual dividend to be $1.34 per share, $1.46 and $1.58; in 2014, 2015 and 2016 respectively.

Now let’s spend a minute looking at some of the assumptions and sensitivities reflected in our financial plan. As is always the case the most significant assumptions affecting our EBITDA and distributable cash flow are the commodity assumptions underlying projected results at DCP midstream. For 2014 we have assumed the following sensitivities on an annual basis; an average NGL priced with $0.94 per gallon on the basis that Wouter explained. To the extent volumes are as forecast and the make-up of the NGL barrel is as expected, every $0.01 change in the price of a gallon at NGLs will affect our EBITDA by about $6 million.

We have assumed natural gas prices will average $3.75 per MMBTU per year; every $0.10 change in that price will affect our EBITDA by about $4 million. And crude oil is assumed to average $94 per barrel, every dollar per barrel change will affect our EBITDA by about $2.5 million. Our Canadian earnings are exposed to the exchange rate with the US dollar, since we financed Canadian operations with Canadian dollars denominated debt though we are partially hedged for those earnings. We would expect every $0.01 change in the $5 rate we’ve assumed to translate into $4 million change in our net income. As you know this sensitivity is developed at the net income level to provide the net effect to the changes in EBITDA interest in Canadian taxes.

On the next slide you can see that we are benefiting from a very healthy kick-start to 2014. Positive weather dynamics are helping our 2014 outlook and reaffirming our customers' need for additional infrastructure. This winter’s polar vortex is driving strong margins at our Union Gas business with start of temperatures in January that were about 20% colder than normal. And cold temperatures have also pushed up propane and natural gas prices creating potential upside for both Empress and DCP midstream.

Higher commodity prices have also provided a healthy boost to the year and we’re having a favorable effect at DCP midstream. And while the Canadian dollar is lower than our forecast which affects our income from Canada, those effects are somewhat mitigated by lower interest costs as we translate those into US dollars. While it's still early in the year 2014 appears to be off to a very strong start.

So to wrap up we are excited about our prospects for 2014 and beyond and we believe we’re ideally positioned to continue delivering on the growth and value creation that we laid out for you today. Spectra Energy is growing from a strong asset and operational foundation. Our company and our investor base also rely upon that superior foundation of financial strength to support and sustain dividend and distribution growth and attractive shareholder returns.

So let me just finish by summarizing. We’re realizing significant growth in our core natural gas businesses enhanced with growth in our new complementary liquids businesses. We are able to draw up on both our MLPs and our parent C-Corp to advanced strategic growth. We demonstrated our ability to deliver consistent attractive dividend and distribution growth across various markets and commodity cycles, and there’s more value to come as we capture the opportunities and pursue all of the growth that that you’ve heard about this morning, momentum and value that will be shared with our customers.

So with that let me turn things back over to Greg for some closing remarks.

Greg Ebel

Well thanks Pat, and I know you’ve honored a lot of information today. We don’t use to stand up here and speak to actually full 90 minutes, so I look forward to your questions. But how could you have very -- giving a lot of confidence, it’s because it gives us a lot of confidence and us being able to achieve our commitments to you. A few themes therefore to watch for and hold us accountable for before you as the year progresses. You’ve heard from Bill and Duane, Mark, Steven, Wouter as they laid out there priorities for 2014. I think they shared some common and pretty compelling focus areas for you.

First we’re going to build up the strength of our base which is really quite incredible and not replaceable. We are going to maximize that base through sector leading operations and service which our customers pay for particularly when you see the type of winner events we are having. Second we’re going to execute, with excellence and on the projects that we have at hand. And then third we are going to go out and we’re well along the way of doing so and we’re going to secure new projects, great new projects and opportunities within each of the business units that will also add incredible value for investors.

