Spectra Energy Partners, LP (SEP), a master limited partnership by Spectra Energy Corp. (SE), intends to acquire a 70-mile regulated natural gas pipeline system – Big Sandy Pipeline – in eastern Kentucky from EQT Corp. (EQT). The total purchase consideration is estimated at $390 million.
The transaction is expected to be wrapped up in the third quarter of 2011, subject to customary closing conditions. Spectra aims to finance the deal through a combination of debt and equity.
With a daily capacity of 171 million cubic feet, Big Sandy Pipeline is interconnected with the Tennessee Gas Pipeline system that in turn links the Huron Shale and Appalachian Basin natural gas supplies to the Mid-Atlantic and Northeast markets. EQT will act as the primary transporter, with over 80% capacity locked under a 16-year transportation agreement.
The deal will widen Spectra Energy Partners’ presence in the Huron Shale and Appalachian Basin. Consequently, acquisition should be accretive to distributable cash and provide further impetus for growth. Spectra expects net income from the Big Sandy Pipeline to approximate $28.3 million, and earnings before interest, taxes, depreciation and amortization (EBITDA) to be around $35 million for 2012.
On the other hand, EQT’s pipeline divestiture plan reflects its venture to prioritize capital and accelerate most cost-effective and lucrative investment opportunities like Marcellus and Huron development activities. The company now expects to drill 100 Marcellus wells and 120 Huron wells this year. It also expects total capital outlay to range between $1,200 million and $1,250 million, with 75% intended for well development.
Notably, EQT raised its 2011 production sales volume guidance in the range of 185–190 billion cubic feet equivalent (Bcfe), which is consistent with its increased capex forecast. The company also set a preliminary 2012 volume target of 245–250 Bcfe.
Pittsburgh, Pennsylvania-based EQT is an integrated energy company with an emphasis on natural gas supply activities in the Appalachian area, including production and gathering, natural gas distribution and transmission, and energy efficiency solutions, primarily in the eastern and western coastal regions of the United States.
Houston-based Spectra Energy Partners holds interests in more than 3,100 miles of transmission and gathering pipelines, which are responsible for daily transportation of approximately 3.29 billion cubic feet (Bcf) of natural gas. It also has about 49 Bcf of natural gas storage in the United States.
We maintain our Neutral recommendation on both Spectra and EQT Corporation. The quantitative Zacks #3 Rank (short-term Hold rating) for the companies indicates no clear directional pressure on the stock over the near term.
EQT CORP (EQT): Free Stock Analysis Report
SPECTRA ENERGY (SE): Free Stock Analysis Report
SPECTRA EGY PTR (SEP): Free Stock Analysis Report
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