Energy producers continue to look for ways to get the most value out of the pipelines and other midstream assets they need to extract oil and natural gas from the ground.
Oklahoma City-based Devon Energy Corp. is one of the latest to spin off its pipelines and compressors. The company in March merged its midstream infrastructure with Dallas-based CrossTex Energy Inc. to create EnLink Midstream Partners and its general partner EnLink Midstream LLC.
Master Limited Partnerships are popular both because of their favorable tax structure and because they allow companies to attract new and different shareholders.
Often, investors who want to buy a stake in an oil producer are not the same as investors who prefer pipelines and midstream assets. As a result, producers tend to not receive from Wall Street what they see as the full value of their assets.
For example, Devon moved about $4.8 billion of assets to the EnLink companies, which just two months later now boast a combined market capitalization of $8.6 billion. Devon has retained about 70 percent of the EnLink companies.
Devon and the EnLink companies this week all reported profitable first quarters. During a conference call with analysts Wednesday, Devon CEO John Richels was asked why the company has held on to such a large stake in the midstream assets it spun off.
“It’s a strategic asset for us,” said Richels, who also is EnLink’s chairman. “We’ve always wanted to keep control of those assets or have some influence over those assets because they’re so integral to our operations. And we think there’s going to be a lot of value accretion at the EnLink level over the next few years, not only from a bunch of really exciting ideas that the management team at EnLink has, but also through the continuation of the drop-downs from the general partner and also from Devon.”
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