Sea Limited (SE) Q1 2013 Earnings Report, Transcript and Summary

Good morning, my name is Polly, and I will be your conference operator today. At this time, I would like to welcome everyone to the Spectra Energy First Quarter Earnings Conference Call. [Operator Instructions] Thank you. Mr. John Arensdorf, sir, you may begin.

Thanks, Polly. Good morning, everyone. Welcome to Spectra Energy's first quarter 2013 earnings review. Thanks for joining us today. Leading today's discussion will be Greg Ebel, our President and Chief Executive Officer; and Pat Reddy, our Chief Financial Officer. Both Greg and Pat will discuss our quarterly results and provide more color around our strategic plans to enhance the value Spectra Energy delivers to its shareholders. We'll then open the lines for your questions. But before we begin, let me take a moment to remind you that some of the things we will discuss today concern future company performance and include forward-looking statements within the meanings of the securities laws. Actual results may materially differ from those discussed in these forward-looking statements. You should refer to the additional information contained in Spectra Energy's Form 10-K and in our other SEC filings concerning factors that could cause these results to be different from those contemplated in today's discussion. In addition, today's discussion include certain non-GAAP financial measures as defined by SEC Reg G. A reconciliation of those measures to the most directly comparable GAAP measures is available on our Investor Relations website at spectraenergy.com. With that, I'll turn the call over to Pat.

Well, thank you, John, and good morning, everyone. As you've seen from our earnings release, Spectra Energy delivered solid first quarter results of $340 million or 40 -- or $0.51 per share. A couple of key takeaways from the quarter. Results were in line with our expectations. You'll see that we have a new liquids reporting segment, which includes not only the Express-Platte System on which we closed in mid-March, but also our 1/3 ownership interest in the Sand Hills and Southern Hills NGL pipelines. And as Greg will discuss more fully in a moment, we've initiated the first phase of our $2-plus billion drop-down of the Liquids segment assets. You would have seen the press release on that last evening. Then we are making steady progress toward our goal of capturing $25 billion in growth projects by the end of the decade. Now, let's take a closer look at the components of our earnings this quarter. I'll begin with U.S. Transmission, which reported EBITDA of $266 million compared with $271 million in 2012. While we experienced gains from Texas Eastern expansions during the quarter, they were more than offset by lower storage and transportation revenues consistent with the outlook we discussed with you in January. As we said then, we expect to see lower storage results throughout the year as compared to last year due to current market dynamics. Even though EBIT is down slightly in this segment compared to last year, U.S. Transmission is performing on plan for the quarter. Let's take a look at now at Distribution, which reported first quarter EBIT of $168 million compared with $151 million in 2012. The increase is mainly due to higher customer usage as compared to last year when weather was warmer than normal. We also benefited from increased revenues from the Union Gas 2013 rate increase, which went into effect on January 1. Partially offsetting these favorable variances is the impact of last year's Ontario Energy Board decision that altered the regulatory treatment of certain transportation revenues. The company is appealing this decision. Turning to Western Canada. The business reported EBIT of $111 million for the quarter compared with $138 million in 2012. Segment results reflect lower earnings in the conventional gathering and processing business, driven by lower contracted volumes and lower interruptible revenue as expected. Empress earned $3 million in the first quarter, $4 million less than in the prior year quarter primarily due to lower propane sales prices. We stabilized the Empress business under current market conditions. As we told you in January, we expect Empress to break even this year and we believe we're on track for that. However, full year performance will be dependent on propane prices and other factors in the fourth quarter. Field Services reported first quarter 2013 EBIT of $88 million compared with $93 million in 2012. The decrease in EBIT was mainly driven by lower natural gas liquids prices and reduced NGL volumes due in part to mechanical and weather-related issues experienced this quarter. This decrease was partially offset by an increasing gains on units issued by DCP Midstream Partners and a reduction in depreciation expense as previously reported in the second quarter of 2012. DCP's realized NGL prices averaged $0.74 per gallon this quarter versus $1 per gallon last year. As a reminder, DCP's realized NGL barrel is weighted about 60% to Mont Belvieu and 40% to Conway and is somewhat lighter than the average industry barrel. The realized price is a reflection of the liquids content in the locations in which DCP operates and its commercial contract portfolio. Based on what we're seeing today, we would expect DCP's full year realized prices to be in line with what we've seen so far this year. NYMEX natural gas averaged $3.34 versus $2.74, and crude oil averaged $95 per barrel versus $103 per barrel last year. DCP Midstream continues to pay attractive distributions to its owners with Spectra energy receiving $52 million in the first quarter. Now let's turn to our newest segment, Liquids, which reported first quarter EBIT of $6 million, almost entirely attributable to half a month of results from the Express-Platte Systems. We closed on Express-Platte in mid-March, well ahead of our original target of a second quarter closing. As Greg will discuss in more detail in a few minutes, we are seeing higher-than-expected volumes and rates that exceed our acquisition assumptions. So Express-Platte is off to a very good start. And of course, we were pleased announced yesterday the drop down of 1/2 of the Express-Platte System into Spectra Energy Partners, which Greg will also speak to in more detail shortly. Also included in the Liquids segment are the results of our 2012 equity investments in the Sand Hills and Southern Hills pipelines, which are progressing towards completion. The entire Liquids segment generates fee-based earnings with escalators, which contributes to the overall financial strength of the company. Other, which is comprised primarily of our corporate governance costs and captive insurance premiums, reported net costs of $26 million compared with $29 million in last year's quarter. Now let's take a look at a few additional items. Interest expense during the quarter was $149 million compared with $157 million last year. The decrease was primarily driven by higher capitalized interest on our expansion projects. First quarter income tax expense from continuing operations was $130 million compared with $137 million in the 2012 quarter. At the end of the quarter, our debt-to-total capitalization ratio stood at 58.9%. We expect to continue to fund our CapEx program through a combination of internally generated funds and debt while maintaining our investment grade credit rating. And at the quarter's close, we had total capacity under our credit facilities of $2.9 billion and available liquidity of $1.7 billion. So all in all, a very good quarter in line with our expectations. And with that, let me turn things over to Greg.