We’re very going to continue successfully execute on this priorities and by doing so realize that 7% compound annual growth rate at Spectra Energy’s EBITDA and about 13% CAGR in the DCF at SEP over the next three years. In fact I think when we look back and we print the final books for 2016 our EBITDA growth at Spectra Energy will be probably more like 10% and the DCF at SEP will be more like 15%. So all of which will further our excellent GP position and obviously dividend and distribution growth. As incurred we have fulfilled $13 billion of our expansion capital commitment and we have another $20 billion plus of growth opportunities before us through the end of the decade. That’s an enviable backlog of fee based projects and that’s going to fuel Spectra Energy’s overall growth.

In addition to the expansion projects we will carefully consider acquisitions that complement the existing portfolio and grow value beyond what you are hearing about today. And we recognized that being on this growth trajectory means we got to effectively execute on the priorities that we laid out for you today. But I think we have also proven to you that we have delivered on that by deploying large amounts of capital over several years and we can do that on an ongoing basis and a realized additional uplift for our investors on a go forward basis. And I think you will see us prove that again this year.

We focused on the three year plan projects throughout the day and it’s going to take us through the end of the decade. So where do we plan to take Spectra Energy in the coming years? I think you will see us grow deliberately and strategically. We’re not pursuing size just for the sake of size, but as you look at the projects we’re pursuing that size because that gives us the ability to compete and win large projects that the market wants, needs big players to be out there and deliver on those projects, customers want to be dealing with substantial entities.

And we’re going to concentrate on the growth opportunities that build upon the strengths and the footprint that we have already got in place. And obviously that translates directly into benefits for investors. The enterprise value of Spectra Energy has doubled in just the last four years, and we intend to double it again. So how we’re going to do that? First I think we’ve got to maintain that supplier of choice position that we’ve had with customers by continuing to operate safely and efficiently, that’s our real license to operate. Secondly we’re going to retain the financial strength and flexibility to support the ambitious growth plans that we have, by deploying both of our MLP and C-Corp structures, and by doing so I think we’ll benefit from having one of the lowest cost of capitals -- cost of capital of any of the major mid-stream companies on the comment.

You will see further that last mile advantage in the North East markets, where we enjoy that strong expanding presence. As you heard from Bill, there is more than ample opportunities to serve the Northeast and we intend to win than our fair share of those projects. We’re going to move gas out as well. Projects [indiscernible] team 2014 open, Gulf markets and team to serve the growing demand in those regions providing attractive opportunities to shippers, and further expanding the value of our pipeline networks. We’re going to move gas in other directions too. In Ontario, where we’re seeing reliable alternatives to declining traditional Western Canadian supplies, that’s presenting capital investment opportunities for the first time in some time at our Union Gas. The same dynamic is driving the opportunity of our NEXUS project which will also see that abundant shale gas move into the Eastern Canadian markets and the upper Midwest.

We’ve got great expectations for our crude and NGL investments and that whole transportation segment, and we expect to see the overall liquids business grow from about 7% of our overall EBITDA today to be one of the largest business segments. And that’s often expanding base for the rest of the businesses as well. We’ll keep an eye for new opportunities, where there are things like refined products infrastructure or export facilities that complement our lines of business as they are today.

So that’s a pretty spectacular opportunity for us and I think you will agree that we’re set up pretty well over the next half decade to really deliver on the projects. And we got a lot of confidence in that and as I said that’s grounded in the performance that we have had today, as well as the market outlook that really favors the premier positioning that Spectra has in North America. From well ahead to [indiscernible] whether it’s in the natural gas business, the NGL business or increasingly in the crude oil sectors.

We have kept every promise that we have made you and we’re going to continue to deliver on that pledge in our projects and the value proposition that they have. Bottom line is with the highest quality distributable cash flows of any other major company in these sectors, excellent distribution coverage. And I think as you have heard it very conservative assumptions and a large existing and steadily growing table of fee based projects, Spectra Energy, Spectra Energy Partners and DPM are going to track the best deal and value multiples and you are going to want to participate in that.

So with that, let’s turn it to question and Julie open it up.

Julie Dill

Thank you Greg. Just as a reminder for the folks in the room here, we’re webcasting so I am going to ask you to wait for your questions until we can get a microphone to you and then also please give your name and your business affiliation. We also because the weather have a number of people on the phone and so right now I’d just like the operator to give instructions to the folks on the phone on how they can ask their questions.

