Nov. 19 (Bloomberg) -- Energy Transfer Partners LP, the third-largest U.S. pipeline partnership by market value, said it’s looking for pipelines to buy and may sell assets to its general partner.

Energy Transfer has approached Houston-based Copano Energy LLC and Merrillville, Indiana-based NiSource Inc. about purchases that would expand its reach to Eastern U.S. markets, Chief Executive Officer Kelcy Warren said yesterday in an interview. Warren said Dallas-based Energy Transfer also was interested in assets of Southern Union Co., which is “so far not willing to transact.”

Dallas-based Energy Transfer, which announced or made more than two dozen acquisitions from 2001 to 2007, has focused more recently on growing through building new infrastructure. Since the beginning of 2008, Energy Transfer has completed more than 600 miles (965 kilometers) of pipelines that can ship more than 6.45 billion cubic feet of natural gas a day.

“We are going to get more aggressive,” Warren said. “We should have had a well-thought-through acquisition strategy with our growth strategy building pipelines. We are going to get back on to an acquisition strategy with an organic growth strategy.”

The partnership also is considering ways to cut its cost of capital through transactions with Energy Transfer Equity LP, which owns Energy Transfer’s general partner and about 21 percent of its units. As a so-called master limited partnership, or MLP, Energy Transfer relies on assets that generate stable cash flow that can be used to make payouts to its unit holders.

General Partner

One possibility, buying Energy Transfer Equity, “does not make sense at this time,” Warren said. The partnership could sell assets to Energy Transfer Equity in exchange for its units, he said. By retiring those units, Energy Transfer would no longer have to pay dividends on them, he said.

In September, Magellan Midstream Partners LP bought Magellan Midstream Holdings LP, which owned Magellan’s general partner. Such transactions allow a partnership to free up cash by eliminating incentive distribution rights, or IDRs, of the owner of its general partner.

“Every time Energy Transfer issues equity there are IDRs that are kicked back up,” said Warren, who is also co-chairman of Energy Transfer Equity. “Eventually you kill the beast. Eventually the thing that feeds Energy Transfer Equity, you kill it.”

NiSource Pipelines

As for acquisitions, Warren said he would like to buy NiSource pipeline assets that reach to the Eastern U.S. So far, he said, NiSource isn’t willing to sell.

NiSource spokesman Mike Banas said the company has no interest in selling pipeline assets, which are a core part of its growth strategy. Southern Union spokesman John Barnett didn’t immediately respond to a message seeking comment.

Energy Transfer’s interest in Copano Energy comes after John Eckel, Copano’s CEO, died earlier this month. Eckel founded the pipeline operator in 1992. Copano Chief Financial Officer Carl Luna declined to comment on possible offers.

Warren said he hasn’t been turned down by Copano yet and wouldn’t say how much of a premium he would have to pay for the company. During a presentation to analysts yesterday, Warren said the company also tried unsuccessfully to purchase all or part of MarkWest Energy Partners LP and Crosstex Energy LP.

Payouts to Holders

Energy Transfer fell 44 cents, or 1 percent, to $43.56 in New York Stock Exchange trading. The units had risen 29 percent this year before today. Copano climbed 31 cents to $19.75.

Energy Transfer hasn’t increased payouts to unit holders since the second quarter of 2008. Warren said his goal is to “get back to steady growth” in distributions.

Energy Transfer has more than 17,500 miles of pipelines and partial ownership of about 500 miles of additional lines. The partnership also distributes propane to more than 1 million customers in 41 states.

Enterprise Products Partners LP and Kinder Morgan Energy Partners LP, which is buying Crosstex assets, are the biggest U.S. pipeline partnerships, ranking ahead of Energy Transfer.

To contact the reporter on this story: Jordan Burke in New York at jburke29@bloomberg.net.

Last Updated: November 19, 2009 16:12 EST