Well, thanks very much, Pat, and thanks to all of you for joining us today. Along with the solid results that Pat just talked about, we're making significant progress towards our other 2013 commitments, including yesterday's announced drop down of half of the Express-Platte System into Spectra Energy Partners. We expect to close on the drop-down early in the third quarter and are very pleased by the benefits this move will deliver to Spectra Energy, Spectra Energy Partners and our investors and I'll talk a bit more about that in a maintenance. And of course, we're executing on our capital expansion commitments as well. This slide gives you a snapshot of the momentum occurring across our system, momentum driven by more than $25 billion in growth opportunities through the end of the decade, which you've heard me speak about many times before. First, let's take a look at what we've accomplished so far this year. In Western Canada, we placed 2 significant projects into service during the quarter. The final phase of the Dawson Processing Plant project is now in service, and we completed the final phase of our Fort Nelson expansion program by putting the Fort Nelson north plant into service. With DCP Midstream and Phillips 66, we're making good progress on the Sand Hills and Southern Hills pipelines and expect them to be fully in service by mid-2013. These assets, you recall, are great fee-based pipes that connect the Permian, the Eagle Ford and Mid-Continent regions to the premium Mont Belvieu market. Given only a partial year of service, we're not expecting material earnings contribution from these 2 pipes in 2013, but we expect to see revenues and volumes ramp up over the next several years. We're making excellent progress on the New Jersey-New York project. Construction is well underway and we're actually more than 70% complete. This project is squarely in line with where we would have expected to be at this point and we're on target to bring it into service this year as originally planned. We filed our TEAM 2014 project with the FERC in February and expect approval later this year, which will keep us on track to deliver this $500 million project into service in late 2014. Back in January, we shared with you several U.S. projects that will maximize the utilization of our system, attaching Marcellus and Utica suppliers to growing demand markets in both the Northeast and the Southeast, connecting the first and last mile, if you will. We told you many of these projects were in advanced stages of negotiation, and I'm pleased to report today that we're making excellent progress towards securing a number of these growth projects by the end of this year. So here's a few highlights. In April, we submitted what we believe is a very competitive bid in response to Florida Power & Light's RFP. And per the time line outlined in the RFP, definitive agreements are expected to be signed this summer. We're optimistic about our proposal and our position and look forward to further expanding our service into the Florida market. So we'll have more to share with you about this project once the selection process is complete. Moving on to our OPEN project. Chesapeake Energy has signed an agreement to be an anchor shipper, and you'll recall OPEN is intended to bring Utica gas to market. We continue to have discussions with other potential shippers and we'll keep you updated on that progress as we proceed. We're also making good progress on AIM, an expansion of the Algonquin system to meet growing New England demand. A very favorable open season concluded in the fourth quarter in 2012, and we're currently negotiating terms with customers. We expect to have executed contracts by this summer to achieve an in-service date in the second half of 2016. We'll be able to provide more color around the expected CapEx associated with AIM when the contract negotiations are complete. Our Renaissance project is advancing to serve LDCs and power generators in the Southeast U.S. as well as Marcellus and Utica producers. This new 1.3 Bcf a day pipeline with an estimated mid-2017 in-service date reflects a full capacity expansion of our system. Again, we look forward to sharing more details with you once we finalized the commercial terms, which we currently expect to occur this summer. Lastly, the NEXUS project, our partnership with DTE and energy -- DTE Energy and Enbridge to develop a seamless transportation path for emerging Utica Shale to Michigan and Dawn Ontario continues to evolve. We're working with the market to find an effective solution. And while the ultimate in-service timing is dependent on final market demand and commitments, we now anticipate in-service date to be in late 2016 to better accommodate those market needs. So stay tuned over the next several months to hear more details about the next generation of fee-based natural gas pipeline projects to be placed in that 2015 to 2017 time frame. And of