Question-and-Answer Session


[Operator Instructions].

Unidentified Analyst

If the keystone pipeline is approved, how will they tie in with your facilities and how will it help Spectra?

Unidentified Company Representative

I think we can all hope that Keystone Excel is approved, the industry needs it, the continent needs it, people in the United States in Canada need it. As far as how it would impact us, it wouldn’t have a significant impact, it does drop from the same supply as we do but there is ample supply, more than enough and it really serves different markets than we do. So, we wouldn’t see it as having any kind of significant impact on our current or future opportunities.

Unidentified Analyst

My name is Don [indiscernible] I’m an SE investor and I have question about the New Jersey to New York pipeline. Is there any plans of extending that pipeline into Long Island?

Unidentified Company Representative

Wouldn’t that be awesome? You know, unlikely given that land to specific project we get expanded to Long Island but your point is a great one which is that Long Island truly needs incremental infrastructure and my bet is that that maybe served more from the Canada side and coming across [indiscernible] perhaps incremental from existing facilities there or perhaps we could extend our infrastructure around itself and up into the Long Island. But, right now that’s probably a long path for us.

Unidentified Company Representative

If was bedding at that Bill and his team could actually find a way to do it.

Brad Olson - Tudor Pickering

Hi guys. Good morning. Brad Olson from Tudor Pickering. First question relates to DCP and corporate structure. So, it sounds like the DCP GP is kind of a none started here but when you talk about the LP and GP growth rate, you’re looking at a growth rate in the presentation which is significantly in excess of the actual payout and I guess my question is are there any plans considered to maybe aligned those growth rates by either standardizing or hedging the remaining NGL exposure at DCP. So, that you can move the remaining DCP assets into the MLP structure and then on a go forward basis operate with what’s more or less just 100% kind of pass through of cash distributions to [indiscernible].

Unidentified Company Representative

Yes. I think that’s something over time, I think one of the first ways is to start doing that is just accelerate the dropdowns into DPM and I think Wouter spoke about that, I think the other thing if you’d look at the DCP numbers, the DCF at DCP with the take from DPM is pretty close to what we pay out actually because remember they've got a very large maintenance capital number, I think around $300 million a year. So, I think when you take into that account and the interest, we’re actually getting pretty close to what the DCF would be to the investors and I think the key is to think that charted in, we want that line for investors is really just those GP and LP cash flows are flowing right through DCP into PSX at SE and I think as you see that you should be able to value those as you would in the other MLP.

Unidentified Company Representative

Great. I guess, my only follow up comment could be that with the fixed kind of 100% LP and GP payout, I think they would probably be easier for investors to just look at what they expect DPM and drop.

Brad Olson - Tudor Pickering

I understand your point on net income basically gets slowly paid out but net income isn’t quite of easy to forecast as maybe the LP payout. And one follow up question. One of your midstream competitors has suggested using a paying kind MLP type of structure to fund long dated LNG infrastructure and I guess given the fact that I believe and I think a lot of investors believe you don’t really get a whole lot of credit for your LNG project in Western Canada in your valuations today. Any thoughts about potentially creating a new structure to finance that, and get a valuation out there in the market.

Unidentified Company Representative

Yes. We’re open to, I mean I think the first thing in Western Canada let me just recognize we’re not [indiscernible], aright. So, I think the earlier ideas of anybody about the projects had that would be early ’15. We’re looking at late ’15 and early ’16 for the BG project but obviously those are big entities, I think the pipeline on a 100% level is $8 billion to $10 billion and we’ll look at whatever the most efficient structure is there and pick type ideas is one that we’re look at. But I think, we got to get the FDI first on that front. Also take into account, you know what we have from a partnership perspective right now, we have BG it would not be unusual over time as you have seen, well Maritimes in Northeast is a good example, you know, we’re on 77.5% now but when the pipeline was built, the biggest Exxon. So, over time you may have to think about how you structure that in the changing dynamics in the ownership too particular on these big projects.

