By Swetha Gopinath
Dec 11 Spectra Energy Corp said it will
spend $1.49 billion to buy the Express-Platte System, one of the
three major pipelines that move crude oil from Western Canada to
refineries in the Rocky Mountain and Midwest regions in the
The purchase, which comprises $1.25 billion in cash and $240
million in debt, will give Spectra a foothold in the rapidly
expanding North American crude oil pipeline market and lower its
dependence on natural gas.
"Given today's regulatory environment, the fact that these
assets are in the ground already is a huge advantage as we enter
the sector," Chief Executive Gregory Ebel said on a conference
call with analysts.
Canada has only three major pipelines that take conventional
and oil sands crude into the Midwest, and fears are mounting
that the export of Canadian crude will be constrained due to
pipeline project delays, even as production
TransCanada Corp's Keystone XL pipeline, designed
to transport Canadian crude oil from Alberta to Port Arthur in
Texas, has been mired in regulatory issues.
"We like this move as it offers Spectra a new growth
platform. Given the present difficulties in sighting any new
energy infrastructure, this provides a backbone to compete," BMO
Capital Markets analyst Carl Kirst wrote in a note to clients.
Spectra will pursue investments in oil and refined products
pipelines, storage tanks and terminals, CEO Ebel said.
Strong crude oil prices and limited access to pipelines or
other means has made the business of transporting the fuel to
refineries a lucrative one.
"They wanted to get away from being totally in the gas
business, so they bought an oil pipeline. Probably not their
last," said Jerry Swank, founder of Swank Capital, which
primarily invests in midstream companies.
EXPRESS-PLATTE PIPELINE DEAL
The Express pipeline takes up to 280,000 barrels per day
(bpd) of crude oil from Hardisty, Alberta to U.S. refining
markets in Montana and Wyoming. The smaller Platte line carries
about 164,000 bpd from Guernsey, Wyoming to Wood River,
The transaction, which will likely close during the first
half of 2013, is expected to add 3 to 5 cents per share to
annual earnings in the first year, the company said.
CEO Ebel noted the pipeline system's fee-based revenue and
annual rate escalators as positives. The pipeline serves
refiners such as Exxon Mobil Corp and Phillips 66
The Ontario Teachers' Pension Plan, Borealis Infrastructure,
and pipeline operator Kinder Morgan Energy Partners each
held a one-third stake in the Express-Platte pipeline system.
Kinder Morgan will get $380 million before tax from the sale
of its interest in the pipeline, while Ontario Teachers' Pension
Plan and Borealis Infrastructure will get $430 million each.
Spectra shares were marginally down at $27.17 on Tuesday
morning. The stock has fallen about 12 percent so far this year.