Sea Limited (SE) Q3 2013 Earnings Report, Transcript and Summary

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

Thanks, Janika, and good morning, everyone, and welcome to our third quarter earnings call. I'm John Arensdorf, Chief Communications Officer for Spectra Energy and we're pleased that you've joined us today. As we did last quarter, we will address quarterly results for both Spectra Energy and our Master Limited Partnership, Spectra Energy Partners. In addition to highlighting our earnings for the quarter, we'll also update you on the progress we've made in securing and executing on an impressive array of growth projects. Leading today's discussion will be Greg Ebel, our President and Chief Executive Officer; and Pat Reddy, our Chief Financial Officer. Pat will discuss first -- third quarter results for Spectra Energy and Spectra Energy Partners, and Greg will update you on our capital expansion progress and the value we're creating for investors. And of course, we'll leave plenty of time for your questions. Before we begin, let me take a moment to remind you that some of the things we'll discuss today concern future company performance of Spectra Energy and Spectra Energy Partners and include forward-looking statements within the meanings of the federal 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 and Spectra Energy Partners' annual report on Form 10-K and in 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 includes certain non-GAAP financial measures as defined by SEC Reg G. A reconciliation of those measures to the most directly comparable GAAP measures for each of the companies is available on the Investor Relations website at spectraenergy.com and spectraenergypartners.com, respectively. With that, I'll turn the call over to Pat.

Well, thank you, John, and good morning, everyone. Earlier this morning, we announced that Spectra Energy delivered third quarter ongoing results of $0.42 per share compared with $0.27 per share in last year's quarter. Ongoing earnings for the quarter exclude a $0.03 special item for transaction costs related to the drop-down of assets to Spectra Energy Partners. These effects are noted as special items within the segment results for U.S. Transmission and other. Results for this quarter and the year are very much in line with our expectations and we fully anticipate that we'll meet our 2013 EPS target of $1.50. EPS is one of the measures that investors use to evaluate our performance and it will remain an indicator going forward. With our new structure in place, we will expand our reporting on the cash generation capability of the enterprise. The ability to increase distributable cash flow supports an attractive dividend and distribution growth. It also produces a strong currency to help fund our $25 billion expansion program. We completed the drop-down of our remaining U.S. Pipeline, Storage and Liquids assets to SEP last Friday, 2 months ahead of schedule. As you would expect, this transaction will be accretive to cash flow at Spectra Energy, but dilutive to earnings per share due to an increase in noncontrolling interest. For the 2 months remaining in 2013, we expect the incremental noncontrolling interest reduction to be about $0.02 to $0.03 a share. We'll provide you with our expectations for the 2014 noncontrolling interest reduction when we share our business plan early in the New Year. In the meantime, as you work on your 2014 models, don't forget to take into account the sizable NCI adjustment for Spectra Energy Partners. It's been a very busy and successful quarter for us, so let's take a closer look at Spectra Energy's results by business segment. U.S. Transmission reported ongoing EBIT of $250 million compared with $238 million in 2012. Quarterly EBIT results reflect increased earnings from expansions on Texas Eastern, partially offset by expected lower Storage revenues. Our Distribution segment reported third quarter EBIT of $34 million compared with $55 million in 2012. The decrease in distributions 2013 results is due in part to expected lower Storage revenues. We anticipate U.S. and Canadian storage results to remain soft through the middle of the decade. Additionally, distributions results were affected by an expected reduction in transportation revenues, resulting from a 2012 regulatory decision. Distributions results for last year's third quarter included revenues realized from the optimization of certain upstream transportation contracts, but subsequent to the November 2012 decision by the Ontario Energy Board, those revenues were disallowed and refunded to customers. As a result, Union Gas took a $30 million charge in the fourth quarter of 2012, which obviously, will not reoccur in this year's fourth quarter. Last quarter, we told you we'd been successful in reaching a settlement agreement with interested parties on a new 5-year incentive rate mechanism. And we're pleased that during the quarter, the OEB approved a new incentive regulation framework, which will be effective January 1, 2014. The agreement will significantly reduce regulatory uncertainty over the 5-year period. It will also provide a mechanism to adjust rates for significant capital projects, allowing us to continue to invest in natural gas infrastructure in Ontario in an economically attractive manner. Moving on to Western Canada Transmission & Processing, that segment reported EBIT of $90 million compared with $83 million in 2012. The Empress natural gas liquids business earned $11 million in the third quarter attributable mainly to higher propane prices and lower production costs compared with last year's $21 million third quarter loss. Based on steps we've taken this year and excluding things like periodic turnarounds, we expect Empress will produce ongoing EBITDA of about $30 million in a typical year. Western Canada's 2013 results were partially offset by lower earnings in the conventional gathering and processing business, driven by lower contracted volumes as expected, as well as higher employee benefit and labor costs. Field Services reported EBIT of $137 million compared with $62 million in the 2012 quarter. The improvement in EBIT is attributable primarily to higher volumes from DCP Midstream's new processing plants, as well as higher commodity prices and lower operating costs. Additionally, there was an increase in equity gains from the ongoing issuance of units by DCP Midstream Partners. These increases were partially offset by higher interest expense, primarily as a result of lower capitalized interest in the 2013 quarter, reflecting plant completions. During the third quarters of 2013 and 2012, respectively, DCP's realized NGL's prices averaged $0.78 per gallon versus $0.72, NYMEX natural gas averaged $3.58 per MMBtu versus $2.81 and crude oil averaged $106 per barrel versus $92. DCP Midstream has paid cash distributions of $128 million to Spectra Energy year-to-date. Our Liquids segment consists of the Express-Platte Pipeline System and our equity investments in the Sand Hills and Southern Hills NGL Pipelines. Liquids reported third quarter EBIT of $33 million. Express-Platte's operating results continue to exceed our expectations due to highly favorable market dynamics in the North American crude oil sector and the competitive positioning of our assets. Now let's turn to Spectra Energy Partners. Spectra Energy Partners reported strong results in third quarter 2013, with the acquisitions of 50% of Express-Platte in August of this year and a 39% interest in Maritimes & Northeast in October of last year, driving growth in both cash available for distribution and earnings. SEP reported cash available for distribution of $66.3 million, up 18% over the prior year's quarter, reflecting Express-Platte results since closing in August and a full quarter of Maritimes, partially offset by about $6 million in transaction costs to the November 1 drop-down of assets from Spectra Energy, as well as expected lower storage revenues. For the third quarter, SEP also delivered its 24th consecutive quarterly distribution increase to unitholders, an increase of $0.0075 per unit. The distribution now equates to slightly more than $2.06 per unit on an annual basis. As a reminder, SEP expects to increase quarterly distributions by $0.03 in the first quarter of 2014, bringing the annualized distribution to more than $2.18 followed by increases of $0.01 per quarter through 2015. This quarter, we also took steps to prepare for the closing of the drop-down and as we look ahead to fund our growth. First, in September, SEP issued $1.9 billion in debt to finance a portion of the transaction. In addition, we resized our credit facilities, increasing the SEP facility to $2 billion and reducing the Spectra Energy facility to $1 billion. This is what our asset structure looks like today. As you can see, Spectra Energy maintained significant scale, stability and geographic diversification. And our nearly supersized SEP has the advantage of great assets and unrivaled U.S. footprint, solid long-term fee-based contracts and abundant CapEx projects contractually secured or in advance development to generate sector-leading growth. This structure provides the financial flexibility to efficiently support our growth plans, so both Spectra Energy and Spectra Energy Partners recorded strong quarterly results and are moving forward in securing and delivering opportunities that further strengthen our portfolio and our value proposition. With that, let me turn the call over to Greg

