Texas Eastern Transmission, LP - a subsidiary of Spectra Energy Corp. ( SE ), American Electric Power ( AEP ) and Chesapeake Energy Marketing, Inc., a wholly owned subsidiary of Chesapeake Energy Corporation ( CHK ) have jointly agreed on a pipeline deal. The pipeline will link the emerging Utica Shale gas supplies to the rapidly growing markets attached to the Texas Eastern system and natural gas fired power generation plants in Ohio.
The plan involves development and expansion of a proposed natural gas pipeline, called Ohio Pipeline Energy Network ( OPEN ). The project comprises a network of about 70 miles of new pipeline which will further augment the transportation capacity by 1 billion cubic feet per day to serve local distribution companies, industrial users, gas-fired power generators in the Ohio market and markets along the Texas Eastern system.
A binding open season for the OPEN project is intended for the first quarter of 2012 while the expected in-service time is November 2014. The companies have not revealed the financial aspects of the partnership.
The OPEN project combines the expertise of the largest producer and leaseholder in the Utica Shale play, the leading power generator in the region and the premier pipeline company with over 60 years of safe and reliable operational history in the state of Ohio.
American Electric Power will invest in OPEN with an aim to build transportation capacity that would allow the company to connect Ohio gas supplies with its gas-fired power plants in the Midwest.
Chesapeake is considered to have the largest holding in the Utica Shale with a 1.5 million net acres. It aspires to increase capacity to gain entry into the extensive Texas Eastern markets spanning from the Gulf of Mexico to the Northeast U.S.
American Electric Power and Chesapeake both hold a Zacks #3 Rank, which is equivalent to a Neutral rating for a period of one to three months. For the long term, we maintain a Neutral rating on both the stocks.
Spectra Energy is one of North America's premier natural gas infrastructure plays and has strong business positions in growth markets. These should lead to value-creating investment opportunities in the coming years. Infrastructure development in the Haynesville, Eagle Ford and Marcellus Shales, along with the construction of a new gas plant with long-term customer commitments, will be a synergistic approach, in our view.
Spectra Energy holds a Zacks #2 Rank, which is equivalent to a Buy rating for a period of one to three months. We maintain an Outperform rating on the stock for the long term.