Unidentified Company Representative

Let me add one thing, if you’re okay to Brad’s question around DPM. Brad you're going to think about what the strategy has been over the last couple of years in getting DPM significantly larger. So, the strategy was to get it to a place where it can buy and build acquire. Now DPM setting here at $6.5 million enterprise value we’ve doubled it over the last couple of years, we think we’re going to double it again over to next couple of years which gives a tremendous amount of flexibility around how much that entity can handle in quality exposures, in acquisitions or also in things like developing organic projects.

Unidentified Company Representative

So I understand we have a call -- a question on the phone, so can we take one of those?


Yes, your first question is from the line of John Edwards from Credit Suisse.

John Edwards - Credit Suisse

Great presentation, I was just curious, you have laid out $35 billion of executable and identified opportunities, and I’m just curious how much more out there you are evaluating and looking at, perhaps you are not disclosing it at the present time, just sort of ball park numbers.

Unidentified Company Representative

Yes, that’s a bit of a hard question. I guess what I would say, last year we thought $20 - $25 billion was a big number, this year $35 billion doesn’t seem outrageous; ’13 to the end of the decade. But if the dynamics that are happening today and I think one of the great things about a cold winter is not only the benefits it provides from an earnings perspective today, but the reality it puts into the market are the value of the infrastructure. Markets show you pictures of propane change in the schedule on a Western Canada literally covered with snow. Well there is snow drift, so they cannot move. That doesn’t happen with the pipeline obviously. I think, Bill and you probably read it in the press. Press can see what’s happening in the North-East and New England folks, and I think legitimately you have very concerned regulators and politicians and ultimately consumers, that realize we need more infrastructure. So I think if that starts to accelerate, I sure don’t see the opportunities that declining but what’s the outside limit, I don’t know that if I could put a number on that.

John Edwards - Credit Suisse

Since you raised M&A and obviously expresses being home-run, are there any either business mixes in other words in oil for instance earnings business mixes or basins for instance, so that you are not in but you see a secular growth where you want exposure. Is there anything like a Bakken or (indiscernible) Alberta or even from a business mix -- I’m thinking here as you do more terminals and give more laterals off from the Express, you want to get into blending crude oil marketing and then does that have a conflict with DCP?

Unidentified Company Representative

You’re -- to put it simply yes to your answer, although I’m not sure, I’m really keen on identifying, that were the kind of things we’re looking at. But I guess I would say if you look at each one of our businesses we are number one to three, in inches in that region. And if you look at the real strategic advantage of Spectra energy and all its components including DCP it’s that first and last mile advantage. So when you think about it we don’t have all the first and last mile advantage by any stretch of the imagination on the oil side. So think about where that first mile is, and think where that last mile is, and those are the pieces I would love to fill in. And we made a start with that. I think the same can be said on the NGL pipelines. With respect to conflicts with DCP and Spectra, I don’t see that. In fact I see great symmetry. The NGL pipelines are great example. Look, we didn’t start last year with an exactly robust commodity market and the parents were there to help pay for those pipelines and put them into their own MLPs ultimately and I think that serves DCP to continue growing its advantage but also serves the PSX as well. So I don’t see any conflicts of anything, I see synergies.

John Edwards - Credit Suisse

And one follow-up, if I could? Knock on wood hypothetically we get an approval here on Keystone XL presented permit, all that stuff happens. We can actually look at perhaps to winning Express-Platte. I think a year ago we were talking may be looking deep into the future that it wouldn’t be great that not only if we twin that maybe we could even try and grab on some (indiscernible) right at way and even kind of go up to the north-east, is that still sort of a primary target market or if you can get toward River, is that primary market ultimately getting down to the Gulf, is that shifted well?

