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Spectra Energy Partners Reports Second Quarter 2008 Financial Results

Posted on: Thursday, 7 August 2008, 09:00 CDT

HOUSTON, Aug. 7 /PRNewswire-FirstCall/ -- Spectra Energy Partners, LP today reported second quarter 2008 net income of $27.5 million compared with $23.9 million for second quarter 2007. The increase resulted primarily from higher demand for transportation and storage services and lower income taxes, partially offset by public company costs which were not incurred in second quarter 2007. As a result of the acquisition of Saltville Gas Storage in the second quarter of 2008, prior period amounts have been revised to include the results generated by Saltville.

(Logo: http://www.newscom.com/cgi-bin/prnh/20071107/CLW064LOGO )

Spectra Energy Partners reported Cash Available for Distribution of $21.8 million, or 30 cents per limited partner unit for the quarter.

"We continue to deliver value to unitholders of Spectra Energy Partners by executing on our plan - completing expansion projects on time, identifying new projects, and adding to our solid contract base," said Greg Harper, president and chief executive officer of Spectra Energy Partners. "As a result, we have grown our cash distributions by more than 13 percent in our first year as a public company."

Spectra Energy Partners closed its initial public offering (IPO) on July 2, 2007. Earnings for periods prior to the date of the IPO are attributable to Spectra Energy Partners Predecessor, as adjusted for the Saltville acquisition noted above.

Results from Operations

For the second quarter 2008, Spectra Energy Partners' net income of $27.5 million consists of Operating Income, which includes the activities of the Gas Transportation and Storage segment, Equity Earnings from investments in Gulfstream Natural Gas System, L.L.C. (Gulfstream) and Market Hub Partners Holding (MHP), interest income and expense, and income tax expense.

Gas Transportation and Storage is a new business segment adopted by Spectra Energy Partners as a result of the Saltville acquisition. The Gas Transportation and Storage segment consists of the activities of East Tennessee Natural Gas (ETNG) and Saltville Gas Storage as well as public company costs.

Operating Income

Spectra Energy Partners reported operating income of $13 million for the second quarter 2008, compared with $20.2 million in second quarter 2007. The quarter over quarter decrease in earnings resulted primarily from the inclusion of public company costs following the IPO and lower fuel recoveries recognized on the ETNG system. Higher earnings from new firm contracts on ETNG partially offset these higher costs.

Equity Investment in Gulfstream

Spectra Energy Partners recognized $7 million of equity earnings from its 24.5 percent interest in Gulfstream in the second quarter 2008, compared with $4.3 million in second quarter 2007. The increase in earnings resulted primarily from continued strong demand for short term firm and interruptible transportation services. For the quarter, Spectra Energy Partners' share of Gulfstream's Cash Available for Distribution was $4.4 million.

Equity Investment in MHP

Spectra Energy Partners recognized $8 million in equity earnings from its 50 percent interest in MHP during the second quarter 2008, compared with $7.3 million in second quarter 2007. During the quarter, MHP completed Egan Cavern 4 and added new firm storage contracts. MHP's total working gas storage capacity is now 37 Bcf. For the quarter, Spectra Energy Partners' share of MHP's Cash Available for Distribution was $9.4 million.

Interest Income and Expense

Interest expense for the second quarter 2008 increased $1.7 million over second quarter 2007, to $3.8 million, as a result of borrowings against the revolving credit facility which was entered into at the closing of the initial public offering. Interest income was $0.8 million for the second quarter 2008.

Income Tax Expense

A net income tax benefit in the amount of $2.2 million was reported for the second quarter 2008, compared to income tax expense of $6.2 million in the second quarter 2007. As a result of the master limited partnership structure, Spectra Energy Partners is not subject to federal income taxes. During the second quarter 2008, an income tax benefit of $2.5 million was recorded as a result of the change in tax status of Saltville.

Capital Expenditures and Equity Investments

During the quarter, Spectra Energy Partners spent $18.4 million for expansion and maintenance capital expenditures at ETNG and invested an additional $13.4 million in Gulfstream and $13.8 million in MHP for expansion projects.

Additional Information

An analyst conference call is scheduled for 9:00 a.m. CT today, August 7, 2008 to discuss Spectra Energy Partners' second quarter results. The conference call can be accessed via the investor relations section of Spectra Energy Partners, LP's web site or by dialing (888) 252-3715 in the United States or (706) 634-8942 outside the United States. The Conference ID is 55349597.