Thanks very much, Pat, and thanks for, everybody, joining us today. We're feeling pretty upbeat on a lot of fronts today, and we like where we're headed. When we met with you at the beginning of the year, we laid out our plans and goals for 2013, all focused on expanding our footprint, our business and our commitment, of course, to grow shareholder value. Since then, we've been working hard to deliver on those promises and I'm pleased with the record of our achievement to date. Not only are we doing what we told you we'd do, we're doing it better and faster. And with every promise kept, we raise the bar for more good things to come. We committed to an EPS target of $1.50, and as you heard from Pat, we're well on track to meet that $1.50. We are realizing benefits from the acquisition of the Express-Platte System earlier in the year, which continues to exceed our early assumptions. Results at Empress this year on track to exceed the breakeven assumption in our $1.50 target, stronger propane prices have held, but equally important is the way in which we've optimized the commercial agreements of there. As we've stated many times, the diversity of our business portfolio enables us to deliver through a range of market and commodity cycles. Our long-term focus is rightly directed towards delivering attractive total shareholder returns, and our C-Corp MLP structure is likewise designed to efficiently fund expansion in both the United States and Canada, fuel growth and reward investors. We told you that we'd deliver dividend growth to Spectra Energy investors and we are. In fact, rather than the $0.08 annual growth we promised at the beginning of the year, we're now committed to deliver $0.15 a year. SEP investors are benefiting as well, and realizing 11% distribution growth from 2013 to 2014. We remain committed to and confident in our ability to deliver attractive shareholder returns to all of our investors. We continue to evaluate multiple value-enhancing options to build upon the momentum achieved to date. For example, with growing GP distributions at DPM, we along with our partner, Phillips 66, are always considering opportunities to more fully realize the value of our GP interest there. At the beginning of the year, we laid out our intentions to fully leverage our MLP structure and advance our drop-down strategy. And then in June, we announced the drop-down of all the remaining U.S. Transmission and Storage assets, as well as the remaining liquid assets to SEP. We are very pleased to have closed sooner than expected on that transaction, creating a $20 billion enterprise and one of the largest fee-based MLPs in North America. Starting in 2014, the move creates significant incremental GP and LP cash flow growth, which in turn supports enhanced dividend and distribution growth. Finally, we told you we delivered $25 billion in growth projects by the end of this decade. To date, we've secured or placed into service more than half of that. As we've mentioned, we're pleased with our $1.5 billion Express-Platte acquisition. Now that it's fully integrated, we're working hard to leverage and grow these assets. For example, in August, we completed a successful open season for Express, with high levels of interest from refiners in the Rockies, who need certainty of supply and from customers looking to move Canadian oil out of Wyoming by rail. With committed volumes growing from 119,000 barrels per day to 225,000 barrels per day and importantly, the average contract life going from 1.5 years to 11 years, we've now increased our 2014 Express-Platte EBITDA expectations to at least $160 million. There are many fine execution examples we can point to this year as well. The $1.2 billion New Jersey-New York pipeline was delivered into service last week, the success of our Sabal Trail proposal, our good work on securing projects like AIM, OPEN and TEAM 2014 and the nearly $2 billion that DCP has also placed into service this year. Excellent results across-the-board, all grounded in keeping our word doing what we told you we'd do and meeting or exceeding the growth and value creation goals we set. On that note, let's take a look at the excellent progress we're making on our capital expansion program. The New Jersey-New York project began delivering gas on November 1, as we promised customers and investors 4 years ago. This project brings critically needed new natural gas supplies into New Jersey and New York City markets for the first time in 40 years. The project involved a number of engineering achievements, including a pipeline crossing beneath the Hudson River and the longest 30-inch horizontal directional drill in North America. This was an extremely complex, high-profile project situated in a densely populated urban setting. Pipeline is complete now and its serving customers well already. The successful execution of the New Jersey-New York project boosts our ability to win other big projects, like Sabal Trail Transmission, underpinned by a 25-year contract with Florida Power & Light. Last month, we received FERC approval to commence the prefiling process for the $3.2 billion project and we're proceeding on course towards a mid-2017 in-service date. We're making great progress on our Algonquin Incremental