SE Buys a Gas Storage Facility: MDU vs SE

Making Hay While the Sun Shines 

On May 25, 2010, I first posted that something is going on in the natural gas industry. I think the "big boys" are acting on the obvious: natural gas will be the bridge to American energy independence (whatever that means).

Here are some of the stories I have posted since May 25, 2010, supporting my argument:

• Another natural gas play: Shell
• CenterPoint expanding pipeline
• MIT: natural gas to become more important
• Moving from coal to put a strain on natural gas
• Montana's largest utility: need to diversify into natural gas
• Coal to gas: South Heart
• ERF moves into the Marcellus

Spectra Buys More Storage 

Now, today same song, different verse: Spectra Energy will buy Bobcat Gas Storage from two partners, including GE Energy Financial Services, for $540 million. In addition to the purchase price, Spectra will invest another $400 - $450 million to fully develop the facility by the end of 2015. The facility with 46 bcf of gas storage capacity is located in southeastern Louisiana.

This will bring Spectra's total storage capacity to about 340 bcf. 

Spectra vs MDU

MDU's total storage capacity is about 353 bcf. (I do not know if this includes the expansion of the Baker storage facility. I assume it does.)

My understanding is that Spectra is a pure-play natural gas production and distribution company, compared to MDU in which natural gas production and distribution is but one division.

The market cap for Spectra is: $14 billion
The market cap for MDU is: $3.6 billion

MDU's Baker Expansion

As long as I'm rambling, here's the link to the expansion of the Baker storage facility (same link as above) and some data points:

• Williston Basin Interstate Pipeline Company is the wholly owned natural gas transmission pipeline subsidiary of MDU Resources
• The Baker storage facility is in southeastern Montana, part of the Bakken play currently in boom
• The Baker storage facility is the largest natural gas storage field in North America and is one of three storage fields owned and operated by Williston Basin
• The total working capacity of those three fields is 193 bcf
• The Baker storage field (before expansion) is about 115 mcf/day
• The expansion will add about 125 mcf/day
• The expansion will include additional compression and gathering pipelines
• When completed, the total storage capacity at Baker will be about 240 mcf/day
• Bids for the expansion project were taken between February and March, 2010
• The project is expected to be completed by early 2012
• The expansion of the Baker storage facility is estimated to be between $100 and $130 million

Am I missing something here, do I have my numbers wrong, or do I not understand something (am I comparing apples to oranges):

According to their corporate presentation, the Baker expansion equates to about 30% increase in storage deliverability. 30% of 193 bcf is 58 bcf. MDU estimates a $100 - $130 million price tag for this expansion whereas Spectra paid $450 million to purchase and will spend another $400 - $450 million to finish the project for 46 bcf. Obviously I either don't understand something or have miscalculated. Maybe someone can sort this out for me.

With regard to the Baker facility:

"Usage of our storage facilities reached record levels in 2009 and we are currently sold out of firm storage capacity so this is an excellent time to move forward with an enhancement of our Baker storage field," said Steven L. Bietz, president and chief executive officer of Williston Basin Interstate Pipeline Company.

In its most recent presentation, Williston Basin says the Baker expansion should be complete by November, 2011, versus the original April, 2012, target date. That speaks volumes about the workers not wanting to go through another North Dakota/Montana winter! And they will have plenty of work elsewhere in the Basin.