Spectra Energy's (NYSE: SE ) 1,717-mile Express-Platte System is one of just three major pipeline systems moving crude oil from western Canada to U.S. refining markets in the Rockies area and the Midwest.
The midstream operator announced this week that it is "dropping down" 50% of the pipeline to its master limited partnership, Spectra Energy Partners (NYSE: SEP ) , for approximately $555 million in cash, approximately $139 million in newly issued partnership units, and approximately $129 million of acquired Express-Platte System debt.
Dropping down assets is a convenient means of moving an asset off of a company's books while maintaining control of it. The MLP gets a valuable asset and when the distribution is increased because of the move, investors receive a higher payout. Because the general partner is also a part-owner of the MLP, it gets a greater return, too.
The transaction is expected to close in the third quarter.
The Express-Platte drop down is part of Spectra Energy's plan to drop down more than $2 billion worth of assets to Spectra Energy Partners over the next few years.
Spectra Energy Partners CEO Julie Dill said: "This drop-down from our general partner, Spectra Energy, diversifies Spectra Energy Partners' portfolio, not only geographically, but also from a business mix, as the Express-Platte System presents us with a significant opportunity to participate in the rapidly expanding North American crude oil transportation and storage market."
The Express pipeline carries crude oil to U.S. refining markets in Billings, and Laurel, Mont., and Casper, Wyo. The pipeline's capacity is 280,000 barrels a day. The Platte pipeline interconnects with the Express pipeline in Casper and transports crude oil predominantly from the Bakken formation and western Canada to refiners in the Midwest. Its capacity ranges from 164,000 barrels a day in Wyoming to 145,000 barrels a day in Illinois.