course, we continue to pursue opportunities to serve LNG export facilities on the west coast of British Columbia. You're aware of our efforts with the BG Group and a final investment decision on these projects is expected mid-decade. LNG exports are attracting a lot of attention and we'll keep you posted on our efforts to serve these market, both in British Columbia, and of course, here on the Gulf Coast. As Pat mentioned, our new Liquids segment consists of Express-Platte System and the 1/3 investment in the Sand Hills and Southern Hills NGL pipelines. We're very pleased to have these assets in the portfolio. And you'll recall that we acquired a 1/3 interest in the NGL pipelines in November of last year and closed on the Express-Platte acquisition in March, and up plants. Express-Platte will be the largest contributor to earnings in our Liquids segment in 2013. So let me speak to this new asset in a bit more detail. Not only did Express-Platte bring fee-based earnings and cash flow from day one, but we're already starting to see upside potential to our acquisition assumptions. We're seeing significant volume ramp-up on the Express pipeline, thanks to increasing refinery demand in the Rockies and more Canadian crude moving into PADD 2 by the Express and Platte systems. This is possible on the fully utilized Platte system as Canadian crudes partially replacing Bakken crude that's reaching other markets via rail. This volume ramp-up trend continues with recent Express shipments averaging 220,000 barrels a day, or about 80% utilization, significantly above the 2012 average shipment of 190,000 barrels per day or 70% utilization. And in recent days, we've seen in excess of 250,000 barrels a day shipped on Express. So while it's still early days, Express-Platte's existing asset footprint is delivering results greater than we expected at the time of the acquisition. Based on the prorated time that we have Express-Platte this year, we now expect the asset to contribute this year about $115 million on a stand-alone basis, which equates to a full year 2013 EBITDA of $145 million. We were confident that the Express-Platte System will be $0.03 to $0.05 accretive to with Spectra Energy's earnings on a full year basis going forward as well as providing support to SEP from which it can grow its distributions. We'll be back midyear with more financial details on Express-Platte once the drop down to SEP is closed. Of course, we're actively engaged in discussions regarding many other growth opportunities, some that could be realized in the near term and others a little longer out in the crude oil space. Today, I'd simply indicate that we are receiving a lot of interest that could bring Express to full capacity utilization. We're also exploring possible opportunities to expand further upstream into Canada and downstream to connect to other refinery markets. So we're pleased with the results of the Express-Platte System to date and confident that this asset is poised to deliver enhanced returns to both SE and SEP investors. Our drop-down of 1/2 of the Express-Platte System into Spectra Energy Partners underscores our balanced approach to using our MLP to reward SE and SEP investors by using it to fund acquisitions, advance organic growth and drop assets. Our MLPs allow us to grow strategically by using the lowest cost of capital and most efficient vehicle for accretive acquisitions in addition to generating cash to reinvest in our current asset platforms. This ongoing cycle of cash generation and reinvestment enables Spectra Energy to continue to grow our dividend and deliver attractive shareholder returns over the long run. In addition to the remaining half of Express-Platte, the Sand Hills and Southern Hills NGL pipelines are great fee-based assets with escalators that give them very attractive MLP attribute. Let me look forward to moving them into SEP over the next couple of years. And based on the current plans that we have, we would expect to have more drop-down opportunities beyond 2014 based on the growth projects we secure. Our expanding portfolio allows us to create value through the thoughtful and strategic use of MLPs, benefiting both SE and SEP investors. So we've shared with you on many occasions our steadfast belief in diversity of our business portfolio and we're seeing that, which allows us to successfully navigate all market cycles and withstand headwinds and benefit from tailwinds. As you've heard today, we're acting on the belief through strategic expansion of our assets and business lines and demonstrating our financial flexibility through the use of the many tools at our disposal. We're creating and enhancing shareholder value by participating across the full energy value chain and our solid and resilient foundation means that we're able to deliver earnings and consistent dividend growth across market cycles. So with that as background, we'll open up the lines for questions. John?

