DTE Energy (DTE) to Acquire Gas Midstream Assets for $1.3B

DTE Energy DTE has decided to acquire midstream natural gas assets worth a total $1.3 billion. The asset purchase covers 100% of the Appalachia Gathering System, 40% of Stonewall Gas Gathering (SGG) from M3 Midstream and 15% of SGG from Vega Energy Partners.

Details of the Acquisition

The acquired natural gas midstream assets will be integrated into the company’s non-utility Gas Storage and Pipeline business. The transaction will allow the company access to various markets, including the Great Lakes region, through interconnections with the Columbia Gas Transmission, Texas Eastern Transmission and NEXUS Gas Transmission projects. These projects are being developed jointly by DTE Energy and Spectra Energy SE.

The ongoing shift from coal to natural gas for electricity generation, along with economic growth, will drive demand for natural gas in the Great Lakes region. Moreover, low-cost natural gas supplied from the Marcellus/Utica region will pose stiff competition to higher-cost alternatives.

The transaction is scheduled to close in the fourth quarter of 2016.

DTE ENERGY CO Price

 

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Importance of Midstream Assets

 

The midstream industry acts an important link between upstream and downstream players. Companies operating in this space possess an extensive network of pipelines not only for transporting fossil fuels, but also possess assets for processing and storing of oil, natural gas and natural gas liquids. Since most of these operations involve long-term and fee-based contracts, it provides a clear visibility on the company’s future earnings.

Benefits of the Acquisition

The acquisition will help DTE Energy expand its business and increase shareholder value. The transaction offers the scope to be followed by further acquisitions to expand, complement and fortify the company’s presence in the Appalachian basin and the Southwest Marcellus/Dry Utica Shale.

The purchase will drive strong financial growth at the company, backed by the high-quality reserves and long-term contracts.

As of Sep 23, 2016, the U.S. rig count stood at 511, having witnessed a steady increase over the last few months. Going ahead, higher exploration and production activities will propel demand for midstream assets and DTE Energy, with its strategic initiatives, is poised to leverage growth in upstream activities.

Zacks Rank & Stocks to Consider

DTE Energy carries a Zacks Rank #3 (Hold). A couple of better-ranked stocks in the same space include Spark Energy, Inc. SPKE and Korea Electric Power Corp. KEP, both sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Spark Energy has witnessed an increase of 12.2% and 4.5% in the Zacks Consensus Estimate for earnings for 2016 and 2017, respectively, over the last 60 days.

Korea Electric Power has witnessed 3.7% and 10.9% upward revisions in the Zacks Consensus Estimate over the last 60 days for both 2016 and 2017 respectively.

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