Electric utility Black Hills Corporation (BKH) has decided to purchase a natural gas pipeline from MGTC Inc. The market reacted positively with Black Hills shares gaining 1.71% from Jan 9 and closing at $53.97 yesterday.
MGTC Inc. is an indirect, wholly owned subsidiary of Anadarko Petroleum Corp. (APC). Black Hills will pay $6 million for the system, which provides services to nearly 400 customers in the northeast Wyoming. The annual throughput of the pipeline exceeds 2.8 billion cubic feet (Bcf).
Black Hills is working on a strategy to increase its customer base via acquiring small businesses situated in the vicinity of its existing operations. This current purchase is expected close by the end of 2014, subject to approval of the Commission.
Wyoming is rich in natural reserves with nearly 100 companies operating in the state. These companies control more than 27,000 miles of pipelines to transport oil and natural gas to refiners and storage locations. The use of natural gas is on the rise due to its clean burning nature and is gradually becoming the most preferred source of fuel in the U.S.
The decision of Black Hills Corporation to increase its footprint in Wyoming is thus justified given the anticipated spurt in natural gas demand. President Obama’s Climate Action Plan followed by the U.S. Environmental Protection Agency’s (EPA) proposal for granting permission for setting up new power plants is expected to increase the demand for natural gas.
Black Hills’ acquisition of the pipeline will give it access to over 271 miles of transmission pipeline and 135 miles of distribution pipeline in northern Wyoming. This addition will further expand its existing 624 miles of intrastate gas transmission pipelines and 19,979 miles of gas distribution mains and service lines.
The financial strength of Black Hills allows it to make strategic acquisitions and also pay regular dividends to its shareholders. The company has successfully increased its annual dividend in a row for the last 43 years. Such a feat is bound to attract income oriented investors to the stock.
Black Hills Corporation currently has a Zacks Rank # 2 (Buy). Other electric utilities, which look attractive at current levels, include Wisconsin Energy Corp. (WEC) and NRG Yield, Inc. (NYLD). Both these stocks carry a Zacks Rank #1 (Strong Buy).
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