Nov. 5, 2009 (PR Newswire) --

HOUSTON, Nov. 5 /PRNewswire-FirstCall/ -- Spectra Energy Corp (NYSE: SE) today reported 2009 third quarter net income from controlling interests of $191 million, or $0.30 EPS, compared with $296 million, or $0.48 diluted EPS, in the prior year quarter. Ongoing net income was $190 million, or $0.30 EPS, versus $302 million, or $0.49 EPS, during the same period last year.

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"Spectra Energy had a solid quarter. We saw good performance from our fee-based businesses, which helped to offset the effects of much lower commodity prices, and continued executing extremely well on our capital expansion plan. Our 2009 expansion projects are being completed on time and on budget and we are realizing returns on these projects that exceed the high end of our expectations," said Greg Ebel, president and chief executive officer, Spectra Energy Corp.

"We are on track to meet the financial goals we have set for the year, including our 2009 EPS target of $1.15 and, given our 2010 expansion projects, we are well positioned to experience good earnings growth," said Ebel.

SEGMENT RESULTS

U.S. Transmission

U.S. Transmission reported third quarter 2009 earnings before interest and taxes (EBIT) of $239 million, compared with $213 million in third quarter 2008. The 2008 period included a $4 million charge for the final resolution of a customer bankruptcy settlement.

Ongoing EBIT for third quarter 2009 was $239 million and, excluding the above special item, compares with $217 million in the prior year quarter. The segment benefited from business expansion projects and capitalization of previously expensed project development costs. These earnings were partially offset by lower gas processing revenues as a result of lower prices and volumes, and a non-cash regulatory accounting adjustment related to Southeast Supply Header.

Distribution

Distribution reported third quarter 2009 EBIT of $48 million, compared with $44 million in third quarter 2008. Excluding the effect of the weaker Canadian dollar, earnings were $6 million higher this quarter. The segment continued to benefit from higher storage and transportation revenues during the period.

Western Canada Transmission & Processing

Western Canada Transmission & Processing reported third quarter 2009 EBIT of $84 million, compared with $113 million during third quarter 2008. Excluding the effect of the weaker Canadian dollar, earnings were $24 million lower than in 2008. Improved revenues in the fee-based gathering and processing business, due primarily to stronger activity in the Fort Nelson and Grizzly Valley regions, were more than offset by lower Empress earnings, primarily as a result of lower frac spreads. Frac spreads at Empress averaged $6.75 for the quarter, compared with $10.86 in third quarter 2008.

Field Services

Field Services reported third quarter 2009 EBIT of $45 million, compared with $239 million in third quarter 2008. The decrease in earnings was primarily driven by lower commodity prices. During third quarter 2009, crude oil averaged approximately $68 per barrel, compared with approximately $118 per barrel in the prior year quarter and the NGL to crude relationship averaged 42 percent versus 51 percent in third quarter 2008. Additionally, NYMEX natural gas averaged $3.39 per million British thermal unit (MMBtu), compared with $10.24 per MMBtu during the same period in 2008.

Third quarter results were also affected by higher interest expense and lower non-cash mark-to-market gains on hedges used to protect distributable cash flow at DCP Midstream's master limited partnership. The decrease in earnings was partially offset by lower operating costs as a result of continued cost reduction initiatives.

For the quarter, DCP Midstream paid distributions of $31 million to Spectra Energy. DCP Midstream expects to have paid to Spectra Energy distributions totaling approximately $100 million by the end of the year.

Other

"Other" reported net costs of $10 million in third quarter 2009, compared with net costs of $9 million in third quarter 2008.

Interest Expense

Interest expense was $160 million for third quarter 2009, compared with $163 million for third quarter 2008.