Unidentified Company Representative

Well I think again as Duane said, looking deep into the future, yes, I would say that getting to the Eastern market Eastern Seaport it great, I think he through that one slide up there that showed that in Canadian select and the East Coast price of oil, ultimately that’s where you want to go, or get into Philadelphia. I think it would be at this point in time, it’s difficult. We don’t have a straight right away that we could take other gas and put into oil. We also – and this is the good news, and the bad news – we also have as Bill said fully contracted pipes and as he said, they’re contracted for an average term of seven years. So I’m like a lot of folks where you could take pipes and take them out of service, Sand Hills is a perfect -- sorry Southern Hills is a perfect example of what, where you’re actually took an oil pipeline and turn it to an NGL pipeline. We don’t have those opportunities. So, yes I would love to get that East Coast but I think the first logical route to look to is to get to the Gulf Coast.

Unidentified Analyst

My question is with respect to the north-east pipeline expansion opportunities. Have any emerging generators indicated any interest from transportation agreements at all or is it just specifically the LDCs and does the recent weather possibly changed their contracting behavior?

Unidentified Company Representative

The short answer is, yes. So just a little bit of history on the Algonquin Incremental Market expansion, so AIM, we were extremely close with those electric generators and producers ultimately they fell out and it just became a local distribution contracted for expansion. This next expansion, Atlantic Bridge, we’re starting with distribution again with Unitil, but wouldn’t be surprised if this weather just as you point out has really peaks the interest of especially producers that are -- they’re sort of knocking at the door and to the southern end or western end of Algonquin and as far as merchant generators, we're -- quite honestly we’re very encouraged by the work that was done by the fixed New England governors to sort of prod the ISO to get something moving here and get a tariff in place that would actually compensate generators for holding pipeline capacity. So what Atlantic Bridge is designed to do will start with what we know, which is there’re still distributors that have the mechanism to sign up for pipeline capacity yet make it flexible enough so that we can expand depending on either producer and/or merchant generator commitment?

Faisel Khan - Citigroup

Wonder if you guys could help me reconcile something on the DCP sort of guidance you guys gave, so I guess in your, in slide 36 you’ve got asset growing from roughly 14 billion to 16 billion, right on the 13 number there, and then EBITDA growing from 1.2 billion to 1.6 billion, so does that -- am I missing anything on equity or earnings, is that flowing through EBITDA also, I’m looking at the DCP cash flows -- sorry, reconcile the returns on incremental investor capital you guys are going to work into the system?

Unidentified Company Representative

You are looking on slide 36?

Faisel Khan - Citigroup

Yes 36, you’ve got assets growing from 8 billion to 16 billion and then you have EBITDA also growing over that timeframe too, so as far as I understand the amount of EBITDA you’re adding for the amount of capital you're put to work?

Unidentified Company Representative

We don’t breakout those details overall but [indiscernible] what we are doing is what you see and 16 billion and 16 is really talking about the overall enterprise both between midstream and the partnership. We show on slide 38 it is about 11% CAGR growth from where we’re sitting today. So you can do some of the math I think yourself we don’t give the individual guidance by project of how we’re doing.

Faisel Khan - Citigroup

So the returns are still in that target 10%?

Unidentified Company Representative

Yes, we always look at little bit higher overall [indiscernible] we tend to be even in [indiscernible] environment looking at returns that are in that, which I called low to mid-teens at the timing of both type of projects the GMP project then to be got in the mid-teens that the range, more fee base project, than to be in the lower teens type of range.

Unidentified Company Representative

Faisal, I think you get a little bit more visibility on that. One thing to think, so you’ve got that as you’ve pointed out the $14 billion of assets and 14 and then 16 billion of assets in 16 that’s what you’re pointing to in the EBITDA. So you’re adding a couple of $100 million to EBITDA between 14 and 16, but remember a significant chunk of that is increasingly done at DPM and obviously DCP only owns 22% or 11% for each of the partnerships of that. So you’re going to see a lot more growth at DPM which of course turns into GP and LP cash flows which, I think as Wouter lay there an increasing portion of the cash coming to Spectra is actually GP and NP cash flows from DPM.

Faisel Khan - Citigroup

Got it. And then on the open project, how quickly could you expand that project [indiscernible] how much capacity is there to kind of reverse flows down to the South? I see that about 500 million cubic feet a day sort of you expanded down to South, but who quickly could you expand that that facility producers came to you want to open this [indiscernible]?