Okay. Polly, we're ready for questions.

[Operator Instructions] And your first question comes from the line of Craig Shere with Tuohy Brothers.

A couple of quick ones here. What were the EPS gains from the DPM unit sale issuances?

I think there were about $35 million in the quarter, Craig. So we've kind of expected -- that's -- we expect, I think, full year number is probably running around $40 million for our accounts. So a little bit earlier in the year than we had expected.

Understood. And now that you've closed on Express-Platte and started dropping it down, can you provide more color on the Canadian tax benefits that are retained as you drop down the assets themselves?

Pat, do you -- on the Canadian tax benefits with respect...

Yes, Craig, there were tax benefits that we enjoyed that were part of the acquisition that Spectra Energy was able to use some net operating losses, but we're not breaking that out as something that's significant for the year. It's really in the $0.03 to $0.05 that Greg talked about on a full year basis or the EBITDA numbers that we've provided.

It's really the bigger -- the tax benefits that the previous owners couldn't realize that prevented them from being able to move it into the MLP. So it's really not a big uptick for us. It just prevents tax leakage.

And Craig, on your prior question, just to clarify, the actual DPM -- or the actual gains that we enjoyed related to those units as shown this was $43 million and our outlook for the full year had been about $35 million. So we are ahead of schedule because of it. It was a bigger drop of the -- in the first quarter than we had outlooked.

Okay. So do I understand that avoiding tax leakage, so you mean on the drop-downs, the NOLs there benefit you?

No, that was the benefit we got with the acquisitions. And then on the drop-downs, you probably saw from the release that we're anticipating that SE would take back units a the value of about $139 million or about 20% of the equity consideration and that relates to the tax leakage to prevent that.

I got you. And last question, in terms of drop-downs, can you kind of speak to the need to fill up Sand Hills and Southern Hills completely before drop-downs or -- I mean, obviously, Express-Platte isn't fully utilized 100% right now. So as you think about filling those other NGL pipes up in coming years completely, maybe you can kind of give us some color on the potential timing of where you see drops relative to those assets maturing?

Well, I think there's no doubt that Express is probably, at this point in time, anyways the other half of that would be ahead of the NGL lines. But we'll see how it fills up. I mean, we'd expected kind of basically it through into '15 before we get the NGL lines more full. But we still may want to mix and match here, if you will. So Craig, not to be too -- to dodge the question a little bit, but I think you're thinking is right that you've got Express filling up faster and it's in a better position. I think we have, in a great deal of confidence, given the cash flow and earnings stream there where the NGL lines just will take that, call it, 18, 24 months to build up. That being said, I think it's pretty clear the value of those over time so that's just going to be a discussion with the independents, if you will, at SEP about where they'll see that value build over time.

Sure. Could we see the other half of maritime in Northeast before the NGL lines are dropped?

Well, that's not the current plan, but yes. I mean, I guess that's something we'd consider wherever we have assets. The fact set has just changed so much in the last, if you will, even 6 weeks, right? Six weeks ago, we didn't have an oil pipeline that was earning $145 million or so and we didn't have the NGL pipelines in service, now we do. But that doesn't say that we wouldn't look at other assets if mixing and matching made sense and helped obviously SEP to continue to see that nicer growth on its distribution, which I'm sure you noticed we announced yesterday.

