Letter from the
President & CEO
Gregory L. Ebel, president
and chief executive officer
To our valued investors and stakeholders:
"What's important to you?"
It's an easy question to ask; far more difficult to answer. The difficulty rests with the fact that we're living in a time of so many pressing priorities and future goals.
My colleagues and I spoke with many of you investors, customers, community partners, regulators and project neighbors over the last year, and we heard you:
Those are the issues you shared with us. And what's important to you is important to us. That's why we're devoting this report to addressing your concerns and describing the role that our company and the product we deliver will play in solving the challenges we face together. It's a bit of an unconventional 'outside-in' approach, but we believe it is what you expect and deserve from us.
Spectra Energy delivered a year of admirable financial results in 2011, achieving record net income and surpassing our earnings target by more than 7 percent. We benefited from strategic expansion projects placed into service projects that in aggregate are delivering attractive returns on capital above our targeted 10 to 12 percent range. Each of our businesses registered gains for the year. More importantly, each of those businesses is actively pursuing expansion opportunities that enable us to continue delivering strong, sustainable earnings growth well into the future.
Our consistent record of strong cash generation allows us to execute on our $1 billion-plus annual capital expansion plan and fund $700 million in maintenance capital all without accessing equity markets. It also allows us to maintain our strong investment-grade balance sheet. And last, but never least, it enables us to grow the dividend we pay to you each year. In 2011, we increased our annual dividend to $1.12, representing a nearly 8 percent increase. We're committed to continue growing the dividend by at least 8 cents a year through 2014, resulting in significant, balanced total shareholder returns. In fact, you can expect future dividend growth surpassing that of both the Alerian Index and the S&P 500.
Spectra Energy's success and that of our customers and investors is driven in large part by a powerhouse of strategic, interconnected infrastructure assets. Our pipeline, storage, distribution and gathering and processing assets span North America, creating a premier network and growth platform.
Our enviable asset position allows us to take full advantage of the major developing shale plays in North America the Horn River and Montney in Western Canada, the Eagle Ford in South Texas, the Denver-Julesburg in the western U.S., the Permian in West Texas and the Marcellus in the northeastern U.S., just to name a few. And while our asset footprint is impressive in its own right, it's even more striking when you consider it in the context of the markets where natural gas is needed. Our assets connect the major producing basins in the U.S. and Canada with high-density, fast-growing demand centers, affording us a 'first and last mile advantage.'
That proximity to established and emerging reserves and growing consumption regions puts Spectra Energy front and center in terms of realizing the tremendous earnings potential associated with infrastructure expansion. During 2011, we invested more than $1 billion in capital expansion, delivering six projects that serve the changing supply and demand needs of customers. Our focus on growth continues; going forward we see opportunities to profitably invest about $15 billion by the end of the decade.
In addition to organic growth and expansions, we made two strategic acquisitions during the year: We acquired the Big Sandy Pipeline in eastern Kentucky through our master limited partnership, Spectra Energy Partners; and DCP Midstream acquired Southern Hills Pipeline, targeting new natural gas liquids transportation capacity from the Mid-Continent to the premium Gulf Coast market.
Spectra Energy and our stakeholders are well served by the values we work and live by: stewardship, integrity, respect for the individual, safety, high performance, win-win relationships and initiative. These values shape our decisions, our actions and our interactions.
My greatest regret in 2011 is that, during the year, three individuals working under our watch did not return home safely. Those losses deeply sadden us all, and move us to recommit to our goal of achieving a 'zero injury and zero work-related illness' culture. While we made positive gains in our safety statistics related to vehicle incidents and employee injuries, those results were unquestionably diminished by the loss of life. We will and must do better in this most important area. Zero is an achievable goal.
We were pleased to see passage of the U.S. Pipeline Safety, Regulatory Certainty and Job Creation Act in early 2012. The legislation is critical to maintaining the safety of our nation's natural gas pipelines and bolstering public confidence in our energy infrastructure. We actively supported the legislation, as a company and through industry organizations like the Interstate Natural Gas Association of America, which I am pleased to chair this year.
