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Commodity Prices, Weak Canadian Dollar Could Hurt Spectra in Q1

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Spectra Energy’s segments

Spectra Energy (SE) carries out its operations through four reportable segments:

  • Spectra Energy Partners (SEP)
  • Distribution
  • Western Canada Transmission and Processing
  • Field Services

SEP contributed 71% of SE’s 4Q15 EBITDA (earnings before interest, tax, depreciation, and amortization). SE forms ~1.7% of the Energy Select Sector SPDR ETF (XLE).

SEP’s 4Q15 EBITDA growth mainly came from expansion projects in its natural gas transmission business. These projects should continue to contribute to the segment’s EBITDA in 1Q16.

ONEOK (OKE), through its MLP ONEOK Partners (OKS), is also involved in natural gas transportation and storage. The two companies are scheduled to report their 1Q16 results on May 3.

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Spectra Energy’s Distribution segment

The above graph shows the segmental contribution to SE’s EBITDA over six quarters. The Distribution segment reported 4Q15 EBITDA of $113 million, compared with $132 million in 4Q14. The fall in SE’s Distribution segment’s EBITDA could be almost exclusively due to a weaker Canadian dollar. As we discussed in the previous part of this series, a weak Canadian dollar in 1Q16 will likely hurt the segment’s EBITDA for the quarter.

Western Canada Transmission and Processing segment

The fall in SE’s Western Canada Transmission and Processing segment’s EBITDA could also be mainly due to a weak Canadian dollar. Lower commodity prices have also impacted the segment’s NGL (natural gas liquids) operations in Empress, Alberta. This trend is expected to continue in 1Q16 as well.

On April 4, 2016, SE announced the sale of its Canadian natural gas liquids business to Plains Midstream Canada, a unit of Plains All American Pipeline (PAA), for ~200 million Canadian dollars.

Spectra Energy’s Field Services segment

The fall in SE’s Field Services segment’s EBITDA is mainly due to continued low commodity prices. Low prices in 1Q16 will likely continue to hurt its performance for the quarter.

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