Bloomberg Anywhere Remote Login Bloomberg Terminal Demo Request


Connecting decision makers to a dynamic network of information, people and ideas, Bloomberg quickly and accurately delivers business and financial information, news and insight around the world.


Financial Products

Enterprise Products


Customer Support

  • Americas

    +1 212 318 2000

  • Europe, Middle East, & Africa

    +44 20 7330 7500

  • Asia Pacific

    +65 6212 1000


Industry Products

Media Services

Follow Us

Devon, Crosstex Form Midstream Company to Combine Assets

Devon Energy Corp. and Crosstex Energy Inc. agreed to form a business that will acquire all of Crosstex’s shares and combine the two companies’ fuel pipeline and processing facilities.

The to-be-named entity will consist of a master-limited partnership and a general partner controlling it, both of which will be publicly traded, Devon and Crosstex said in a joint statement today. Shareholders in Dallas-based Crosstex, which had a market capitalization of $983 million yesterday, will each receive one unit in the general partner and a one-time payment of about $2 a share.

Devon, which will control both of the partnerships and be the new company’s largest customer, is contributing assets valued at $4.8 billion including $100 million in cash. The business will have about 7,300 miles (12,000 kilometers) of pipelines, 13 processing plants and six fractionators as well as storage, terminals and a trucking fleet to move oil and natural gas.

“This deal is like marrying your high-school sweetheart,” Ethan Bellamy, a Denver-based analyst for Robert W. Baird & Co., wrote in an e-mail. “Crosstex provided excellent customer service to Devon for its midstream needs for years, and that proved to be the foundation of this merger.”

The new company will have an enterprise value of about $8.84 billion, he calculated.

Crosstex Rise

Devon has said before it was considering putting its midstream business into a partnership. It follows Anadarko Petroleum Corp. and Phillips 66 in moving processing and pipeline facilities into partnerships that allow owners to maintain control while potentially boosting payouts.

Crosstex and Crosstex Energy LP, the partnership it controls, surged on the news. Crosstex had its biggest gain ever, rising 71 percent to $35.32 at the close in New York while Crosstex Energy LP climbed 33 percent to $27.15. Devon, based in Oklahoma City, increased 3.3 percent to $65.32.

The new company is expected to have adjusted earnings before interest, taxes, depreciation and amortization of about $700 million next year, according to the release. Its assets will be in shale formations that are increasing oil and gas output, including the Barnett Shale, Permian Basin and Eagle Ford in Texas as well as the Haynesville, Ohio’s Utica and the Marcellus in the eastern U.S.

Devon’s contribution consists of almost all its U.S. pipelines and processing assets. The company may sell additional midstream assets to the new entity, CEO John Richels told analysts and investors on a conference call today. Richels will be chairman of the business and Crosstex CEO Barry E. Davis will keep that position at the new venture.

Access Pipeline

The company will have the right to bid on Devon’s 50 percent stake in the Access pipeline in Canada, Richels said in a phone interview. The midstream entity also will be able to help develop future projects, Richels said.

“If the new midstream company takes on some of that expansion, it just leaves more cash flow for us,” Richels said, money that could be used for exploration and production, debt payment or share repurchases.

Devon said in June it planned to form a master-limited partnership to own a minority stake in its U.S. midstream business. At the time, Devon said it planned to use proceeds to fund continuing operations. The master-limited partnership structure is attractive for assets like pipelines with steady returns because an MLP doesn’t pay corporate income tax and has more cash available to return to investors.

Shareholder Support

The transaction, expected to close in the first quarter, is structured to be tax-free, the companies said. It’s subject to shareholder and regulatory approvals and has the backing of both boards. Holders representing about 22 percent of Crosstex’s outstanding shares, including Blackstone Group LP, have agreed to vote in favor of the deal.

“There’s a bunch of value being unlocked at the shareholder level,” said David Meats, an associate analyst at Raymond James Financial Inc. who rates Devon an outperform and doesn’t own the shares. “They essentially have right now a midstream asset and an E&P asset smushed together, being valued at a 6-times multiple all in. Splitting them up, you value one at 11 times and one at 6 times.”

Bank of America Corp. served as financial adviser and Vinson & Elkins LLP provided legal advice to Devon. Crosstex and various special committees associated with the company or its partnership were advised by Greenhill & Co., Citigroup Inc., Simmons & Co. and Evercore Partners Inc. Baker Botts LLP, Richards Layton & Finger PA, Potter Anderson Corroon LLP, Morris, Nichols, Arsht & Tunnell LLP gave legal advice.

Please upgrade your Browser

Your browser is out-of-date. Please download one of these excellent browsers:

Chrome, Firefox, Safari, Opera or Internet Explorer.