Income Taxes

Third quarter 2009 income tax expense from continuing operations was $54 million, compared with $145 million reported in third quarter 2008. The decrease was primarily a result of lower earnings in 2009, as well as a lower effective tax rate. The effective tax rate was 20 percent in third quarter 2009, compared with 32 percent in third quarter 2008. The lower effective tax rate in third quarter 2009 is primarily the result of a higher proportion of earnings coming from Canadian sources that are taxed at lower rates, and favorable tax settlements.

Special Items Affecting Spectra Energy's EPS for the Quarters Include:
(in millions, except per-share amounts)
---------------------------------------

Net Income -
Controlling
Pre-tax                 Interests       EPS
Amount    Tax Effect     Impact      Impact
-------    ----------   ------------  ------

Third Quarter 2009   $-          $-             $-         $-
==          ==             ==         ==

Third Quarter 2008
Customer
Bankruptcy
Settlement       $(4)         $1            $(3)        $-
---          --            ---         --
Total Special
Items              $(4)         $1            $(3)        $-
===          ==            ===         ==

Reconciliation of Reported to Ongoing Net Income
(in millions)
------------
Quarters Ended
September 30,
2009          2008
----          ----
Net Income - Controlling Interests
as Reported                                   $191          $296
Adjustments to Reported Net Income -
Controlling Interests:
Special Items                                  -             3
Discontinued Operations                       (1)            3
---             -
Ongoing Net Income                             $190          $302
====          ====

Reconciliation of Reported to Ongoing Diluted EPS
-------------------------------------------------
Quarters Ended
September 30,
2009           2008
----           ----
Diluted EPS as Reported                     $0.30          $0.48
Discontinued Operations                    -           0.01
-           ----
Diluted EPS, Ongoing                        $0.30          $0.49
=====          =====

Additional Information

Additional information about third quarter 2009 earnings can be obtained on the Spectra Energy Web site: www.spectraenergy.com.

The Analyst call is scheduled for 9 a.m. CT today, November 5, to discuss Spectra Energy's third quarter results. The webcast can be accessed on the Investors Section of Spectra Energy's Web site and the conference call can be accessed by dialing (888) 252-3715 in the United States or Canada, or (706) 634-8942 for International. The conference code is "34956220" or "Spectra Energy Quarterly Earnings Call."

Please call five to ten minutes prior to the scheduled start time. A replay of the call will be available until 7:00 p.m. CT, February 12, 2010, by dialing (800) 642-1687 with conference ID 34956220. The international replay number is (706) 645-9291, with above conference ID. A replay and transcript also will be available by accessing the Investors Section of the company's Web site.

Non-GAAP Financial Measures

We use ongoing net income and ongoing diluted EPS, which are non-GAAP financial measures as they represent net income (controlling interests) and diluted EPS, adjusted for special items and discontinued operations, as measures to evaluate operations of the company. Special items represent certain charges and credits which we believe will not be recurring on a regular basis, and discontinued operations do not represent our ongoing core business. We believe that the presentation of ongoing net income and ongoing diluted EPS provide useful information to investors, as it allows them to more accurately compare our ongoing performance across periods. Ongoing diluted EPS is also used as a basis for employee incentive bonuses.

The primary performance measure used by us to evaluate segment performance is segment EBIT from continuing operations, which at the segment level represents all profits from continuing operations (both operating and non-operating) before deducting interest and taxes, and is net of non-controlling interests related to those profits. We consider segment EBIT from continuing operations, which is the GAAP measure used to report segment results, to be a good indicator of each segment's operating performance as it represents the results of our ownership interests in operations without regard to financing methods or capital structures.

We also use ongoing segment and Other EBIT as a measure of performance. Ongoing segment and Other EBIT is a non-GAAP financial measure as it represents reported segment and Other EBIT adjusted for special items. We believe that the presentation of ongoing segment and Other EBIT provide useful information to investors, as it allows them to more accurately compare a segment's or Other's ongoing performance across periods. The most directly comparable GAAP measure for ongoing segment or Other EBIT is reported segment or Other EBIT, which represents EBIT from continuing operations, including any special items.