Market or AIM Project. During the quarter, AIM added an additional cluster [ph] , Bay State gas, expanding the scope of the project to above 340 million cubic feet per day, with CapEx of about $1 billion. And we expect FERC approval for our $500 million TEAM 2014 project before the end of the year. We're also very pleased with our most recent project, the Gulf market expansion project. We've executed new long-term contracts for 650 million cubic feet per day of natural gas shipments on TETCO to support the growing industrial and LNG export sectors along the Texas and Louisiana Gulf Coast. This $150 million project is a continuation of our development efforts to transform our Texas Eastern mainline into a truly bidirectional system that will provide diverse supply access to the Northeast, the Southeast and Gulf Coast markets. A series of expansion projects at Union Gas along the Dawn to Parkway corridor are proceeding well with about $450 million of projects now underway. DCP Midstream is also advancing a $4 billion to $6 billion growth CapEx program. The Rawhide plant in the Permian Basin was placed into service in late August, along with associated gathering and compression systems. And the O'Connor Plant located in the expanding DJ Basin commenced commercial operations last month. DCP Midstream continues to advance its impressive processing footprint, and is now ranked as the nation's largest natural gas processor and the #1 natural gas liquids producer by volume. As you can see, we are executing on a broad portfolio of projects. But of equal note are the projects we have in advance development. Let's take a quick look at those. As we discussed with you last quarter, our Nexus project is a partnership with DTE Energy and Enbridge, and we'll move Utica and Marcellus gas into the upper Midwest and Ontario. We expect to have firm transportation agreements in place with LDC customers by year end, which should move Nexus into execution mode in early 2014. In addition to significant growth from its existing capacity, Express-Platte is pursuing a number of opportunities, some of which could require the deployment of large sums of capital above and beyond the $25 billion in expansion projects we discussed with you back in January. We're looking at everything from expanding the system northward to oil sand supplies, to doubling the capacity of the entire system from Hardisty, Alberta to Wood River, Illinois. We're also exploring crude oil infrastructure opportunities beyond the Express-Platte footprint, including projects on the Gulf Coast and in California. We have several other projects along the Gulf Coast and development to support additional LNG exports as well as industrial infrastructure needs. And as you know, there are also a number of LNG export projects being considered on the West Coast to British Colombia, including our partnership with the BG Group. We're in the midst of the front-end engineering and design phase of that project and expect a final investment decision in the 2015, '16 timeframe. We showed you this slide in January, but thought it worthwhile revisiting as it summarizes the progress we're making on regional and segment basis. When you add up the numbers, you can see that we're poised to exceed our $25 billion end of decade target. SEP is now a significant entity that will finance expansions across our U.S. Transmission, Crude Oil and Liquids businesses. DCP Midstream will continue to finance its own growth and Spectra Energy will continue to finance the expansion of our Western Canada and Distribution segments. The flexibility of this structure allows us to finance all of this growth in the most efficient manner possible. That financial strength and flexibility allows us to focus on the future. As we've discussed, Spectra Energy is delivering on our commitments, that should come as no surprise to you and the investors who have been with us for the long-term and know the track record. What is noteworthy in my mind is the scale and scope of what we've delivered so far this year and the value creation foundation that, that lays for investors. We're in a good place today, but we're always looking ahead to better. That means we're focused on executing the $7 billion of expansion projects we have in the bucket today, filling the bucket further by securing contracts for additional attractive new projects that expand our portfolio and create strong sustainable value, realizing every means we have available from organic, greenfield and brownfield expansions to get into new and existing demand markets, to new lines of adjacent businesses, to acquisitions and financial structuring operations that make strategic and economic sense for our investors. The yardstick we use in evaluating any opportunity is its potential to create shareholder value. We are meeting that mark and we look forward to continuing our track record of doing what we promise. We shared a lot of information with you today and I hope we have conveyed the confidence and optimism that we're feeling. It's been a very solid quarter and we're excited about what the future for Spectra Energy, SEP and all of our investors holds. With that, let me turn things back over to John, so we can take your questions.

