Natural gas prices fluctuate like any other energy product. As long as we want to heat our homes and office buildings and turn on the lights, however there will be plentiful demand. That’s good news for Spectra Energy (SE), which represents the natural gas assets spun off by Duke Energy (DUK) four years ago. Spectra is a mid-stream company involved with all elements of the natural gas business. That includes gathering, processing, transmission, storage, and distribution.
The company’s U.S. transmission division owns long-distance pipelines and storage facilities that carry 12 percent of the gas used in North America and account for almost half of the company’s earnings, according to Morningstar data.
That’s advantageous for Spectra because natural gas pipelines create steady revenue through long-term contracts, acting like a toll road with Spectra as the toll collector.
The company’s ongoing net income from controlling interests soared 58 percent in the second quarter to $275 million from $174 million a year earlier. Operating revenue climbed 12 percent to $1.19 billion.
"We had another very good quarter, delivering earnings ahead of our expectations,” Spectra CEO Greg Ebel said. “The quarter's results reflect earnings growth from our expansion projects, higher commodity prices, and a stronger Canadian dollar."
The Canadian dollar has a major impact on Spectra because some of its gathering, processing, and distribution assets are in Canada.
Ebel predicted the company will meet or exceed its previous earnings forecast of $1.65 per share for 2011 as a whole.
Standard & Poor’s analyst Tanjila Shafi has a four-star buy rating on the stock. “Our buy recommendation is based on our view of improving fundamentals at the company's field services and U.S. transmission segments, reflecting higher volumes and prices,” Shafi writes.
“We believe the company's fee-based businesses and expansion projects will enhance earnings growth in 2011. Spectra next reports around Nov. 3.
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