Please call in 5 to 10 minutes prior to the scheduled start time. A replay of the conference call will be available after 11:00 a.m. August 7, 2008, until 10:00 p.m. CT, November 6, 2008, by dialing (800) 642-1687 with Conference ID 55349597. The international replay number is (706) 645-9291, Conference ID 55349597. A replay and transcript also will be available by accessing the investor relations section of Spectra Energy Partners, LP's web site at http://www.spectraenergypartners.com/.

Forward Looking Statements

This release includes "forward-looking statements" which represent our intentions, plans, expectations, assumptions and beliefs about future events. Such statements are subject to risks, uncertainties and other factors, many of which are outside our control and could cause actual results to differ materially from the results expressed or implied by those forward-looking statements. These factors, as well as additional factors that could affect our forward-looking statements, are described in our filings that we make with the SEC, which are available at the SEC's website at http://www.sec.gov/. In light of these risks, uncertainties and assumptions, the events described in the forward-looking statements might not occur or might occur to a different extent or at a different time than we have described. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Reconciliation of Non-GAAP Financial Measures

This press release includes certain financial measures, including Adjusted EBITDA, and Cash Available for Distribution that are non-GAAP financial measures as defined under the rules of the Securities and Exchange Commission.

Spectra Energy Partners defines Adjusted EBITDA as net income plus interest expense, income taxes, and depreciation and amortization, less equity in earnings of Gulfstream and MHP, interest income, and other income and expenses, net, which primarily includes non-cash allowance for funds used during construction (AFUDC).

Spectra Energy Partners defines Cash Available for Distribution as Adjusted EBITDA plus Cash Available for Distribution from Gulfstream and MHP, less net cash paid for interest expense (income), net and maintenance capital expenditures. Cash Available for Distribution does not reflect changes in working capital balances.

This press release is accompanied by a reconciliation of these non-GAAP financial measures to their nearest GAAP financial measures. Management uses these financial measures because they are accepted financial indicators used by investors to compare company performance. In addition, management believes that these measures provide investors an enhanced perspective of the operating performance of the Partnership's assets and the cash that the business is generating. Neither Adjusted EBITDA nor Cash Available for Distribution are presented as alternatives to net income (loss) or cash flow from operations. They should not be considered in isolation or as substitutes for a measure of performance prepared in accordance with United States generally accepted accounting principles.

Spectra Energy Partners, LP is a Delaware master limited partnership that owns interests in natural gas transportation and storage assets in the United States. Spectra Energy Partners' assets include the East Tennessee Natural Gas system, a 1.3 billion cubic feet (Bcf) per day, 1,400-mile natural gas transportation pipeline located in the Southeastern United States, and Saltville Gas Storage, a 5.5 Bcf working capacity natural gas storage facility located adjacent to the East Tennessee Natural Gas system in Virginia. Spectra Energy Partners also owns a 24.5 percent interest in Gulfstream Natural Gas System, which owns a 1.1 Bcf per day, 690-mile natural gas pipeline that connects Mobile Bay to the central Florida peninsula through the Gulf of Mexico, and a 50 percent interest in Market Hub Partners, which owns high deliverability salt cavern storage assets capable of storing 37 Bcf of natural gas. Visit http://www.spectraenergypartners.com/ for more information.