Okay. Operator, we're ready to take questions. If you'd give the instructions please.

[Operator Instructions] Your first question comes from the line of Darren Horowitz of Raymond James

A couple of questions for you, and I appreciate all the color around Express-Platte, but I'm curious if you could give us a little bit more color around the cost and the timing of what you're considering, and really trying to get a sense of if you had to rank the expansion dollars on a return on invested capital metric, do you think that you get more of a benefit by expanding capacity to move Canadian crude more so into PADD 2, or is it more a situation where you can get further downstream leverage by adding more terminal and distribution capability.

Yes, I think it's a bit of both. Getting into PADD 2, obviously, building on the existing footprint is very valuable. But I think, ultimately, if we can expand the size, and look, this isn't a next year build, if you will. It's out a couple of years, but it takes a long time to build that size of market. I think if we can get that leverage right down the Wood River, what it leaves is the opportunities to go further south. And I think that's an opportunity that working with some of the players that we have historically, some of the refiners and some of the other folks that own assets. People see a real opportunity in value and being able to use existing right of ways, existing pipe, et cetera. I'm not going through some of the challenges, perhaps, that others have on that front. So I think it's across the whole piece, if you will, Darren, as opposed to being in particular. But again, we'll try to give you some more details on that when we come out with our full plans in January and lay that at, at that point in time.

Okay. And then last question for me, has there been any update around how you guys look at realizing value for the general partner interest on DCP? I mean, obviously, we know the different levers that you can pull, but just from your perspective, in terms of monetizing that value, any update on timing or how you're thinking about it?

Well, what we've said on that front is that 2014 is a pretty big year for GP and LP increases at DCP. So as we're always doing and we'll always do, we're considering that option and one of them as you say, is looking at monetizing the GP side. If shareholders in Spectra Energy, and I guess, technically PSX don't fully recognize that growth we expect to see in '14, then we'll look at the other alternatives. But I would say that's something ongoing that we're doing at all the time, Darren. So we'll continue to update you as we get closer to a decision on that.

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

I wanted to first talk on the oil lines as well. You mentioned, Greg, some higher rates on Express, or at least on the presentation. Can you give us some color for us just on where current flows are on Express, can that 80% utilization rise to 100% without significant incremental costs, and then how the rates are tracking relative to where your prior expectations were?

Yes. Well, they were very much in line with our expectations. They've gone up as you know, you have an annual adjustment in those rates. The 2 25 number that we've now secured, you heard is about 80%. We have to keep by requirement, about 10% open. So, I guess, technically, you could get to 100%, but I think more in that 90% ranges from Express-Platte on an ongoing basis. So, I think that -- recently signed contracts that we signed up kind of in that $5 range is the way, I would think about that. But again, in line with what we expected. What we didn't expect is, obviously, see greater utilization in those volume rates, and I think really importantly, particularly, from a dividend perspective, you're seeing the contracts go from, call it 1.5 years to 11 years on average, that's where we're really seeing the value. And, obviously, when you fill up the pipe like that with committed contracts, which are take and pay type contracts, that's what really drives the need for those incremental investments as people see their opportunities that move product either out of Canada or further South. Let's see if we can expand existing assets and take advantage there.

Great. And you mentioned the consideration of value-enhancing structures and DCP just had a strong quarter. You mentioned the IPO potentially thought process of the GP type IPO. I wanted to know -- you're also considering as some sort of tax efficient way to get full value by selling your stake to Phillips 66? Is that something you guys would consider? And then second part is your view still that Western Canada is not appropriate for SEP at this time?

Yes. On the Western Canada side, I know some others have looked at that, but as you probably are aware, we don't pay cash tax on our Canadian earnings bringing it down. So that would be quite inefficient to do that. Not to mention, the cash taxes you would pay on that transaction would be significant, so we don't see how that would hunt. With respect to DCP, yes, look, I mean, everything is on the table. I think as you know, Steve, and with an extremely negative tax basis, which is a good thing, that means we've taken a lot of cash out over it, what a buyer for anybody's position in Spectra Energy -- Spectra Energy's DCP position would have to be very high to cover not only the tax bill, it's probably getting close to a couple of billion dollars. But, obviously, you've got to replace the earnings and cash that we get out of there, which is not insubstantial as you know, particularly as we start to see the assets that we put into service start to generate cash flow and I think it's fair to say that you -- we would expect to see an improvement in NGL prices over the next several years as those demands for those NGLs kick in. So all of that is taken into consideration both at Spectra Energy, but also in concert with Phillips 66 as well.

Your next question comes from the line of Bradley Olsen of Tudor Pickering.

As you think about some of the pipeline reversal projects out of the Northeast, including those that you've announced and are pursuing on Texas Eastern, how do you think about some of the markets that have historically been served by Western Canadian gas that are now looking at increasing market share gains, by gas out of the Marcellus and the Utica? And does that changing supply dynamic, alter the way that you look at your Canadian businesses?