Unidentified Company Representative

Yes, Faisel, actually, very quickly. The project was designed for that 70 green field portion in Eastern Ohio. We can power that up with compression and to the degree that we get subscription for that you can count on from the time we signed a contract to the time that’s in service the three-year time frame. So, if we sign contracts, this spring we’ll get in place for only ’17 maybe early and probably at least another half of bcf if not a full bcf more.

Unidentified Analyst

Couple of questions for Pat and Wouter, if that’s okay. Pat, real quick, can you give us color around the expected tax rates overtime if they’re progressing in one direction or another for say the SEP LP distributions up to the SE Corp, the Canadian earnings through a state 0% U.S. but maybe 25% Canadian tax and the DCP and SEP GP distributions and simply the top bracket?

Unidentified Company Representative

Well it does, starting with the latter it does distributions come across to us from the equity method, they are just like any other earnings. But looking forward in terms of our controlling interest, in 2014 our U.S. rig will be about 38%, Canada a little over 7% for a combined rate of almost 28% in 2015 and these are not cash obviously these are our book rates. But 38% in 15 for the U.S., 9.5 from Canada, and ’16, 38% U.S., 12% in Canada. And so, the effective cash tax rate in ‘14 for us is 5%, in 2015 25% and 25% in ‘16 as well.

Unidentified Analyst

Okay. And for all the projections in capital spend, to understand the projects on slides 10 and 19 for pipes and liquids are not included in any of the guidance figures in terms of spend?

Unidentified Company Representative

Our one-third interest will be to the extent there is capital to spent but I think for this projection carried out through ‘16 that or we are not going to be incurring mix capital for expansions on Southern Hills or Sand Hills?

Unidentified Company Representative

Yeah, that’s probably, it’s lower than $0.25 billion on the 8 basis over the next couple of years and laterals expansions from both pipes.

Unidentified Analyst

And on the oil side, you don’t have any incremental capital, really a very small amounts of capital because most of those projects are post ‘16. And Wouter, can you comment about the zie of DCP LLC excluding VPN net of the dropdowns say over the time period of this year to 2016 kind of how you see the assets productivity at the parent level a couple of years from now versus today?

Wouter van Kempen

Yes, if you look at it today, if you do round numbers there is probably two-thirds of the assets are sitting on the -- in the private entity about a third of the assets are sitting in the publicly traded entity. What we've been doing over the last couple of years, we've been continuing to grow both entities. So, depending on what we are doing on -- do we doing exact growth for growth or we take a $1 out of midstream that we spend in the capital and drop it on into the partnership? If you do that right size of midstream space pretty much the same or goes up a little bit while the partnership is growing.

We also highlighted that there is a potential for us to potentially go a little bit faster on that growth for growth strategy so maybe you drop $1.10 or $1.50 instead of a $1 down. In that case what would happen is that the partnership will grow a little bit faster than midstream. But given the size that we have on midstream even with some of the kind of ranges that we showed to you in the presentation here, midstream is going to continue to be a very, very large entity.

Unidentified Analyst

Great. And last question Wouter, could you comment since without rejection, your disproportionately mark as opposed to ethane than the rest of the industry. Some have commented on the potential not only of exporting ethane through manufactured end products like ethylene but actually shipping ethane in a more liquid form to European headcounts. How realistic you think that is and if it were potential what kind of timeframe would that be, would that be concurrent with all the new crackers coming online in the U.S. or ahead of time?

Wouter van Kempen

Yes, so, we are following it closely obviously as the largest NGL producer in the country. We are rooting for people on export facility. We talk with a lot of people about export facilities. The difficult of ethane, I don’t think it’s as much here on the U.S. side, it is more on the receiving side. The billions and billions of dollars that people will have to put in infrastructure on the receiving side be it in Europe or Latin America. And people will have to make commitments right at the time when these big cracker projects are starting to come up in the Gulf Coast, so how do you look at that. I think even though the amount of ethane that we're going to continue to see here in the United States, I am reasonably bullish that we are going to figure something out and there is probably going to be some export. It’s going to be a ways wait up.

