Spectra Energy Corp. (NYSE: SE) and Spectra Energy Partners LP (NYSE: SEP) have executed an agreement for the acquisition by Spectra Energy of Spectra Energy Partners' one-third ownership interests in the Sand Hills and Southern Hills natural gas liquids (NGL) pipelines.
Spectra Energy has also executed an agreement with Phillips 66 (NYSE: PSX) and DCP Midstream LLC (the 50-50 joint venture between Spectra Energy and Phillips 66) under which Spectra Energy will contribute its interests in the Sand Hills and Southern Hills pipelines and Phillips 66 will contribute $1.5 billion in cash, respectively, to DCP Midstream. The plan to contribute these assets was previously announced on Sept. 8 as part of a series of actions that would establish a foundation for sustainable cash flows at DCP Midstream.
In consideration for Spectra Energy Partners' interests in Sand Hills and Southern Hills, Spectra Energy will transfer for redemption and cancellation 21,560,000 limited partner (LP) units, 440,000 general partner (GP) units, and a reduction in 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.
"The contribution of cash and the interests in the Sand Hills and Southern Hills NGL pipelines to DCP Midstream will provide DCP with a stronger balance sheet and increased financial flexibility while positioning it to grow through future commodity cycles,” said Greg Ebel, chairman and CEO, Spectra Energy and Spectra Energy Partners. “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.
"The transaction between Spectra Energy and Spectra Energy Partners allows SEP to realize consistent distributable cash flow per unit and enhanced distribution coverage as a result of the redemption of units and the IDR giveback. Spectra Energy Partners' strong growth profile with solid, fee-based revenues gives us continued confidence in distribution coverage in the range of 1.05 to 1.15 times, which is consistent with our previous guidance. In addition, Spectra Energy Partners' distribution growth guidance continues at 8 to 9 percent through at least 2017."
Both transactions are expected to close in the fourth quarter.