Well, there's couple of things. One, think you're bang on. I think the Alberta Gas has some real challenges, if you look -- because that gas has moved along the mainline system in TransCanada into Ontario, and the markets in the East and obviously, the Northeast, U.S. and as you just pointed out, when you get the Marcellus well in excess of 10 Bcf a day, you don't need to utilize that pipe to the same extent. BC, which is where most of our assets are and where we process about 60% of the gas, that gas has always comes -- what -- to largely comes south historically in any event. And if you look at that, that's going to continue to come south. But importantly, it's going to offshore by LNG. And I think you see our projects in several of other projects that are going to be important, obviously, for the continued development up there. In the center part, I think the Great Lakes region, it does-- that decline in Western Canadian Eastern flows does make us think about things differently and NEXUS is a great example. NEXUS is an example that I hope early next year, we'll have to tell you we're moving into execution and there, you see a desire by Eastern customers and Marcellus and Utica producers, to push gas into Ontario and Québec and go around the Horn up further East. And that's why I think those types of projects, which you would even thought of 3 or 4 years ago, make a whole lot of sense. And obviously, our ownership in Union Gas and Enbridge's ownership and Enbridge's distribution and DTE's ownership in Michigan, helped to ensure those types of projects can be realized for the benefit not only of shareholders, but customers in the region. So I think a lot of different things are at play when you look at that, Bradley. We're seeing upwards of 700 to 1 Bcf of gas blowing it south now on a regular occasion. And I think that's the way things are going to go forward and that's without putting out a bunch of compression. So the nice part is we can deliver for our customers into the North East in particular things like New Jersey, New York, we could move customers into the Southeast and obviously, with projects like Florida, I think there's an opportunity to use the line in that basis as well. So the value of Texas Eastern for us, I'm concerned is actually going up each and every day, partly because of those Western Canadian dynamics.

Yes, that makes a lot of sense. And when you discussed the Gulf market expansion as $150 million a day out of the Northeast in terms of gas flows, a project that I don't think you mentioned was the Union Dale, the gas city project that I know it's been out there in the market and you have some commitments for. What could potentially either upsize the Gulf expansion, just given the huge lack of takeaway that I think Northeastern producers are facing over the next few years? And what could move the you U2GP into execution?

Well, I think -- first of all, I think what we said was the Gulf project is $150 million, but it's actually got 650 million cubic feet a day of capacity on it. So that's a lot of gas moving. Obviously, the Union Gas to gas city piece, we've just -- that project is running around 425 million cubic feet per day. Relatively small, $60 million project, but I think what it does do is really if we get much above that. We're going to see some opportunity to further expand that opportunity -- expand that growth. Really, what will make it even go bigger, I think is just the continual increase as producers, realize how much gas is actually being produced in the Utica and Marcellus, and we're really looking for outlets. And so I don't think there's any magic so to speak on the demand side. I think the demand side is coming along. I really think it's the producers side that's really looking for those markets to happen. The demand side is probably a little further out, but as you know, from a producer perspective, it's often, we're not quite ready yet and we're not quite ready to sign up, and I was like where is it, where is it, and so we're trying to be on the front end of that to be able to exceed on that front. I think the other opportunity we're seeing opportunities in Louisiana and be able to expand projects like the Gulf project in Louisiana. Everything from gas-to-liquids types transactions, that's not ready for prime time yet, but I think those are getting closer and you'll see further, therefore, opportunities for us to reverse flow into the Gulf Coast regions for demand purposes such as that.

Okay, and just one more, if I may, on the strategic side. Given all of the projects in the Northeast and around Texas Eastern, as well as the growth in DCP. It does appear that there is -- when you include the Canadian business, there is a persistent discount in terms of the way that you guys trade against some of your peers. And you mentioned earlier how the low tax basis in your Canadian business, kind of limits your ability or maybe reduces the attractiveness of some potential spinoffs or IPOs or alternatives for the Canadian business. Now if I'm understanding the tax basis issue, it effectively reduces your ability to pay or to fully pay out dividends from West Coast to your U.S. based, SE shareholders. So is it right to say that this tax leakage will be created by a spinoff or is it more accurate to say that the tax leakage is already impairing the cash payout to U.S. shareholders and it would just be realizing that tax leakage all at once to do a spinoff.

Well, 2 different things when we were talking about the tax leak that was vis-à-vis putting some of those Canadian assets into the MLP. You could spin out part of the Canadian assets with some tax leakage, but not a ton. But I guess I would suggest that when you look at where those Canadian assets might trade relative to the peers in those locations, we actually don't see a discount from the way they trade inside Spectra Energy, Brad, so that's a bigger issue. Secondly, we also have a lot of CapEx up there, an opportunity and size is a very important issue for our customers, particularly on the LNG front. And then lastly, strategically important as I pointed out with NEXUS, the Union Gas assets inside the Spectra family serve 2 really important purposes: one from a credit perspective and two, to be able to support things like the NEXUS type projects. So I don't think it's just a valuation perspective and I wouldn't say there is the type of valuation discount that you look at -- when you look at what Canadian midstream assets trade at and Canadian utilities vis-à-vis where we see those trading inside of Union. And the tax issue in Canada was more for the MLP, if you sold off Canada, you take a tax issue, but the spin wouldn't be that case. As we've said, look, I mean we may look at everything and reevaluate them all the time, Brad, but I think the greatest opportunity right now for shareholders is really around being able to realize the value for CP [ph] and LP cash flows at DCP. And we'll continue to work with 66, DCP and ourselves to see how best to realize that.

