Spectra Energy Corp. is buying Bobcat Gas Storage from Haddington Energy Partners III LP and GE Energy Financial Services for $540 million. The Houston-based midstream company said it will be investing at least $400 million more in the facility.

Located in Port Barre, LA, the project began development in 2006 and entered commercial operation in November 2008 (see Daily GPI, Nov. 13, 2008). Following the addition of a second cavern last year the facility has working capacity of approximately 19 Bcf (see Daily GPI, July 16, 2009).

Bobcat was developed by Port Barre Investments LLC, which is owned by members of management, Haddington Energy Partners III LP, a private equity fund managed by Haddington Ventures LLC, and GE Energy Financial Services.

Spectra said it expects to spend $400 million to $450 million to fully develop the facility by the end of 2015. Once fully operational, the high-deliverability salt dome storage caverns in southeastern Louisiana will have a capacity of 46 Bcf. Once Bobcat is fully developed, Spectra’s North American storage capacity will be about 340 Bcf, the company said.

Spectra CEO Greg Ebel said the Bobcat facility complements the company’s pipeline and storage assets in the region and offers a platform for growth. “Bobcat’s strategic location in the Gulf Coast and its interconnection with five major interstate pipelines, including our Texas Eastern Transmission pipeline, provides customers with the advantage and flexibility to access all the major markets in the U.S.,” he said.

“Given the tremendous increase in natural gas supplies, the ongoing increase in natural gas-fired electric generation and the continuing growth in natural gas demand, storage infrastructure will play a vital role in meeting our customers’ needs.”

Moody’s Investors Service said the deal does not affect Spectra’s credit profile. “Although the acquisition is of some size and increases Spectra’s total capital budget for 2010 by about a third from $1.6 billion, Bobcat is small relative to Spectra, with its $24 billion of assets, $2.6 billion of EBITDA [earnings before interest, taxes, depreciation and amortization] in the last 12 months ended March 2010, and multiple funding vehicles, which Moody’s believes gives Spectra adequate financial resources to absorb this transaction.

“Bobcat is strategically valuable to Spectra as the facility is located not far from the Henry Hub gas trading hub and owns pipeline interconnects to two pipelines that Egan and Moss Bluff lack — Transco and Gulf South.”

Ebel noted that the project supports Spectra plans to spend $1 billion per year in growth capital through at least 2014 and is expected to earn returns on capital employed in the 10-12% range.

The transaction is subject to antitrust approval and other conditions and is expected to close by the end of the year.

As for Haddington, it’s focusing on its next project.

“The Bobcat project exemplifies Haddington’s strategy to acquire, develop and eventually exit midstream energy projects,” said Haddington Managing Director J. Chris Jones. “Having previously sold the Lodi Gas Storage project in California, our gas storage efforts are now focused on Magnum Gas Storage, a salt cavern storage project near Delta, UT” (see Daily GPI, Dec. 17, 2009).

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