Spectra Grows with Asset Purchase – Analyst Blog

Spectra Energy Corp. (SE) has completed the acquisition of Bobcat Gas Storage assets. The company acquired these assets for $540 million from Haddington Energy Partners III LP and GE Energy Financial Services.

 

Spectra intends to spend $400–$450 million in the next five years for further development of these assets and bring the facility’s total working gas storage capacity to 46 billion cubic feet.

 

The Bobcat assets are strategically located on the Gulf Coast near Henry Hub. These interconnect with five major interstate pipelines, including Spectra’s Texas Eastern Transmission, and complement the company’s existing pipeline and storage portfolio in the region.

 

Spectra plans to deploy $1 billion per year in growth capital. This will likely aid the company in driving its earnings growth in future. 

 

Spectra’s growth momentum continues in both organic as well as inorganic modes. Last year’s expansion projects in Canada coupled with the Marcellus investments should drive annual organic growth in the long run. Similarly, a $1.5 billion investment plan for a new natural gas processing plant west of Dawson Creek and Bobcat assets have solid potential to increase Spectra’s operating profit significantly.

 

While global oil majors eye natural gas as the key factor for long-term growth, storage options such as Bobcat plays a vital role in meeting growing needs. Although we view the Bobcat acquisition as a synergistic approach, the company’s core fee-based businesses also have the potential to move the needle toward an impressive earnings and cash flow growth.

 

All these, however, are already accounted in the company’s valuation. Consequently, our Neutral recommendation for Spectra shares remains unchanged with the Zacks #3 Rank (Hold).