Your next question comes from the line of Curt Launer of Deutsche Bank.

I'll move the discussion back a little bit to fundamentals and ask if you could give us some more information relative to the impact of propane on the quarter. There seems to be a very bifurcated propane market right now, shortages in the Midwest, those kinds of things. It's not quite a year ago, we were talking about propane as a drag on the earnings and now certainly, it does seem better. So if you could update us relative to the commodity leverage factors that we should be watching for, I'd appreciate that.

Yes, I think propane is a good thing to look at, kind of north of $1 on propane what we're seeing right now, and relative to the quarter, I think we went from $0.70 to about $1 in that perspective. Is that right?

In overall, our NGL barrel was $0.72 to $0.78 and propane was a big driver in that, Curt. And as you know we're really effected in 2 places. One is in Western Canada at our Empress processing plant. Our earnings were up $32 million there this year over last year, where we had losses and that's really driven by propane. And then in Field Services, higher commodity prices helped us almost $20 million this quarter versus a year ago. Propane is up about 16% year-over-year in this quarter. So that's been very helpful to have it stabilize around the $1 a gallon.

I think the other dynamic that you're seeing is twofold. There is good piece on Wall Street Journal this morning or last night that you may have seen on crop drying, as smart as everybody is on their models and stuff, I think we often forget that often this business, both on the gas and NGL side it’s about weather, weather and weather. And crop drying often unforgotten about how that impacts things that you're seeing that the some of your points really in the Midwest. And then, of course, the export side of things. As those exports elements kick in, we think that puts a nice floor around propane, and barring not having a winter in the fourth quarter, we think that gives us a nice opportunity to do well in the fourth quarter on those commodity fronts as well.

Your next question comes from the line of Carl Kirst of BMO Capital.

I think really I just have a few cleanup questions at this point. But actually maybe Greg, first on NEXUS, I appreciate the timing of maybe getting 2 contracts here at year end with the LDCs. Just to clarify then, does any producer support needed to move that forward? And really, was it the settlement perhaps, with TransCanada that kind of derisked this project to allow it to move forward? Or I guess I just want to make sure, if there any other gating factors we have to be aware of between now and when this might move into execution?

Oh yes, absolutely. We -- well, 2 things. One, I think the settlement with TransCanada, which was largely around, as you know, long-haul rates, et cetera and elements of that, I think valuable for both TransCanada as well as the 3 LDCs involved. Definitely, you would need producers support to move this project forward. The LDC has just become a nice for their own reasons around diversity of supply and price, a nice help in terms of underwriting a considerable portion. But the vast majority of this would still have to be taken up with producers and what I'm saying is that I think we can get the long ways down the trail by having the LDCs sign up the contracts, and we are starting to see producers, again given the type of volumes being developed and, in fact, realized and produced in the Utica and the Marcellus now looking for what are their other alternatives. So I would not say this project could move forward the LDCs on their own in any way, shape or form. We will need producer support there, Carl.

Okay. No, appreciate the clarification. And then actually, just a couple of small questions maybe for Pat, and just going to the Field Services, DPM equity issuances, so we have our models ticked and tied. Can you tell us what the accounting gain was in the third quarter and I guess year-to-date, if there were any in the first half of the year, if I recall correctly, I think it was roughly $35 million that was in guidance, was that about right?

We had about $35 million in the budget for the year in our guidance. Our equity issuance gains in the third quarter, our share of that were $41 million and year-to-date, they are $91 million.

Year-to-date at $91 million, Okay

Correct.

And then last question, you had and I appreciate, I guess the emphasis on the noncontrolling interest with respect to the MLP and the difference between the EPS solution on the cash flow accretion. So you mentioned with the last 2 months here, we might get a $0.02 to $0.03 negative impact on EPS. Do you have a sense of what the cash flow accretion would be at the same time?

We're really not updating our cash flow expectations either for SEP or for SE. We did at the time in August that we announced the big drop, we did indicate that cash available for distribution for SEP next year will be about $900 million on a full year basis. And you could, I suppose between SE and SEP, you could prorate that for maybe 2/12 of the year for November-December and maybe get close. But we're at this point, really not going to update our CAD or DCF outlook.

Your next question comes from the line of Faisel Khan of Citigroup.

So I just want to make sure that the looking the earnings of DCP, I know that Carl asked the questions there, but Phillips had mentioned some sort of hedging gain, I know you guys don't hedge, but I just want to make sure there wasn't any other sort of number sort of baked into the results?

No. I mean I think you really seeing, as I think we've laid it out in the slide, you're seeing really bigger volumes due to the asset growth, which was the biggest impact, frankly, from a positive perspective and the business front, a pickup from commodity price and lower cost is really what you're seeing. But nothing on the hedging front.

