With a growing need to transport its increasing Marcellus Shale production into the prominent natural gas market in the U.S., Chesapeake Energy Corp. (CHK) has entered into a definitive agreement with Spectra Energy Corp. (SE). The agreement provides that Chesapeake will be the largest shipper for Spectra’s new natural gas pipeline project.
Spectra Energy will expand its Algonquin Gas Transmission and Texas Eastern Transmission pipeline systems, including approximately 16 miles of 30-inch pipeline from Staten Island to Manhattan. The expansions are expected to be completed by the end of 2013.
Following the completion, these facilities will be able to deliver up to 800 million cubic feet per day (MMcf/d) of additional natural gas. Chesapeake is the largest capacity holder with a commitment of up to 425 MMcf/d.
Chesapeake has been concentrating its focus on key plays such as the Fayetteville, Haynesville and Marcellus shales to monetize these assets more effectively and efficiently. With this agreement, Chesapeake will serve the large and growing New York City metropolitan area. The relative proximity of the copious Marcellus natural gas reserves to New York City is an added advantage for the company.
Chesapeake has perhaps been the industry’s most active player in managing its asset portfolio. It expects an 8% to 10% production growth in 2010 with a growing focus on shale plays. However, the early stages of development in key plays and natural gas weighted reserves and production keep us on the sidelines. Our Neutral recommendation remains unchanged.
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