We are maintaining our Neutral recommendation on Texas-based
natural gas pipeline firm Spectra Energy
Corporation ( SE ). The company operates in four segments:
U.S. Transmission, Distribution, Western Canada Transmission &
Processing, and Field Services.
Spectra maintained its momentum in both organic as well as
inorganic growth, and the company remains upbeat about 2012
prospects. We particularly expect strong returns from its western
Canadian assets, including BC Pipeline, BC Field Services,
Midstream and Natural Gas Liquids. These constitute the largest
natural gas midstream businesses in Canada and are well positioned
for future growth.
Spectra's venture with British natural gas giant BG Group plc is
aimed at constructing a pipeline in Canada's British Columbia to
carry fuel from the northern British Columbia shale-gas fields to
the proposed LNG-export facility in Prince Rupert. Spectra also
partnered with Enbridge Inc. ( ENB )
and DTE Energy Co. ( DTE ) to
develop the NEXUS Gas Transmission system to carry natural gas from
Ohio Utica shale to the U.S. Midwest markets, including Ohio and
Michigan as well as Ontario, Canada. These pipelines are expected
to enhance oil yield in the surrounding regions and boost the
company's growth.
Additionally, Spectra plans to invest $1 billion per year through
2015 on fee-based gas infrastructure growth projects. The company
expects to commission around 8 projects through 2016. Among
these projects - Southern Hills and Sand Hills Pipelines, Front
Range Pipeline, and Texas Express Pipeline, are expected to be come
online by 2013.
We see upside from diverse near- to medium-term projects,
including its New Jersey-New York pipeline (received regulatory
consent to progress in June 2012), an NGL pipeline in Texas,
opportunities in the Gulfstream Pipeline and infrastructure to
serve western Canada LNG exports. The New Jersey-New York pipeline
project is expected to diversify the sources of energy for New
York. This will be the first-ever major natural gas pipeline
linking the two cities and will be highly accretive.
However, Spectra's results are vulnerable to fluctuations in
natural gas markets. The proposed liquid-rich drilling activities
by the company clearly suggests that low natural gas prices have
little ability to pick up in the near term. Major investment in
several projects in Canada also exposes Spectra to fluctuations in
currency rates that may affect the results of its operations.
Spectra carries a Zacks #3 Rank, which is equivalent to a Hold
rating for a period of one to three months.
DTE ENERGY CO (DTE): Free Stock Analysis Report
ENBRIDGE INC (ENB): Free Stock Analysis Report
SPECTRA ENERGY (SE): Free Stock Analysis Report
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