Your next question comes from the line of Stephen Maresca with Morgan Stanley.

Just on Express-Platte, interesting that you're seeing increases already. Do the numbers that you put in the press release for the acquisitions, do they reflect -- what do they reflect, I guess, it's, what, 70% or 80% utilization?

Well, they would reflect the $145 million. So that's closer to the 80% utilization.

Okay. As you look forward on this, what do you see the opportunity here? Is there an opportunity to term out some of this increase in utilization? And is there an opportunity to see for, I don't know, possible expansion?

Well, I think there's couple of things. There's several. So first, yes, term out, and that's obviously, a balance of rate and demand. There's a fuller utilization of the pipeline, at least on the Express side, up to 100%. And then, just even some of the things that we've seen that I have mentioned that as Bakken, some of the Bakken crude moves in a different manner, that opens up space on Express-Platte -- on Platte end of things. And as such, we can move more heavies from Canada, which obviously attracts a higher tariff and you're moving that farther along the line. So that's some of the benefit as well. Now, with respect to expansions and stuff, definitely something we're out there looking at and we'll keep you informed on that. Again, still early days, but I think both upstream and downstream and participation in terminals as well, very interesting there.

And one final on Express-Platte. What would you say has been the biggest surprise, thus far? And I know it's early. Is it just the increase in refinery demand?

Well, to be quite honest, I don't think we were surprised. I mean, we see the value of steel in the ground. And I don't need to go through the list of projects that get pushed out 2.5 years from now and things that people thought would be in service a year ago. So that was the whole rationale for us to get into the business with an asset that's operating, avoid some of the frustrations that others may be seeing. And so I don't think it's a big surprise for us. I think it verifies the investment thesis.

Okay. And one final one. Going forward as we think about Sand and Southern Hills coming in, as those are build lines and you've built them, should we be thinking about -- how should we be thinking about kind of multiple of a drop into SEP, understanding that for Express-Platte you bought it and you had to kind of sell it at a price. Is it possible that we could be thinking about a better multiple at SEP for some of the future drops for Sand and Southern?

Stephen, this is Pat. I think the way we look at it is it's a balancing act so that it provides attractive financing for us by dropping to SEP, letting them issue equity, that the quid pro quo is that it's got to be at fair multiple that supports their unit price. So I think if you look at the drop multiple, it's the same as our acquisition multiple. It's just top of -- a little higher EBITDA. And so while the acquisition price for SEP is higher than 1/2 of our purchase price, it's not a higher multiple because of the things that Greg described that have been driving higher EBITDA. So on the NGL pipes, you guys have put your finger on it that the thing that will be interesting in the next 2 years will be to think about that sequencing of our drops and what is it that gives rise in terms of getting full value in a drop and what best supports SEP's ability to grow its cash available for distribution and meet their targets and objectives to support their unit price. So that's why it's kind of dynamic. And at this point, we're very much on track for the NGL lines to be completed by midyear. But as you know, there is, as Greg said, a ramp-up to that. So those are all things that we'll be looking at in refining and fine-tuning the sequencing of the drops as well as the multiples.

I think the other thing, Stephen, I think if you think of it just, again, with kind of call it $2 billion-plus and growing of opportunities to drop, we can easily manage the interest of both SE and SEP investors. And again, as you've seen, just with the value that SE gets from bringing on Express-Platte, but also moving up the distribution growth from $0.005 to $0.075 a unit for SEP once the drop is done, I think you can see us do that balance. So we -- in the past, if you only had one asset or a very small, far less flexibility and now that flexibility, I think, is a real advantage for all sides.

And your new next question comes from the line of Becca Followill.

You guys have articulated the $2 billion of drops to SEP over the next 2 years. Is there any chance that you could accelerate that from additional assets?

Yes, I think that's fair comment. I think part of it again goes back to a discussion we just had with Stephen, you know, what's the right rate in this level that can meet everybody's needs. But yes, I think we could accelerate that. The other element, obviously, is absorption capacity. And one of the keys for us moving all these assets into SEP is to give SEP heft in terms of market size, and obviously, that allows it to do more. As you well know, the market can only absorb so many units even for very large MLPs. So that partially gauges some of the timing as well.

And your next question comes from the line of Faisel Khan with Citi.

