Tuesday, June 30, 2009

Natural Gas Pipeline Control Switches Owners

June 30, 2009 - 7:11AM

Enterprise Products Partners LP will acquire Teppco Partners LP in a sweetened all-stock deal worth about $US3.3 billion ($4.09 billion), forming what the two pipeline operators say will be the nation's largest publicly traded energy partnership.

The new partnership, announced on Monday and expected to close by year's end, will have operations throughout the US, on the east, west and gulf coasts.

Keeping the name Enterprise Products Partners, it will own nearly 77,000km of crude and natural gas pipelines; 200 million barrels of storage capacity for natural gas liquids, crude and refined products; and 27 billion cubic feet of natural gas storage capacity.

It also will control one of the largest US terminals for natural gas liquids in the Houston Ship Channel.

In a conference call on Monday to discuss the deal, Randy Fowler, chief financial officer for Enterprise, said the combined entity will have an equity market capitalisation of about $US14 billion ($17.36 billion). He said the combination creates a portfolio of largely fee-based operations with a broad geographic footprint.

"The larger scale translates into more sources of cash flow," Fowler said.

Teppco, which had seen its stock value tumble along with the price of oil and natural gas, had rejected a bid for $US2.8 billion ($3.47 billion) earlier this year. The new offer represents a 9.3 per cent premium to Teppco's closing price on Friday.

The combined company will provide some stability in what has become an extraordinarily volatile oil and gas market.

"We're largely a fee-based company," said Rick Rainey, a spokesman for both Enterprise and Teppco. "Whether the price of gasoline is $US2 (a gallon) at pump, or $US4 a pump, we get the same amount of money to ship it."

The deal creates an enormous transportation and storage network and will lead to $US20 million ($24.8 million) in savings, the companies said. Enterprise will bring together the oil and gas operations of Texas billionaire Dan Duncan, whose Enterprise GP Holdings LP owns the general partners that control both Enterprise and Teppco.

Enterprise and Teppco are both master limited partnerships, or MLPs, which trade publicly but don't pay corporate income taxes. They rely on assets that generate cash flow - in this case pipelines and storage facilities - and distribute profits to shareholders.

Teppco shareholders will receive 1.24 Enterprise common shares for each Teppco share, a 14.5 per cent premium to the initial offer made by Enterprise on March 9.

Teppco Partners LP and its general partner, Texas Eastern Products Pipeline Co. LLC, will become wholly owned subsidiaries of Enterprise. Teppco said its shareholders should benefit from the combination through a lower cost of capital and improved access to capital markets.

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