Okay, fair enough. And just on the New York-New Jersey pipeline, how do those -- can you give me kind of granularity, how do those flows sort of ramp-up, is that once you turn the pipe on, it's immediately [indiscernible]linked into the market? Or it does it -- or there -- does it ramp-up slowly and then is there some big displacement it takes place in other parts of the market that kind of result in I guess a lower basis differential into the city?

Well, Faisel, with 1 day in operation, I can tell you the pipe is full and that is desperately needed chunk of pipe and I think we're around 700 million or 800 million cubic feet a day in terms of nominations and, frankly, I'm sure we all wished we'd built even a bigger pipe given the importance of that.

Okay, fair enough. And then do you guys have an idea kind of what the impact to your kind of your crude oil sort of pipeline business, would be with the addition of Pony Express sort of coming online kind of in the next several months. Does that help your business, does it hurt your business, how does that work for you?

Well, it doesn't hurt, I mean in terms of more flows and -- but again, now that we've contracted basically up to almost full capacity in pipe barring what we're required to hold for walk-up customers, if you will, it really doesn't have a huge impact, Faisel. Maybe it'll have some impact on the being able to use the other 10% and being able to get full value for those rates. So sure isn't the negative, but from a contractual growth perspective, I don't think it's a large impact.

Okay, and then just on the Florida pipeline, do you guys have to make orders for sort of long lead time items now? Or do you wait to get through the FERC filings process?

No, no, no. We can't wait to get all the way through the FERC filings process. So I mean we're -- make the FERC filings process be getting as 27 months or so. So we would start to order and/or hold mill space, for example, for pipe and any compressor work, so we'll start to do that. Now the good thing with obviously, with the $25 billion worth of projects, if for some unforeseen reason, you didn't need all those assets, you could use them in other pipes. So we always given the size of the company, given the size of the projects, we don't wait to last time to order that stuff and sometimes, Faisel, you can lock in good pricing from that perspective and obviously reduce some of your cost risk as well.

Okay. And in terms of that the large backlog of projects, I mean, is it true that the company is also sort of filled large backlog of projects too? How do you guys mitigate sort of the-- some of the labor and see sort of these issues -- are you seeing any type next year, I mean there seemed to be a lot of people that are targeting 2017, 2018 for a lot of projects to come online. And so...

We haven't yet. And we've been -- we've built 55 or 60 projects over the last 4 or 5 years, and every once in a while you run into issues, but I would still say the biggest issue particularly on the lower 48 is still weather. When we ran into issues around construction, it's usually been around weather on the construction end, and on the front end, it's just making sure you get through the regulatory side of things. So you can build when you say you will build. But so far we have not seen a lot of tightness on the labor side or on the steel side and I think partially, on the labor side, not everybody is going to move to build the pipeline or at least the actual individuals from say Florida 1 month and then up into New Jersey, New York, even the next year kind of thing. So I think you're seeing a relatively good spread . And of course, on things like product, whether it's compressors or steel, those are globally priced stuff and so while we continue to see weakness in some other parts of the world, we are not seeing pressure on the cost. The one delta I would point out is that I think Western Canada, and I think you see that with a lot of big oil projects in Western Canada, that's a tight labor market with a lot of growth and you've seen that in some of the projects right across the entire industry. So that's one of the caveat I put out there but the lower 48, so far so good.

Your next question comes from the line of Matthew Akman of Scotiabank.

On NEXUS, just going back to the linkages maybe between that and the agreement with TransCanada, it feels like the project has have been over-accelerated since last quarter now with firmer agreements possibly in place by year end. I'm just wondering if that is partly coincident with the TransCanada agreement not because utilities can take more capacity on NEXUS, but because maybe the producers feel more confident that once the Utica gas gets up into Ontario, it can move around to where it needs to get to and the TransCanada won't sort of gum-up the system. Is that the sort of the way to look at it, Greg?

Well, I think that's fair. I mean as I said, in terms of getting agreements by the end of the year, I think what I've said was LDC agreements, so I'm not convinced, we're going to have all the producer agreements yet in place but I think that's the first step and then get the producers inside. But there's no doubt the idea of being able to move gas along the backbone in Ontario, which is you know we own the Dawn-Trafalgar line, that's an important component being able to sell that the project and the opportunity. So I think fair comment, but again we've got to get producers on site first, so I don't want to overstate, by the end of the year the present agreements on the LDC front the producers stuff is still to come.

Okay. Moving to Express-Platte, an interesting commentary on possibly doubling it or expending it. I wondering if you thought about whether that order require a presidential permit and if so, what would your strategy be politically, would it be the wait on Enbridge and TransCanada and see how they do on that front or to just go ahead with shipper commitments and hope that falls your way?

No, you look at it, if you change the pipeline, you're going to need the presidential permit. I mean, I know there's one presidential permit, that everybody focuses on actually but there are presidential permits done on a regular basis. And I guess, this would be a project or a build out that would be post 2016; I would also point out, just given where it's late 2013. So you wouldn't need all that place in till later. And no, we wouldn't wait on to see what Enbridge and TransCanada is doing and we have our own competitive reasons to move forward if you got support. They would pursue their own projects that may or may not provide similar or like services.