Just want to go back to Express-Platte for a second. When you're looking at the drop-down of the system into the MLP, does that include also the Canadian portion of the pipeline? How does that kind of work?

Yes, I mean, I guess the way there's always some structuring in here. But the way I'd look at this is 50% of the EBITDA, so it's for the -- it's the entire end-to-end EBITDA half is the way that I would look at it. There's always little pieces, Faisel, in how does that's done, but that's the way I'd think about it.

And it's not a problem, if you're thinking about tax structuring or MLP restrictions. There's no problem in putting the Canadian piece in the MLP.

Okay, got you. The Canadian piece is going into the MLP with the system?

Yes.

Okay, yes, I just want to make sure. And then how are you guys -- how does the rate structure again work on Express-Platte in terms of the tariffs? I mean, those have kind of an inflation adjustment sort of mechanism that eventually gets reset every year. Can you just remind us kind of how that works?

Yes, you're right. It's done annually. And I think the numbers are, I think, May 1, actually. We just applied. May 1, I think the new rates kick in. And it's an inflator plus a FERC-adjusted element, which runs, combined, around 5%. So we should see that and we've assumed that from day 1 of the acquisition. And I believe it kicks in on May 1, Faisel. But if I'm wrong, we'll get back and make sure it's...

And as you know, Faisel, the portion of the line that has contracted rates. Those rates don't escalate until they expire and the volumes become uncommitted. And that's a process that's underway now and it will all go to market by 2015 subject to trying to term out some of those volumes.

Somebody handed me and a note here. So I was somewhat wrong -- I was absolutely wrong. So on the 1st of April actually is when the Canadian piece kicked in adjustment there. And we just filed the 1st of May for the U.S. side of things or in May and that kicks in July 1, 2013, so those are the exact dates.

Okay. And that's all in your guidance?

Yes, sir.

Okay, okay. Got it. And then, Pat, I was trying to remember what you were talking about. But in terms of the contracts. So the contracts are all kind of fixed contracts. Those don't escalate. It's all the interruptible capacity that gets reset every single...

Faisel, they're not all fixed. So when you think about it, the older section of the pipe is the Platte piece because it was originally built to take oil from the Rockies to Wood River. And as Rockies supply started to dwindle, that's when the Express piece was built to bring in heavy crude from Canada. So if the northern most piece, the Express piece, is the newer piece, that is still subject to committed rate rates, the Platte piece were at market rates. And on Express, we're rolling to market between now and 2015. So it's a little bit more complicated.

Okay, got it. And just one last question. On that market rate versus the contracted rate, was there like a big difference between those 2 rates?

Yes, yes. The interruptible rates, if you will, are the market rates are considerably higher and therein lies the discussion. Do you go -- what's the delta you can achieve if you do, do some recontracting or do you go at market rates.

[Operator Instructions] And your next question comes from the line of Ted Durbin with Goldman Sachs.

I want to come back to, I think I heard in the comments on the Field Services business, the NGL realizations. You're now expecting the full year to be close to what the first quarter realizations were? Is that -- did I hear that right? I think that's true.

Yes, I think what I meant to convey there was that while oil prices have been a little bit -- have been about budgets and natural gas prices have been better, the main driver of our earnings there are natural gas liquids prices. And the $0.74 that we averaged in the first quarter we'd expect to be indicative of what we'd see in the balance of the year.

Got it. Because I think your guidance was about $0.80. But to your point, you've got gas prices higher probably than your guidance and maybe oil, we'll see. Okay, I just wanted to clarify that.

And we've got some other initiatives underway. DCP, that could provide some non-price offset.

But yes, the mid-$0.70 to $0.75 is a good number to think about from just what we see today. You know how it moves around, Ted.

Understood. Then I wanted to come back to the Florida pipeline, just talk about this a little bit more. You've -- I think there's been talk about maybe people going into a joint venture or maybe stand-alone proposal. How do you see that playing out? And then talk again about the return that you'd expect. Do you think this is kind of in that 10% to 12% return capital range? Is it higher or lower than that based on how you're seeing your projects shape up?

