Spectra Energy Corp. (SE) said Oct. 19 it will acquire its subsidiary's stakes in the Sand Hills and Southern Hills NGL pipelines for contribution to its joint venture (JV).
Both the Sand Hills and Southern Hills pipelines are owned one-third each by DCP Midstream Partners, Phillips 66 (PSX) and Spectra Energy Partners LP (SEP), a subsidiary of Houston's Spectra Energy.
In September, Spectra Energy and Phillips 66 executed an agreement to strengthen Denver-based DCP Midstream LLC through an injection of assets and equity. DCP Midstream is the 50-50 JV between Spectra Energy and Phillips 66.
As part of the deal, Spectra Energy said it would contribute its interests in the Sand Hills and Southern Hills pipelines to DCP Midstream. Phillips 66 would contribute $1.5 billion in cash.
Given that the joint ownership with Phillips 66 will remain intact, the value of Spectra’s contributed interest in both pipelines is assessed at $1.5 billion, said Christopher Sighinolfi, equity analyst for Jefferies LLC, in a Sept. 8 report.
"The solution we have put in place with our joint venture partner, Phillips 66, allows DCP to retain and expand upon its leading position in the NGL sector while preserving the upside for the owners that will occur when commodity prices ultimately recover," said Greg Ebel, chairman and CEO of Spectra Energy and Spectra Energy Partners.
Sand Hills is a 720-mile pipeline that provides takeaway from the Permian Basin and Eagle Ford Shale to fractionation facilities along the Texas Gulf Coast and the Mont Belvieu market hub. It has total processing capacity of 1.2 billion cubic feet per day (Bcf/d).
Southern Hills is a roughly 800-mile pipeline that provides takeaway in the Midcontinent to fractionation facilities along the Texas Gulf Coast and Mont Belvieu. It has processing capacity of about 2 Bcf/d.
In consideration for the one-third ownership interests in both pipelines, Spectra Energy will transfer limited partner and general partner units to its subsidiary for redemption and cancelation. It will also reduce the distribution right payments associated with the canceled units.
In addition, Spectra Energy will grant a three-year, $4 million per calendar quarter giveback of distributions on its incentive distribution rights (IDRs), beginning with distributions payable in the first quarter of 2016.
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