Spectra Energy Partners (NYSE:SEP) isn't big on making headlines. The company is more known as a natural-gas transmission master limited partnership that has steadily grown the business along with its payout to investors. Those looking for a rather dull income investment couldn't have asked for more.
This past quarter, though, Spectra was quieter than usual, with no announcements about potential projects or corporate moves, or even a comment about the business' performance in its second-quarter earnings release. Management's silence is likely a product of one thing: parent company Enbridge's (NYSE:ENB) pending offer to acquire the remaining shares of Spectra.
Let's take a look at Spectra's most recent quarterly results and try to read the tea leaves concerning management's lack of discussion in recent months.
Spectra Energy Partners: By the numbers
|Metric||Q2 2018||Q1 2018||Q2 2017|
|Operating revenue||$726 million||$779 million||$695 million|
|EBITDA||$570 million||$596 million||$519 million|
|Distributable cash flow||$398 million||$453 million||$341 million|
The seasonal aspect of Spectra Energy Partner's business -- transporting natural gas to utilities -- means that comparing consecutive quarters doesn't provide a lot of insight. The first quarter of the year is typically Spectra's best quarter thanks to high volumes of gas for its transmission business. Compared to the prior year, though, the partnership's results continued to march forward with new projects starting up, boosting distributable cash flow. This past quarter, the addition of its Sabal Trail pipeline was the reason for most of its gains.
The second half of the year is expected to be a watershed moment for Spectra, as several of its major capital projects are scheduled to go into service. The NEXUS, TEAL, and Atlantic Bridge pipelines -- along with the South Texas Expansion Project -- are all slated to go live by the end of the year, representing $2.5 billion in capital projects. These will likely come with significant upticks in distributable cash flow.
The silence is deafening
Even though Spectra Energy Partners doesn't do a formal conference call on its own and instead does a joint call with Enbridge, Spectra at least gives some management comment in its press release about the operations of the business and updates on new projects. This wasn't the case this past quarter, though, and commentary on Spectra during Enbridge's call was minimal at best.
Perhaps I'm trying to read between the lines too much here, but it would seem that management's lack of discussion on Spectra's performance as a stand-alone business speaks volumes about Enbridge's proposal to acquire all outstanding shares in Spectra and the rest of Enbridge's subsidiaries. Spectra has appointed a conflict committee to examine the merits of the deal, but we have yet to get any details on it.
Business on hold
Ever since Enbridge announced the deal to acquire the outstanding shares in Spectra Energy Partners and the rest its subsidiaries, things have been eerily quiet for Spectra. The completion of its 2018 capital projects leaves it with a rather small quiver of growth projects under construction. Considering the opportunities for growth in the Appalachia region -- where Spectra has extensive natural gas pipeline infrastructure -- it's surprising to see management not have a steadier queue of projects lined up here.
I have to imagine that the lack of new project announcements and the lack of management commentary this past quarter are signs that the tie-up with Enbridge is more or less a foregone conclusion by now. Perhaps management will tweak the offer based on the findings of the conflict committee, but the chances of Spectra Energy Partners remaining a separately traded entity seem rather thin.
For investors, then, buying shares of Spectra today is more or less a purchase of Enbridge as a whole. So your investment thesis for this company should be predicated more on the prospects of Enbridge than Spectra individually. For those who aren't already invested in this company, it's probably best to see how this integration shakes out before making a move.