Spectra Energy Partners, LP Quarterly Highlights June 2008 (Unaudited) (In millions, except per unit amount) Three Months Ended Six Months Ended June 30, June 30, 2008 2007 2008 2007 INCOME Operating revenues $29.7 $29.4 $62.2 $61.8 Operating expenses 16.7 9.2 33.5 24.5 Operating income 13.0 20.2 28.7 37.3 Equity in earnings of unconsolidated affiliates 15.0 11.6 27.6 23.0 Other income and expenses, net 0.3 0.4 0.4 0.4 Interest income 0.8 - 2.3 - Interest expense 3.8 2.1 8.8 4.3 Earnings before income taxes 25.3 30.1 50.2 56.4 Income tax expense (benefit) (2.2) 6.2 (1.4) 11.4 Net income $27.5 $23.9 $51.6 $45.0 Adjusted EBITDA (a) $19.5 $25.8 $41.8 $48.5 Cash Available for Distribution (b) $21.8 $27.4 $58.3 $66.1 Weighted Average Units Outstanding Common units 48.8 n/a 46.7 n/a Subordinated units 21.6 n/a 21.6 n/a General partners units 1.4 n/a 1.4 n/a Earnings Per Limited Partner Unit $0.38 n/a $0.71 n/a Cash Available for Distribution Per Limited Partner Unit $0.30 n/a $0.84 n/a CAPITAL AND INVESTMENT EXPENDITURES Capital expenditures - Gas Transportation & Storage $18.4 $11.1 $22.7 $13.2 Investments Gulfstream - 24.5% 13.4 - 23.0 - Market Hub - 50% 13.8 - 16.3 - Total capital and investment expenditures $45.6 $11.1 $62.0 $13.2 June December 30, 31, 2008 2007 DEBT Total debt 440.0 450.0 Investment grade securities 94.9 154.6 Net debt 345.1 295.4 (a) Adjusted EBITDA is defined as net income plus interest expense, income taxes, and depreciation and amortization, less equity in earnings of Gulfstream and Market Hub, interest income, and other income and expenses, net, which primarily includes non-cash allowance for funds used during construction (AFUDC). (b) Cash Available for Distribution is defined as Adjusted EBITDA plus Cash Available for Distribution from Gulfstream and Market Hub less net cash paid for interest expense and maintenance capital expenditures. Cash Available for Distribution does not reflect changes in working capital balances. Spectra Energy Partners, LP Adjusted EBITDA and Cash Available for Distribution June 2008 (Unaudited) (In millions) Spectra Energy Partners Reconciliation of Non-GAAP "Adjusted EBITDA" and "Cash Available for Distribution" Three Months Ended Six Months Ended June 30, June 30, 2008 2007 2008 2007 Net income $27.5 $23.9 $51.6 $45.0 Add: Interest expense 3.8 2.1 8.8 4.3 Income tax expense (benefit) (2.2) 6.2 (1.4) 11.4 Depreciation and amortization 6.5 5.6 13.1 11.2 Less: Interest income 0.8 - 2.3 - Equity in earnings of Gulfstream 7.0 4.3 11.8 8.5 Equity in earnings of Market Hub 8.0 7.3 15.8 14.5 Other income, net 0.3 0.4 0.4 0.4 Adjusted EBITDA 19.5 25.8 41.8 48.5 Add: Cash Available for Distribution from Gulfstream 4.4 3.0 12.7 11.8 Cash Available for Distribution from Market Hub 9.4 8.2 18.1 16.3 Less: Cash paid for interest expense, net 5.5 4.2 7.2 4.2 Maintenance capital expenditures 6.0 5.4 7.1 6.3 Cash Available for Distribution $21.8 $27.4 $58.3 $66.1 Spectra Energy Partners, LP Gulfstream - Adjusted EBITDA and Cash Available for Distribution June 2008 (Unaudited) (In millions) Gulfstream Reconciliation of Non-GAAP "Adjusted EBITDA" and "Cash Available for Distribution" Three Months Ended Six Months Ended June 30, June 30, 2008 2007 2008 2007 Net income $27.3 $17.5 $46.2 $34.6 Add: Interest expense 11.2 12.1 22.7 24.2 Depreciation and amortization 7.3 7.6 14.7 15.2 Less: Other income, net 2.7 0.7 6.2 1.2 Adjusted EBITDA - 100% 43.1 36.5 77.4 72.8 Less: Cash paid for interest expense, net 24.7 24.3 24.7 24.3 Maintenance capital expenditures 0.3 (0.1) 0.7 0.2 Cash Available for Distribution - 100% $18.1 $12.3 $52.0 $48.3 Adjusted EBITDA - 24.5% $10.6 $8.9 $19.0 $17.8 Cash Available for Distribution - 24.5% $4.4 $3.0 $12.7 $11.8 Spectra Energy Partners, LP Market Hub - Adjusted EBITDA and Cash Available for Distribution June 2008 (Unaudited) (In millions) Market Hub Reconciliation of Non-GAAP "Adjusted EBITDA" and "Cash Available for Distribution" Three Months Ended Six Months Ended June 30, June 30, 2008 2007 2008 2007 Net income $16.8 $14.7 $32.5 $29.1 Add: Interest expense 0.3 1.0 0.7 2.0 Depreciation and amortization 2.6 2.1 5.2 4.2 Less: Interest income 0.7 - 1.7 - Other income, net - - - 0.2 Adjusted EBITDA - 100% 19.0 17.8 36.7 35.1 Less: Maintenance capital expenditures 0.2 1.4 0.5 2.6 Cash Available for Distribution - 100% $18.8 $16.4 $36.2 $32.5 Adjusted EBITDA - 50% $9.5 $8.9 $18.4 $17.6 Cash Available for Distribution - 50% $9.4 $8.2 $18.1 $16.3

Photo: NewsCom: http://www.newscom.com/cgi-bin/prnh/20071107/CLW064LOGOAP Archive: http://photoarchive.ap.org/PRN Photo Desk, photodesk@prnewswire.com

Spectra Energy Partners, LP

CONTACT: Sean Blakley, +1-713-627-4963

Web site: http://www.spectraenergypartners.com/

Source: PRNewswire-FirstCall

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