Energy Capital Said to Seek Buyers for Stake in Summit Midstream

  • Buyout firm wants $2 billion for partnership and other assets
  • A public offering is possible if offers aren't high enough

Energy Capital Partners is seeking seeking buyers for its interest in Summit Midstream Partners LP, a deal that would include a minority stake in the pipeline operator as well as ownership of its general partner, according to people familiar with the matter.

The sale would also include some oil and gas gathering and processing operations in North Dakota, Colorado and Ohio owned by an affiliate of Summit Midstream, said the people, who asked not to be identified because the matter is private.

Energy Capital is working with Barclays Plc to find a buyer for the assets, which could fetch at least $2 billion, one person said. If offers are too low, the firm may also consider taking the assets public. Such a listing would resemble Tallgrass Energy Partners LP’s initial public offering earlier this year of affiliate Tallgrass Energy GP, the people said.

A spokesman for Barclays declined to comment. Representatives for Summit Midstream and Energy Capital didn’t respond to requests for comment.

Limited Partnerships

Tallgrass and Summit aren’t typical corporations. They are collections of various legal entities entitled to special tax perks for managing energy-related infrastructure. The two key entities in this type of setup are a publicly traded limited partnership -- which usually owns the physical infrastructure -- and a general partner, which is responsible for managing it. 

The government formalized these partnerships in the 1980s to encourage investment and their popularity has surged in recent years. The sector also is experiencing a merger boom as some players look to simplify by combining affiliates and others look to get bigger by taking out rivals.

Energy Capital is essentially giving bidders a chance to assume control of Summit Midstream by taking over assets it owns through various affiliates. Those assets include Summit Midstream GP -- the general partnership -- as well as all of the units Energy Capital beneficially owns in Summit Midstream Partners LP, the people said. The shares of Summit Midstream Partners LP dropped 0.7 percent Tuesday to $21.41, giving it a market value of about $1.42 billion.

Energy Capital, through an entity called Summit Investments, indirectly owns about 44% limited partnership interest in Summit Midstream Partners LP, according to company press releases. It holds that stake through ownership of two different tiers of securities. It held more than 12 percent of the publicly traded common units of Summit Midstream Partners LP as of June 30, according to its second-quarter report. It also owned 24.4 million non-public subordinated units that can be exchanged for common units if certain conditions are met.

The gathering and processing businesses up for grabs were developed at the parent-company level with the goal of eventually selling them to Summit Midstream Partners LP, a common growth strategy in the sector.

Energy Capital, a Short Hills, New Jersey-based private-equity firm, established Summit Midstream in 2009 to purchase oil and gas pipeline assets from Chesapeake Energy Corp. and Energy Future Holdings Corp., the now-bankrupt utility conglomerate.

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