By Saabira Chaudhuri
Spectra Energy Corp. (SE) has agreed to sell its remaining U.S.
transmission, storage and liquids assets to Spectra Energy Partners
L.P. (SEP) for close to $10 billion, while also reporting its
second-quarter earnings fell 7.4% as higher expenses overshadowed
stronger revenue.
Spectra Energy had first unveiled the plan to sell the assets in
June, a move it said would allow both companies to increase their
dividends. The company had said Friday it closed the drop-down of
50% of the Express-Platte crude oil pipeline system to Spectra
Energy Partners for about $729 million in cash and stock.
In the latest move, Spectra Energy said it will drop the other
half of the Express-Platte pipeline assets, as well as all of the
company's interest in the Sand Hills and Southern Hills pipelines.
Spectra Energy will get 172 million limited partner units of
Spectra Energy Partners, about 3.5 million newly issued general
partner units to retain its 2% general partner interest, and $2.2
billion in cash.
In addition, about $2.5 billion of debt will be assumed by
Spectra Energy Partners.
The deal is expected to close by the end of the year. Spectra
Energy said the deal will allow for a "significant dividend
increase" at Spectra Energy and "sizeable increases" in Spectra
Energy Partners' distributions to unitholders.
Once the deal closes, Spectra Energy Chief Executive Greg Ebel
will also become CEO and chairman of Spectra Energy Partners.
Spectra Energy Partners--which on Tuesday reported its
second-quarter profit climbed 5.1% amid higher equity the in
earnings of affiliates--said after the drop-down its estimated 2014
earnings before interest, taxes, depreciation and amortization will
be about $1.48 billion, while cash available for distribution will
be about $900 million, respectively.
For the second quarter, Spectra Energy Corp. reported a profit
of $199 million, or 30 cents a share, versus a year-earlier profit
of $215 million, or 33 cents a share.
Operating revenue was up 9.7% to $1.22 billion.
Analysts polled by Thomson Reuters had most recently forecast
earnings of 32 cents on revenue of $1.22 billion.
Overall operating expenses climbed 16% to $866 million.
"Spectra Energy's earnings for the quarter were in line with the
company's expectations, but more importantly, we have secured $3
billion of new expansion projects so far this year," Chief
Executive Greg Ebel said. "Spectra Energy is in the midst of a
major capital expansion program with $25 billion in growth
opportunities through the end of the decade."
Spectra Energy Corp. said it is "pursuing a number of
opportunities associated with its crude oil assets." The company
said since its acquisition in March, the Express-Platte System has
seen significantly better results than anticipated. Due to what it
said is heightened demand, the company has initiated a binding open
season for additional committed capacity on the Express pipeline,
which will close on August 9.
The pipeline and natural-gas storage company, which operates
natural-gas pipelines and storage facilities in North America--like
its peers--has recently seen lower transmission revenue.
For the second quarter, U.S. transmission operating revenue
slipped 1.7%, while distribution revenue climbed 9.3%.
Spectra Energy reported an 8.5% jump in operating revenue from
the Western Canada transmission and processing segment.
Following Spectra Energy's June announcement, investor Sandell
Asset Management urged the company to review strategic options for
its Canadian operations, including a possible initial public
offering. It also urged Spectra to review option for its stake in
DCP Midstream Partners LP (DPM), including a possible dropdown or
sale, and urged broad cost cuts across Spectra's businesses.
Shares of Spectra Energy closed Monday at $36.01 and were
inactive premarket. Common units of Spectra Energy Partners closed
at $43.46 and were also inactive.
Write to Saabira Chaudhuri at saabira.chaudhuri@dowjones.com
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