Investors appeared to like the idea of OGE Energy Corp. and CenterPoint Energy Inc. joining their pipeline businesses, as the shares of both companies rose sharply Friday.
OGE and CenterPoint Energy, along with ArcLight Capital Partners LLC, plan an $11 billion master limited partnership that would combine OGE's Enogex LLC pipeline and gas processing division with the pipeline assets of Houston-based CenterPoint Energy.
OGE shares rose 10 percent to a five-year high, closing at $67.63 on Friday. CenterPoint Energy shares increased 7 percent to $23.41.
Executives at OGE and CenterPoint had been looking at creating their own master limited partnerships, but eventually decided a combined effort would be more attractive to their shareholders. Master limited partnerships don't pay corporate income taxes, freeing up more cash for distribution to unit holders, who are responsible for the taxes.
“This partnership should be much stronger and more competitive than either company could have achieved on a stand-alone basis,” David McClanahan, president and CEO of CenterPoint Energy, said in a conference call Friday. “The industrial logic of putting these two businesses together is strong. We have complementary skill sets, capabilities and assets. Together, we will have greater scale, geographic reach, diversification and service capabilities, and expect to realize operating and commercial synergies.”
The combined pipeline assets and processing plants will include areas in natural gas and liquids plays in Oklahoma, Texas, Arkansas and Louisiana.
The deal is expected to close in the second or third quarter of 2013. It needs regulatory approval, including an antitrust review by the federal government under the Hart-Scott-Rodino Act.
“Together, we share a vision of creating one of the country's premier midstream companies, with a common investment object of creating value for all of our stakeholders: our customers, our employees, our shareholders and the communities where we do business,” said Pete Delaney, OGE's chairman and CEO.
The partnership's name and the location of its headquarters are expected to be revealed before the transaction closes. Its management team will be announced after regulatory approvals.
OGE spokesman Brian Alford said Enogex has 780 employees, including 357 at its Leadership Square headquarters in downtown Oklahoma City. The rest are in eastern and western Oklahoma and in Wheeler, Texas.
“The new company will continue to have a significant presence in Oklahoma City, Houston and Shreveport, La.,” Alford said. “There's not a great deal of overlap between the partner companies, so, for the majority of employees, there will be little change. ... We'll be initiating an integration process to bring the two companies together. There will be synergies in some areas, and, at the same time, this partnership will create a number of new opportunities for employees.”
Executives plan to seek an initial public offering of the master limited partnership six to 12 months after the close of the transaction.
“We're going to start working on the IPO as soon as we can,” McClanahan said. “Our goal is to meet that shorter time frame, but as you know, it takes a lot of time and effort.”
CenterPoint Energy will have a 59 percent limited partner interest in the master limited partnership, with OGE at 28 percent. ArcLight, which owns almost 20 percent of Enogex, will have a 13 percent stake.
Morningstar analyst Charles Fishman said the master limited partnership fulfills a strategy OGE outlined before the recession hit in late 2007.
“OGE has also been slowly divesting its stake in its pipeline business to ArcLight the past two years, so we believe an MLP is the next natural step for OGE,” Fishman said.
The partnership will have combined assets that include more than 8,400 miles of interstate pipelines with almost 9 billion cubic feet of transport capacity and another 2,300 miles of intrastate pipelines. It also will have 11,000 miles of gathering lines and 11 major processing plants.