Natural gas company Spectra Energy Corp. (SE) Thursday reported a sharp decline in its third-quarter profit, hurt by lower revenues and other income, amid a weak commodity pricing environment. The company's ongoing earnings per share were lower than last year, yet managed to come in above analysts' forecast. The Houston, Texas-based company also confirmed its ongoing earnings per share outlook for fiscal 2009.
The company reported third-quarter net income from controlling interests of $191 million or $0.30 per share, compared to $296 million or $0.48 per share in the prior year quarter.
Ongoing net income for the quarter was $190 million or $0.30 per share, down from $302 million or $0.49 per share last year. On average, 11 analysts polled by Thomson Reuters expected the company to report earnings of $0.26 per share for the quarter. Analysts' estimates typically exclude special items.
Spectra also reported quarterly operating revenues of $933 million, down from $1.08 billion in the prior-year quarter. Six analysts had a consensus revenue estimate of $986.24 million for the quarter.
For the second quarter, the company reported net income from controlling interests of $140 million or $0.22 per share on operating revenues of $937 million.
Based on segments, U.S. Transmission generated revenues of $427 million, up from $402 million a year ago. Earnings before interest and taxes, or EBIT, were $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, the company noted.
Distribution revenues declined to $244 million from $280 million in the previous year. EBIT was $48 million, compared with $44 million a year ago. 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, Spectra stated.
Western Canada Transmission & Processing posted revenues of $260 million, lower than the $397 million reported last year. EBIT slid to $84 million from prior year's $113 million. Improved revenues in the fee-based gathering and processing business, due to stronger activity in the Fort Nelson and Grizzly Valley regions, were more than offset by lower Empress earnings on lower frac spreads. Frac spreads at Empress averaged $6.75 for the quarter, compared with $10.86 in the third quarter of 2008.
Further, the company said that Field Services reported third-quarter EBIT of $45 million, compared with $239 million a year ago, primarily driven by lower commodity prices. Crude oil averaged approximately $68 per barrel in the quarter, compared with approximately $118 per barrel last year. Additionally, NYMEX natural gas averaged $3.39 per million British thermal unit, or MMBtu, lower than the $10.24 per MMBtu during the same period in 2008.
Spectra also said that the third-quarter results were 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.
According to Greg Ebel, president and chief executive officer, Spectra Energy Corp., the company's 2009 expansion projects are being completed on time and on budget, and the company is realizing returns on these projects that exceed the high end of its expectations.
For the nine-month period, the company reported net income from controlling interests of $629 million or $0.98 per share, a sharp decline from $958 million or $1.52 per share a year ago. Operating revenues declined to $3.25 billion from $3.81 billion last year.
Among others in the sector, El Paso Corp. (EP) has reported a huge decline in profit for the third quarter, impacted by the lower oil prices, which more than offset an increase in revenues from pipeline segment. The Houston, Texas-based company's net income attributable to common shareholders plunged to $58 million or $0.08 per share from $436 million or $0.58 per share in the prior year period. Operating revenues were $0.98 billion, down from $1.59 billion a year ago.
Another peer, Enterprise Products Partners L.P. (EPD) reported higher profit for its third quarter on lower expenses, despite a 27% fall in revenues on lower commodity prices. Net income for the quarter was $229.9 million, compared with $211 million a year ago. Net income attributable to the company increased to $212.9 million or $0.36 per unit from $203.1 million or $0.38 per unit last year. Revenues slid to $4.60 billion from $6.30 billion in the same period of fiscal 2008.
Going forward, Spectra said that it is on track to meet the financial goals it has set for fiscal 2009. The company continues to expect full-year ongoing earnings per share of $1.15. Wall Street analysts look for full-year earnings of $0.26 per share.
"Given our 2010 expansion projects, we are well positioned to experience good earnings growth," said Ebel.
SE closed Wednesday's trading at $19.47, up $0.18, on a volume of 3.91 million shares.
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