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Spectra Details Costs of Pennsylvania Tetco Explosion

Spectra Energy Corp. said this week that it expects to spend up to $100 million assessing and repairing the damage caused by an explosion and fire that happened in April on a portion of Texas Eastern Transmission’s (Tetco) Penn-Jersey system (see Shale DailyApril 29).

CFO John Patrick Reddy said during the company's second quarter earnings call on Wednesday that Spectra spent $10 million on its self-insured portion of the incident and another $6 million for inspection and repair costs to the system.

A portion of the Penn-Jersey system, which runs from Delmont, PA, to Lambertville, NJ, exploded and caught fire in Westmoreland County, PA. The system consists of four parallel pipes, one of which, the 30-inch Line 27, ruptured in the blast. One of the lines was returned to partial service in May, but the other three are offline as Spectra continues to assess damage and make repairs.

Spectra ultimately expects to incur between $75 and $100 million in costs related to the accident, the cause of which remains under investigation. Most of those costs, a company spokesman said, would be related to a voluntary assessment the company announced in June that includes inspections along the system and any repairs related to it (see Shale DailyJune 28).

An extra $100 million in spending isn't all that much compared to the $2-3 billion in annual capital expenditure Spectra has incurred the last few years, but it does represent a significant portion of the company's annual free cash flow. Spectra averaged roughly $95 million in free cash flow between 2005 and 2015, so the incremental spending on TETCO could have a material impact on free cash flow in the quarters ahead.

Last month, the Pipeline and Hazardous Materials Safety Administration issued Spectra an amended corrective action order detailing a slate of work that must be completed before the Penn-Jersey system can return to full-service (see Shale Daily, July 21). Spectra has said the order's requirements are "well aligned" with its own assessment and work plan.

The explosion toppled trees, razed one house, damaged others and sent one resident to the hospital with severe burns. Spectra has said that full-service on the system might not be restored until November. 

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