Unidentified Company Representative

I am sure we have another call on the phone.


Yes. You have a follow-up question from the line of John Edwards of Credit Suisse.

John Edwards - Credit Suisse

Yes, hi everybody. I was just curious on the liquids side, I guess in particular the England California Express project, I mean I guess how that’s coming into being I know that pipeline, the crude oil lines been out of service for some time. And I guess how likely do you think that’s going to come together and maybe how you decided to go in to it a JV requester on that? Thanks.

Unidentified Company Representative

Yes, it’s a project that it’s certainly not a done deal we’re still in discussions with customers. Our engineering shows that it’s eminently feasible and commercially it makes a lot of sense, it’s a way for these refiners in California and who have traditionally used California heavy or Alaska North slope well which are both in decline, so wait for them to access low cost North American crude. As I said we’re in development, but it looks promising at this point and we and our partner Questar are quite excited about it.

Matthew Atkins - Scotiabank

Matthew Atkins from Scotiabank. Not sure this question is for but there has been a lot of discussion today on West Coast LNG opportunities for Spectra. I just wanted to touch on East Coast, there is a slide I think Bill on your presentation that shows Maritime and North East reversal but I don’t think you talked about. I am just wondering if you are trying to sneak Marcellus gas off the East Coast to Canada or what business proposal there?

Greg Ebel

Fair enough. Actually [indiscernible] reversal eludes to is getting more of that Atlantic bridge project into main and Maritime Canada for local distribution company and electric generation. Certainly having existing infrastructure in that quarter where, yes there had been some proposals loaded for LNG export would be a huge benefit if those materialize that, and so we stand ready and we of course have been in dialog with those folks.

Matthew Atkins - Scotiabank

And a follow-up from Mark on Western Canadian segment. You didn’t talk about large scale new gas processing necessarily and I am just wondering what the opportunity is there on that front given the excitement around some of the new plays in Western Canada around Duvernay and some of the stuff going on in Montney, there is existing plants in Spectra, is the idea to increase utilization of existing plant or to build potentially new larger scale, new large scale processing?

Greg Ebel

Now that’s a great question. We are very focused on actively in the GMP space on opportunities with the producers as they continued to monetize the Montney, the Montney is wining real time pre FID pre LNG with the Western Canadian demands in BC, strong market for gas supply. The declines that we’re seeing in Alberta on the conventional the Montney is being drilled and with that we’re able to keep our traditional plants full and it’s a very much great business opportunity to work with the Montney developers to provide short term solutions at the existing side, then leg into large scale facilities for them.

Probably in the next 12 to 18 months I think you are going to see if we do things right in couple large scale plants, we’ll get [indiscernible] from Spectra.

Unidentified Company Representative

One way to think about it Matt I think is that following FID I would expect Mark and his team to be able to secure, call it $1 billion every 18 months in infrastructure related to LNG. The North Montney project that is relatively small, call it $160 million, $175 million is really front end LNG, the customer is Petronas. And that is re-pluming existing plants. So obviously very high return but the big win will be as soon as people start making FID.

Unidentified Analyst

I have a question on the reversal that you have mentioned. Are those going to get treated as rates or how should we think about that?

Greg Ebel

Eventually that could really happen, we have structured the number instead they are system rate projects, a number of them are negotiated rate, and outside of that system rates. But generally it’s hard to hold on to revenue going in both directions ultimately. So I would look at those ultimately well done.

Unidentified Analyst

And then the Renaissance project wasn’t included in this presentation. I know you have historically talked about pushing that out. But was that going to be new rates?

Greg Ebel

Yes that Renaissance was designed for what we were pursuing last year was going to be an incremental project to the Atlanta area. I talked a little bit about the generation needs in Midwest, Southeast and of course Mid-Atlantic. I would expect something in the -- something that looks a lot like Renaissance 2 just surface over the next 12 months to 24 months, but Renaissance in its current form ended up just being a little bit too much risk for what we were going to put for the capital we were looking to put in place.