Yes, I won't get into the bidding mechanisms, if you will, and the nature of that. But you know our historical world here and I would expect that we wouldn't be doing this just alone in the end. That being said, I would say this project, it was a very competitive bid process. Obviously, one of the great markets in North America and obviously have excellent customer and customers in the whole region. So I would expect this project to be more like in the 9% range, Ted, in terms of return on capital employed. And if you've seen the RFP, those volumes ramp up, so competitive. And I'd see that with many of our projects kind of being more in that kind of 8% to 10% time range versus the typical 10% to 12%. Now we've been able to do a bit better than the 10% to 12%. But as cost of capital has come down for virtually every company and call it 6% for Spectra on a combined basis and everybody else seeing those types of benefits, I think you can see returns contract a bit while still seeing a similar spread above the cost of capital that we've seen historical.

Got it. That's very helpful. And then a last one for me is on NEXUS. Again, just listening to the language, it sounds like you had some wrinkles there in terms of maybe the demand not being there, the timing getting pushed out. I'm just wondering if you can go into that a little bit more. And then maybe talk about the impact of TransCanada and the potential mainline conversion. I would think that would be positive for you and for that project in terms of you wanted to bring more Marcellus gas into as the Alberta supply into Toronto kind of declines.

Yes, you're hearing it right. Two things: one, we are probably a little bit ahead of where producers are today. And so between the partnership, we very much discussed probably this project moves out into '17 as opposed to late '16. And you don't want to be too far out in front of your customers, obviously. And obviously, their critical from a contacting perspective. So that's one. But the demand is still very much there. I think it's just a little uncertainty about exactly when that materializes. But people in the Utica definitely want to see gas get into Dawn given the size of that hub. Secondly, I think you're right. In general, the mainline conversion, should that occur, should be positive for the dynamics along that Dawn-Trafalgar line or I think Toronto to Detroit of which, as you know, our pipeline there is kind of 4 -- 5 Bcf a day. So it's a big pipeline. So that -- I think that will be valuable. We -- but all being said, I would also say we got to be certain that we can still serve our customers at Union. Everything won't come from the south. I mean, there'll still be some gas that will always comes from the west. So that's something we're just making sure we're comfortable with that, in fact, the conversion is not going to create service problems, particularly in and around that Toronto region. So I think TransCanada is still trying to figure out what they will do or won't do. And frankly, if they don't want to build in the Toronto region, we will.

And our final question comes from kind of Nathan Judge with Atlantic Equities.

I just wanted to see if you had any thoughts on how the political landscape in Western Canada, British Columbia could change following the election? How that could potentially [indiscernible]?

Well, where do you think the elections are going to go? Obviously, if the current administration stays in place, they have been very positive towards natural gas infrastructure and natural gas development in the province. If the administration changes to the New Democrats, they have -- I will say they have -- we have worked with New -- we've been there 50 years. So we've worked with the socialist governments there or the liberal governments there and done well. I think, as you know, as it occurs here in the United States and everywhere else, reality bites. When you gain office, whatever your statements may or may not have been during election, the economy is a critical aspect of government. And the natural gas business in British Columbia is absolutely critical to their revenue base. So things may take a little longer on occasion, we'll see. At the same time, I think, given the revenue, given that jobs, given the very positive view of natural gas in the province over the years and currently relative maybe even to -- well, not maybe, but relative to oil at this point in time there, then I think things will shake out fine. I'm always watching for things like taxes and things like that. But in terms of development, after what might be just initial concerns about any change to any government, I think it'll continue to progress forward.

And then just as a follow-up. Did I hear it correctly, you actually are raising your guidance for Express-Platte, I guess, around 10%?

Yes, I guess that'd be right. We were $130 million for the year and now we're saying $145 million on an EBITDA basis. Absolutely.

And at this time, there are no further audio questions.

Okay. If there are no further questions, we'll conclude the call. And I'd like to thank you very much for joining us today. And as always, if you do have additional follow-up questions, please feel free to call Roni Cappadonna or me. And we, of course, look forward to seeing many of you next week at the AGA Financial Forum. And before we go, I want to remind you that we launched a new Invest SE app to provide investors with financial -- with information package specifically for mobile devices. This app is available for the Android, the iPhone and the iPad and it provides stock updates, press releases, SEC filings, investor presentations and other content, all of which are also available on our website. So we hope you'll check out the new app and let us know what you think. With that, thanks again for joining us this morning. Operator, this concludes the call.

And thank you for your participation. This concludes today's conference. You may now disconnect.