Your next question comes from the line of Becca Followill of U.S. Capital Advisors.

My questions have been asked and answered.

Your next question comes from the line of Ross Payne of Wells Fargo.

Greg, first for you, if you did want to get a mark on the GP of DPM, of being DCP Midstream, LLC, over time do you see that as a pure play? Would you drop most of the assets down the DPM? Or from a tax efficiency standpoint, could you drop any of those assets to SEP or PSXP?

Okay, fine. I think on the GP said, it's not contingent in dropping a bunch of assets into the DPM. I mean we have put out numbers that by 2014, you've got a couple of hundred million dollars of GP and LP cash flows coming to DCP from DPM. I think you have to be a little careful about dropping all those assets into DPM because remember, there's large commodity exposure there, which would have require to a very large coverage ratio at DPM, which might actually not serve you that well and we hold that risk today in any event. So we'd have to think through that. We would not see moving any of the DPM assets that are commodity-based anyways moving into SEP. That being said, as you know, we moved -- our Sand Hills and Southern Hills are proportioned into SEP. I think that's because of the general fee-based nature of those assets. So to the extent both types of assets exist, that's definitely something we'd consider.

And we're certainly watching, Ross, we're watching how others that have done this, how their units are trading and what it's doing for the parents. You can look like at planes, who took their GP public recently at $22 and it's trading at about $22 today. We've taken a look at western gas and whether that has or hasn't moved the needle for Anadarko. So it's really not about creating another currency to trade out there. It's really can you give value uplift for Spectra Energy; and if you can, we and I'm sure our partner would be very open to that. So it is no reluctance. We've talked about the same thing with the Canadian assets, as Greg mentioned. 2/3 of our income up there is regulated, and so if you look at a comparable regulated entity like a Fortis, they trade at 10x, we think we're trading at 12x. So we're being very thoughtful about this. We're all about creating value where we can, with partial spins or a partial IPOs makes sense in our particular circumstances, we're very interested in that. You noticed that others that who've talked about dropping Canadian assets are going to pay a couple hundred million in taxes and they might need to do that to improve coverage. Our coverage is above 1. So you got to think about the facts and circumstances really of each company and we're being very, very thoughtful about that.

Okay, that's very helpful. I just want to make sure I'm clear on the tax consequences. Obviously, there's probably not too many tax consequences if you did move additional assets down to DPM, but I wanted to ask, if you wanted to move assets out of DCP Midstream, LLC, directly to SEP or PSXP from a tax standpoint and I know there are commodity issues there from a tax standpoint, would there be issues to dropping to those particular MLPs?

Generally speaking, no.

Okay. All right. And then one final question, given the potential to loop Express, it doesn't take you a lot to get over to Texas Eastern or maybe repurpose one of those pipes bring crude South is that something you're thinking about or something we can maybe expect in the future?

Yes, thanks, Ross. Moving Texas Eastern south, is not something we're thinking out. We'd look at different ways. Remember, Texas Eastern is full. And so I know some other pipes, they've been able to repurpose the oil. But when your pipe is fully utilized and contracted, I know like the contracts again they came up for renewal this year, 98% plus recontracted. So we don't have holes in our pipe for lack of utilization. So I don't see that being the way in which we would go.

And your final question comes from the line of Josh Golden of JPMorgan.

Just a quick question concerning Allstate corridor[ph] holders and particularly on the credit side, so there's a lot of discussion of structuring. So can you sort of remind the marketplace with respect to Spectra Energy to C-Corp, what your policy is around credit ratings presently and going forward? And how you would take care of your bondholders, keeping in mind any type of restructuring actions that you may or may not undertake at the C-Corp?

Josh, this is Pat. That's a great question because I don't want to leave you the call today without emphasizing that when we think about structure we do think about the impact on all our stakeholders, including on the fixed income side and one of the things that has been an objective of ours with the drop of a big portion of our assets to Spectra Energy Partners, obviously, from a structural subordination standpoint, we're moving those assets one entity away from where they were from SE capital's perspective and that can put some pressure on your rating. It's been our objective to remain investment grade rated at Spectra Energy Capital and Spectra Energy. We think it's important to have dry powder. You saw that we are able to use SE to acquire Express-Platte when that wouldn't have made sense to acquire at the MLP because of some tax considerations. So being able to do some things at top is helpful. Having said that, we are retiring quite a bit of debt at SE Capital. We'll be down to about $3 billion after the drop. So most of the new debt will in fact be raised in the U.S. down at Spectra Energy Partners. But it's not our desire to let our SE Capital ratings go, we still think that's important to the extent we can influence of that outcome.

Okay and with that, we're out of time today. So I'd like to thank everyone for joining us on the call. We do look forward to seeing you tomorrow, either in New York for breakfast or Boston for lunch to those who are going to able to join us. And for your 2014 planning calendars, we do plan to announce our fourth quarter and year end results on February 4, and we plan to host an Analyst Meeting in New York on the following day, February 5 to share our 2014 business plans for Spectra Energy and Spectra Energy Partners. As always, if you have any additional questions, please feel free to call Roni Cappadonna, Derick Smith or me and with that, thank you for joining us today.

This concludes today's conference call. You may now disconnect.