Unidentified Analyst

And then a question on your commodity prices for DCP, the $0.94 a gallon. I was just curious as to if you could give us the ethane and propane prices that comprise that price?

Unidentified Company Representative

Yes, we normally -- we don’t disclose the individual component, so I can’t afford simply give you the details of the underlying barrel. I would like to go back Greg to your comment about ethane quickly again, I mean, like one other thing that is much simpler kind of way to export ethane is as you know most of the European and like Asian markets are using a much higher heat rate type of gas. So, there is a great opportunity to spike basically export LNG by putting more ethane in it and it’s a very simple way to do it and that’s probably a great way to get more ethane out of the market.

Unidentified Analyst

Just one more question, sorry. On the $0.94 a gallon, so is that a pricing that you expect to realize at Mount Belvieu given your -- make up or is that back into the processing plant realization?

Unidentified Company Representative

It's after we transporting frac. So, it’s pretty much a Belvieu realized barrel.

Unidentified Analyst

And then I know it reflects a 100% Belvieu, but do you have the option to get Conway pricing if you so choose to.

Unidentified Company Representative

There are opportunities for us to still get product in Conway. We still put some product in Conway like I’ll give you an example. It’s a good benefit of having a large portfolio in geographic footprint that we have, our Northern region, we still have an opportunity to put product in Conway. So, we did some of that here at recent price spikes that we’ve seen. We even took some product out of our region and kind of related at into the Conway market. So, there is definitely on the temporary basis and like there is opportunities to move a little bit of product in the end Bellevue is the market where you want to be. And like we’re seeing a temporary spike I think there is a reason why things are spiking the way they do in Conway because it’s not a liquid market. In the end where you want to be with your project which are product, if you are the largest NGL producer in North America, you want to have your product in Bellevue where barrel per demand is where the petro chems are, where the export facilities are et cetera.

Unidentified Company Representative

Christine, probably the biggest subside from a Conway perspective this year is really happening at Empress because that’s how Empress product gets priced.

Unidentified Analyst

Hi, its [Ted] With Goldman Sachs. Question for Bill on the U.S. transmission projects of $7 billion that you talked about, can you just give us a sense of where the big dollars are, where the big Greenfield CapEx is versus what sort of reversals and [stuff] smaller capital.

Unidentified Company Representative

I think certainly the first two that are identified NEXUS and Atlantic Bridge would be significant capital projects. The only reversal piece of Atlantic Bridge for example would be whatever we end up doing Maritimes.

And then just for competitive reasons don’t want to throughout too much but if you take a look at where else Marcellus and Utica producers are looking to go, one that’s probably incremental Greenfield. And then number two if you look in the Gulf some of the LNG export facilities and a number of the petrochemical facilities are going to need more significant new infrastructure than what exists in their close proximity. So, I put them in those categories and I hope that’s a satisfactory.

Unidentified Analyst

And then if I can ask some more detailed question on the SEP guidance on page 44. I guess, I’m just trying to understand why the interest expense between '14 and '16 is basically down, I would expect to be [indiscernible] about a $1 billion of CapEx you’re going to spend there is there just refinancing assumption there or what’s going on there.

Unidentified Company Representative

What you’re seeing there is that the capitalized interest is going to increase each year. So, it goes from about 12 million to 30 million to 55 million in the period and that’s primarily due to the financing of stable trial, the big $3 billion pipeline that we’re going to be a 50-50 partner in.

Unidentified Company Representative

Okay. I apologize but I have to get these executives off to some other things. So, I know that there is a number of questions that we left unanswered here in the room and I apologize for the people on the phone as well. But we have run out of time. So, of course my team [indiscernible] and Derrick Smith, myself and you need to still call John, I think he will take calls or he’ll send them to me.

But please we are at your convenience, get us call we’ll be very happy to try and help you walk through things. Thank you very much for coming. For braving, the weather for those of you are here, be safe going home and thanks to our executive panel as well. So have a good day.

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