Spectra Energy Partners, LP
SEP is our natural gas infrastructure and crude oil pipeline master limited partnership. As of December 31, 2013, Spectra Energy owned 84% of SEP, including a 2% general partner interest.
U.S. Assets Dropdown. On August 5, 2013, Spectra Energy entered into a contribution agreement with SEP (the Contribution Agreement), pursuant to which Spectra Energy agreed to contribute to SEP substantially all of Spectra Energy’s remaining interests in its subsidiaries that own U.S. transmission and storage and liquids assets, including its remaining 60% interest in the U.S. portion of Express-Platte, and to assign to SEP its interests in certain related contracts (collectively, the U.S. Assets Dropdown).
On November 1, 2013, Spectra Energy completed the closing of substantially all of the U.S. Assets Dropdown, which consisted of all the contributed entities contemplated in the Contribution Agreement, excluding a 25.05% ownership interest in Southeast Supply Header, LLC (SESH) and a 1% ownership interest in Steckman Ridge, LP (Steckman Ridge). Consideration to Spectra Energy for the November 1, 2013 closing included $2.3 billion in cash, assumption by SEP (indirectly by acquisition of the contributed entities) of approximately $2.4 billion of third-party indebtedness of the contributed entities, 167.6 million newly issued SEP limited partner units and 3.4 million newly issued general partner units. The first of the remaining two closings of the U.S. Assets Dropdown is expected to occur at least 12 months following the November 1, 2013 closing, consisting of the transfers of a 24.95% ownership interest in SESH and the remaining 1% ownership interest in Steckman Ridge, with the final closing expected to occur at least 12 months thereafter, consisting of the transfer of the remaining 0.1% ownership interest in SESH.
The contributed assets provide transportation and storage of natural gas, crude oil, and natural gas liquids for customers in various regions of the U.S. and in Alberta, Canada. The contributed assets included in the U.S. Assets Dropdown, once the final closing is completed, will consist of:
• a 100% ownership interest in Texas Eastern Transmission, LP (Texas Eastern)
• a 100% ownership interest in Algonquin Gas Transmission, LLC (Algonquin)
• Spectra Energy’s remaining 60% ownership interest in the U.S. portion of Express-Platte
• Spectra Energy’s remaining 38.77% ownership interest in Maritimes & Northeast Pipeline, L.L.C. (M&N US)
• a 33.3% ownership interest in DCP Sand Hills Pipeline, LLC (Sand Hills)
• a 33.3% ownership interest in DCP Southern Hills Pipeline, LLC (Southern Hills)
• Spectra Energy’s remaining 1% ownership interest in Gulfstream Natural Gas System, LLC (Gulfstream)
• a 50% ownership interest in SESH
• a 100% ownership interest in Bobcat Gas Storage (Bobcat)
• Spectra Energy’s remaining 50% of Market Hub Partners Holding (Market Hub)
• a 50% ownership interest in Steckman Ridge
• Texas Eastern’s and Express-Platte’s storage facilities
This transfer of assets between entities resulted in a decrease to Additional Paid-in Capital of $733 million ($458 million net of tax) and an increase to Equity-Noncontrolling Interests of $733 million on the Consolidated Balance Sheet in 2013. The change in Equity-Noncontrolling Interests primarily represents the public unitholders’ share of the increase in SEP’s equity as a result of the issuance of additional units to Spectra Energy, less the effects of the resulting decrease in the public unitholders’ ownership percentage of SEP. Spectra Energy’s ownership in SEP increased to 84% as a result of the transaction.
Express-Platte. In August 2013, Spectra Energy contributed a 40% interest in the U.S. portion of Express-Platte and sold a 100% ownership interest in the Canadian portion to SEP. Aggregate consideration for the transactions consisted of $410 million in cash and 7.2 million of newly issued SEP partnership units. This transfer of assets between entities resulted in a decrease to Additional Paid-in Capital of $84 million ($53 million net of tax) and an increase to Equity-Noncontrolling Interest of $84 million. The change in Equity-Noncontrolling Interests primarily represents the public unitholders’ share of the increase in SEP equity as a result of the issuance of additional units to Spectra Energy, less the effects of the resulting decrease in the public unitholders’ ownership percentage.
M&N US. In October 2012, Spectra Energy transferred a 38.76% interest in M&N US to SEP for approximately $375 million, consisting of approximately $319 million in cash and $56 million in newly issued partnership units. The price received by Spectra Energy exceeded the book value of the M&N US investment. Therefore, this transfer of assets between entities resulted in an increase to Additional Paid-in Capital of $54 million ($34 million net of tax) and a decrease to Equity-Noncontrolling Interests of $54 million, representing the portion of the excess that was associated with the public unitholders’ of SEP.
Big Sandy Pipeline, LLC. In 2011, SEP acquired all of the ownership interests of Big Sandy Pipeline, LLC (Big Sandy) from EQT Corporation (EQT) for approximately $390 million. See Note 3 for further discussion.
Sales of SEP Common Units. In November 2013, SEP entered into an equity distribution agreement under which it may sell and issue common units up to an aggregate amount of $400 million. The continuous offering program allows SEP to offer and sell its common units, representing limited partner interests, at prices it deems appropriate through a sales agent. Sales of common units, if any, will be made by means of ordinary brokers’ transactions on the New York Stock Exchange, in block transactions, or as otherwise agreed to between SEP and the sales agent. SEP intends to use the net proceeds from sales under the program for general partnership purposes, which may include debt repayment, future acquisitions, capital expenditures and additions to working capital. Beginning in November, SEP issued 0.6 million common units to the public in 2013 under this program, for total net proceeds of $24 million.
In April 2013, SEP issued 5.2 million common units to the public, representing limited partner interests, and 0.1 million general partner units to Spectra Energy. Total net proceeds to SEP were $193 million (net proceeds to Spectra Energy were $190 million). Net proceeds to SEP were temporarily invested in restricted available-for-sale securities until the U.S. Assets Dropdown, at which time the funds were used to pay for a portion of the dropdown transaction. In connection with the sale of the units, a $61 million gain ($38 million net of tax) to Additional Paid-in Capital and a $128 million increase in Equity-Noncontrolling Interests were recorded in 2013.
In 2012, SEP issued 5.5 million common units to the public, representing limited partner interests, and 0.1 million general partner units to Spectra Energy. Total net proceeds to SEP were $148 million (net proceeds to Spectra Energy were $145 million) and were restricted for the purpose of funding SEP’s capital expenditures and acquisitions. In connection with the sale of the units, a $42 million gain ($26 million net of tax) to Additional Paid-in Capital and a $108 million increase in Equity-Noncontrolling Interests were recorded in 2012.
In 2011, SEP issued 7.2 million common units to the public, representing limited partner interests, and 0.1 million general partner units to Spectra Energy. Total net proceeds to SEP were $218 million (net proceeds to Spectra Energy were $213 million), used to fund a portion of the acquisition of Big Sandy. See Note 3 for additional information on the acquisition of Big Sandy. In connection with the sale of the units, a $60 million gain ($38 million net of tax) to Additional Paid-in Capital and a $154 million increase in Equity-Noncontrolling Interests were recorded in 2011.
