Presence in key basins
Columbia Pipeline Group (CPGX) has extensive assets in the attractive Marcellus and Utica shale regions. TransCanada (TRP) expects to benefit from this presence. The acquisition will improve TransCanada’s access to the US Northeast, Midwest, Mid-Atlantic, and Gulf Coast markets.
The Marcellus and Utica are the key shale plays in the East Coast region. In its Annual Energy Outlook report for 2015, the EIA (U.S. Energy Information Administration) projects the strongest growth of dry natural gas production in the East region. The growth potential in the region was one of the key reasons behind Energy Transfer Equity’s (ETE) bid for Williams Companies (WMB). It has a strong presence in the Marcellus region.
“The acquisition represents a rare opportunity to invest in an extensive, competitively-positioned, growing network of regulated natural gas pipeline and storage assets in the Marcellus and Utica shale gas regions,” said Russ Girling, TransCanada’s president and CEO.
Girling said that “The assets complement our existing North American footprint which together will create a 91,000-kilometre (57,000-mile) natural gas pipeline system connecting the most prolific supply basins to premium markets across the continent. At the same time, we will be well positioned to transport North America’s abundant natural gas supply to liquefied natural gas terminals for export to international markets.”
Increased cash-flow stability
Columbia Pipeline Group engages in the regulated gas transportation and storage services performed under a tariff at Federal Energy Regulatory Commission-approved rates. This provides stability and predictability to its cash flows. We’ll discuss this more in the next part.
Columbia Pipeline Group has a $7.3 billion portfolio of growth initiatives and investments. They’re supported by long-term contracts. These are expected to contribute to TransCanada’s future dividend growth.
The above figure shows the major natural gas pipeline systems on a pro forma basis. The combined entity would create “one of North America’s largest regulated natural gas transmission businesses.” Columbia Pipeline Group accounts for ~2.3% of the Guggenheim S&P 500 Equal Weight Energy ETF (RYE).