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Spectra purchase ‘hugely strategic,’ Enbridge CEO says


Written by Collin Eaton

Click HERE to Read the Article by the Publisher.

Spectra Energy, one of Houston’s biggest pipeline and energy infrastructure firms, has agreed to sell itself to Canada’s Enbridge for $28 billion in a stock-for-stock transaction that would create the largest company of its kind in North America.

In a statement Tuesday, the companies said Spectra Energy shareholders will get 0.98 shares of the combined company for each share they own, a deal worth $40.33 a share. That would leave Enbridge shareholders with 57 percent ownership of the new firm, which would retain the Canadian company’s name. Spectra shareholders would get an 11.5 percent premium on their shares, as of the Sept. 2 market close.

The companies expect the merger, which would create a $127 billion pipeline and energy transportation company in enterprise value, to close in the first three months of next year. A deal would make the combined company larger than Kinder Morgan, Enterprise Products Partners and Plains All-American Pipeline.

It would also come on the heels of a failed deal between Energy Transfer Equity and Williams Cos., and two years after Kinder Morgan paid $44 billion to consolidate its corporate family of energy transportation companies. All three separate transactions appear to have come in response to the worst oil bust in a generation.

In an interview with the Chronicle, the chief executives from both companies said they were merging not in response to the crash in oil prices but to create a “world-class infrastructure company.”

“We’ve always thought this might be a good fit,” said Al Monaco, Enbridge’s president and CEO. “Within the last three or four months we kind of got into it in earnest.”

Greg Ebel, president and CEO of Spectra, said the companies largely don’t share overlapping assets. And 95 percent of their customers, he said, are big companies with good credit and deep pockets.

Pipeline companies like Spectra and Enbridge generally charge “take-or-pay” contracts, the chief executives said, which require the companies to purchase a certain quantity of oil or gas from producers at agreed-upon prices, or pay a penalty. That shelters them from commodity prices, Monaco said.

“We’re not volume-risked,” Ebel said. “We’re quite unique, part of the strength of this deal.”

New pipeline construction is often tied to major upstream projects, Monaco continued. If a Gulf Coast producer is building a $10 billion offshore platform, “they want to have surety of transportation to shore.”

“For that they’re willing to effectively sign up for long-term commitments at a fixed fee,” Monaco said.

The new company will keep the Enbridge name and Calgary headquarters. But both CEOs said they were committed to Houston and would keep gas production based here.

“Al and his team have a big presence in Houston today. That won’t change,” Ebel said. “We’ll continue to be major players in the community. And we’ve made commitments to continue to provide the charity and community activities we have in the past. That was not a negotiating term. That is how we operate.”

The company said in its press release on Tuesday that the merger would save $415 million a year in costs by the end of 2018. But it was too early to spell out specific cuts and job losses, the executives said.

“From our perspective, we are effectively bringing on a very large gas business. For us, it’s hugely strategic,” said Monaco. “The last thing you want to be focused on is getting rid of people who have driven that franchise. You want to retain those people. That’s our focus right now.”

The two companies are developing $37 billion in projects combined. A deal allows Enbridge to keep growing its shareholder dividend by 10 to 12 percent a year through 2024. The deal includes a 15-percent dividend boost in 2017 if the transaction closes next year.

Tags: oil, gas, energy

Written by Collin Eaton

Click HERE to Read the Article by the Publisher.