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By Erik Kobayashi-Solomon | 09-22-2010 11:17 AM

A Midstream Energy Firm with an Upside Kick

A joint venture provides robust cash flows in high-commodity-price environments to 800-pound gorilla Spectra Energy.

Erik Kobayashi-Solomon: Hi, I'm Erik Kobayashi-Solomon, co-editor or Morningstar's OptionInvestor.

Today, it's my great pleasure to welcome Avi Feinberg, who is an equity analyst covering midstream oil and gas companies.

Avi, thanks for coming.

Avi Feinberg: Thanks for having me, Erik.

Kobayashi-Solomon: So, Avi, I just did an option strategy, a bullish option strategy on a firm that you cover, Spectra Energy.

Feinberg: Yes.

Kobayashi-Solomon: So just wanted to ask you a little bit about this. First of all, can you just walk me through their portfolio of businesses?

Feinberg: Sure. Spectra is one of the largest diversified midstream natural gas companies. And so, their operations include gathering natural gas, processing it, then storing it and transporting it on their very large pipeline network.

Kobayashi-Solomon: Right. Now, when you say midstream, this means that they are not drilling and they are not retailing, right? They are in the middle of that stream.

Feinberg: Exactly. And Spectra also has some downstream operations, which it does at Union Gas, its Canadian Utility.

Kobayashi-Solomon: Okay.

Feinberg: And so, this business distributes the gas locally to about 1.3 million customers.

Kobayashi-Solomon: So the midstream portion is mainly in the United States. The pipelines are mainly in the United States.

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