As Duke Energy moves forward with the spin-off of its natural gas operations, the new gas company is positioning itself to aggressively continue expansion of its pipeline system and develop new growth opportunities within its midstream operations, CEO Jim Rogers said Wednesday.

Duke officially launched the spin-off of the temporarily named Gas SpinCo Inc. (GasCo) last week (see Daily GPI, Sept. 8). Rogers, speaking at the 36th Annual Bank of America Investment Conference in San Francisco, said he remains optimistic that the transaction will be completed by Jan. 1, which in turn will allow Duke to focus solely on its utility operations.

“When one becomes two, what can you expect from a separate company?” Rogers asked. “We expect the separation to create value from day one. We have a vision to be the premier pure-play gas company. There are significant long-term opportunities in respective industries as pure plays.”

GasCo, which will be officially renamed sometime in the fourth quarter, will hit the ground running once it is a stand-alone company, with more than 17,500 miles of natural gas transmission pipeline, 250 Bcf of gas storage capacity and 1.3 million retail gas customers in Ontario. Through Duke Energy Field Services (DEFS), its 50-50 joint venture with ConocoPhillips, GasCo also will be the largest domestic producer of natural gas liquids.

The new company won’t be one to rest on its laurels. In each of the next five years, GasCo is expected to spend about $1.5 billion in expansion capital, said Rogers.

“Different dynamics are emerging in the gas business today, which are creating expansion opportunities,” Rogers said. Among other things, GasCo will be able to use a “variety” of financial vehicles, including a possible master limited partnership (MLP), to generate cash for new investments.

“Duke anticipates setting up a new MLP focused on pipeline assets,” Rogers said. He did not offer a time line on when the MLP may be set up. “Fred Fowler likes to say we’re in an ‘opportunity-rich environment.’ And the changing industry dynamics are bringing new expansion opportunities.” Fowler is currently president of Duke Energy Gas and future CEO of GasCo.

Duke’s gas division now has about two dozen expansion projects under way, Rogers noted. “The open seasons have gotten a lot of positive market feedback, and the conditions in the industry have brought about expansion opportunities.

“When you think back with me to 2000, since that time, many of the largest infrastructure players have spent very little time on pipeline expansions,” Rogers noted. “They were concentrating on problems in California, the [downfall] of the [energy] trading markets. Meanwhile, as commodity prices increased, so has the drilling. And liquefied natural gas is coming…and new pipeline capacity is needed to get new supplies to market. Add to that the wake-up call from the hurricanes last year, and the market is ripe for development.”

Besides pipeline expansions, Rogers said DEFS is “also robust and ready for development. In addition, there is growing demand for gas treating and processing.”

Rogers said earnings forecasts for Duke and GasCo are expected in the next few months. The allocation of cash has not been finalized, he noted. “Based on significant investment opportunities for both companies, it is expected each company will have negative free cash flow between 2007 and 2009.”

GasCo’s debt-to-capitalization ratio is expected to be in the 60% range, with about $9 billion in debt, and a targeted dividend payout ratio of about 60%. Rogers is slated to remain chairman and CEO of Duke Energy; Paul Anderson has been named chairman of GasCo.

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