Duke spinoff eyes possible Alaska role

Spectra Energy Income Fund to debut in January, could look for stake in proposed Alaska North Slope natural gas pipeline

Gary Park

For Petroleum News

Duke Energy might be about to stir from a long slumber in January when a natural gas spinoff starts trading as a separate company and goes after some of the biggest prizes in North America, with an eye on the proposed Alaska gas pipeline.

When Spectra Energy Income Fund makes its debut it may look for a stake in any major pipeline opportunities that become available, including a potential role in the Alaska project, Douglas Haughey, president of Calgary-based Duke Energy Gas Transmission, West, said Nov. 8.

Duke announced Oct. 30 that its existing gas businesses will be renamed Spectra Energy when the operations become a standalone, publicly traded company, which is set for Jan. 1, 2007.

The newly formed fund will include Duke Energy Gas Transmission assets as well as Duke Energy’s 50 percent stake in DCP Midstream.

To coincide with the spinoff the name of the fund will change and ownership of the fund’s sponsor and manager will be transferred from Duke to Spectra.

Haughey said the ambitions for Spectra include a growth of the gas processing and gathering system in Western Canada, both internally and through acquisitions.

He said the new, largely pure-play unit, which could have an asset value of US$15 billion to US$21 billion, will have readier access to capital for expansion.

He said Spectra will be able to pursue opportunities in a faster manner at a time of emerging opportunities in Western Canadian gas production and in liquefied natural gas.

Duke seemed poised to become a leading Canadian player five years ago when it took over Vancouver-based Westcoast Energy for US$8.5 billion, but has since faded off the radar screen, leaving its rivals TransCanada, Enbridge and Kinder Morgan (since it acquired Terasen) to dominate the oil and gas pipeline sector.

However, Duke remains a front-line player in such leading exploration and development regions as northeastern British Columbia, western Alberta and southern Northwest Territories — all growth regions.

The Duke Energy Income Fund has just approved construction of two projects — the Valhalla pipeline and West Doe processing plant — in the Peace River Arch area at a combined cost of C$28.3 million.

West Doe, in northeastern B.C., will consist of a plant with 23.5 million cubic feet per day of sour gas processing capacity and associated gas gathering and sales gas pipelines. The C$22.5 million plant is scheduled for completion in September 2007.

The 15-mile Valhalla pipeline in northwestern Alberta will cost C$5.8 million, is supported by firm take-or-pay contracts and has a scheduled in-service date of April 1, 2007.

In late September the fund completed the acquisition of interests in four northeastern British Columbia facilities owned by Westcoast Gas Services for C$145 million.

The one blotch on the horizon is the Canadian government’s proposed change to the income tax treatment of trusts.

Duke cautioned that if the changes are implemented as outlined they could have an adverse affect on the fund, its ability to make cash payouts and the market value of its units, but did not indicate whether that might force a review of its plans.