Spectra goes MLP-ing

Spectra Energy (NYSE: SE), the pipeline business that was part of Duke Energy until earlier this year, held the initial public offering for a new partnership today to some pretty decent results.
Shares of Spectra Energy Partners (NYSE: SEP), a master limited partnership, was priced at $22 per share and closed the day at $28.65 on volume of about 10 million shares. That was “beyond our expectations,” said Greg Harper, CEO of SEP.

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Spectra Energy’s system map (including SEP assets).

SEP’s assets include the 1,400-mile East Tennessee Natural Gas system, a 24.5 percent stake in the 690-mile Gulfstream Natural Gas System Mobile Bay to the central Florida peninsula through the Gulf of Mexico, and 50 percent of Market Hub Partners, which owns 35 bcf of natural gas storage in salt caverns. The owner of the other parts of those businesses is Spectra, which naturally owns the general partner in SEP.
It’s no accident that Houston is home to plenty of master limited partnerships – a form of businesses that pays not corporate income taxes because it pays out its profits to shareholders as dividends. Businesses with steady and predictable income, such as pipelines, are particularly well-suited for MLPs, and Houston is full of pipeline businesses.
In the past, MLPs weren’t viewed as growth vehicles, but Kinder Morgan Energy Partners changed all that beginning in 1997. By taking advantage of the lower cost of capital that MLPs enjoy, Kinder Morgan grew from about $300 million in value to $35 billion in just 10 years.
Harper said Wednesday the partnership has plenty of “organic” growth opportunities with expansions of its existing assets, but he notes it’s also in good shape to take on more debt to help fund third-party acquisitions.

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