We continue to make meaningful strides on the sustainability front, serving the connected goals of environmental integrity, economic value and social responsibility. We were once again named to both the Dow Jones Sustainability World Index and the Dow Jones Sustainability North America Index. We ranked first in the energy sector in the 2011 U.S. S&P 500® Carbon Disclosure Project's Leadership Index, and were named to Corporate Responsibility Magazine's prestigious 100 Best Corporate Citizens list. And we were especially honored to be named one of the World's Most Ethical Companies for 2012 by the Ethisphere Institute, which recognizes outstanding commitment to ethical leadership, compliance practice and corporate social responsibility.
We value diversity and inclusiveness and were pleased to be recognized by the Human Rights Campaign's Corporate Equality Index and by the Anti-Defamation League, which for the fifth consecutive year honored Spectra Energy as a Community of Respect.™
All of these accolades rest squarely with our dedicated team of employees. They impress me daily with their enthusiasm, ingenuity, knowledge and commitment to serving our customers, investors, communities and each other.
We strive to recruit, develop, motivate and reward the best energy professionals in the business, and in 2011 our progress was affirmed with Spectra Energy being recognized as one of Houston's Top Workplaces, one of Canada's Top 100 Employers, and one of Alberta's Top 50 Employers.
At Spectra Energy, we're proud of the role we play in delivering a product that can substantively move our country forward in the quest for a cleaner, secure, economically viable and independent energy future. Those are grand goals whose down-to-earth solutions rest with natural gas.
Natural gas is by far the cleanest-burning foundational fuel available, producing lower carbon dioxide emissions and fewer pollutants than either coal or oil. Increasing our reliance on natural gas-fired electric generation can go a long way in helping curb greenhouse gas emissions, and Spectra Energy stands ready to deliver clean-burning natural gas to power producers ready to realize the environmental and efficiency gains that come with converting older coal-burning and oil-fired units to natural gas.
Natural gas is a major contributor to economic well-being, with direct links to jobs, tax revenues, gross domestic product, industrial production and lower energy costs. The shale gas surge we're experiencing means even more growth, more jobs and more investment. Nearly $1.9 trillion in cumulative capital investment in shale gas is expected between 2010 and 2035. The sector, which today supports 600,000 U.S. jobs, is expected to expand to 1.6 million jobs by 2035 a projection that doesn't take into account the indirect jobs that support our growing industry.
Lessening our dependence on foreign fuel sources has too long been a noble but unattainable goal. Today, vast reserves of shale natural gas bring the prospect of energy independence within reach and enable us to create prosperity and jobs that stay here at home, rather than being transferred abroad. We have an abundance of natural 12 gas, with current estimates pointing to between 100 and 200 years of domestic supply. It's time to put this home grown resource to work in achieving the energy security, economic resurgence and environmental integrity so important to us all.
As I reflect on the year behind us and the year ahead, I am encouraged by the direction of our company. I believe we're squarely focused on what's important to you, our investors and stakeholders, and to North America's energy future.
We're delivering consistent, attractive earnings and dividend growth. We're reinvesting in expansion, further extending the scope and reach of an impressive and growing asset portfolio. We're serving our customers by pairing our hard assets with our tremendous human talent. And we're approaching community service at the local level, through spirited involvement and philanthropy, and at the continental level, by engaging in the critically important energy dialogue. And finally, by delivering a product that can profoundly and positively reshape North America's economic future. That is an investment strategy, people strategy and business strategy built to last.
I want to close this letter by expressing my personal gratitude to Paul Anderson, who steps down from his director role after many long and productive years of service, both as a member and chairman of our board. Paul has been a true mentor to me and countless Spectra Energy employees. We'll miss Paul's steady hand and intellect, but we will continue to build upon the fine foundation he has helped forge at Spectra Energy
Finally, thanks to you, our investors. Spectra Energy's commitment to you runs long and deep. We bring 100 years of experience and dedicated service to the important tasks of our time: growing our economy, securing jobs, delivering responsible, domestic energy and creating superior, sustaining value for our stakeholders. These issues are as important to us as we know they are to you.
Gregory L. Ebel, president and chief executive officer