CenterPoint to Form Midstream Partnership With OGE, ArcLight

CenterPoint Energy Inc. agreed to form a master limited partnership with a jointly owned subsidiary of OGE Energy Corp. and ArcLight Capital Partners LLC, combining natural gas pipeline and storage assets near shale formations in Oklahoma, Texas, Arkansas and Louisiana.

CenterPoint, a Houston-based utility owner, and OGE Energy, an Oklahoma City-based utility owner, plan an initial public offering of equity in the partnership after the transaction closes, which is expected in the second or third quarter of 2013, according to a statement.

CenterPoint will have a 59 percent interest in the partnership, OGE Energy will have a 28 percent interest and ArcLight, a private equity investor, will hold a 13 percent interest, the companies said today in a joint statement. CenterPoint will hold a 40 percent interest and OGE Energy will have a 60 percent interest in distribution payments made by the new company to the general partner.

“We are very excited about creating a substantial, growth-oriented midstream company,” David M. McClanahan, president and chief executive officer of CenterPoint, said in a statement.

CenterPoint said last month it was exploring forming a partnership of its gas pipeline assets, located near gas-rich shale formations, as a way to fund additional growth. The new partnership will own 8,400 miles of interstate pipelines, 2,300 miles of intrastate pipelines and have more than 11,000 miles of gathering lines. It will also include 11 gas processing plants and storage facilities.

Tax Status

The combined assets will have a total value of $11 billion, the companies said.

Centerpoint rose 4 percent in after-hours trading after it fell 0.1 percent to $21.84 at the close in New York. OGE was unchanged in after-hours and rose 0.9 percent to $61.35 at the close.

MLPs don’t pay federal income taxes and distribute most of their available cash to holders of their partnership units, which are similar to shares in a corporation. More companies are placing assets into partnership, allowing them to maintain control over the assets while taking advantage of the tax-sheltered structure.

Marathon Petroleum Corp., a refining company, formed a partnership in October and Phillips 66 plans to form one this year. Both companies plan to sell pipelines to the new partnerships.

An MLP sponsored by a utility would be attractive because investors already consider utilities a stable investment, said Hinds Howard, a fund manager at Guzman Investment Strategies LLC in Austin, Texas.

Credit Facilty

“It makes perfect sense,” Howard said in a telephone interview. “The IPO market for MLPs has pretty much dried up, a new IPO would be welcome at this point.”

The new partnership will seek a $1.4 billion credit facility and a $1.05 billion term loan, according to the statement.

OGE Energy and ArcLight, based in Boston, jointly own Enogex LLC, the subsidiary that will be combined with CenterPoint’s pipeline business.

CenterPoint was advised by Citigroup Global Markets Inc. and Baker Botts LLP. OGE was advised by UBS Investment Bank and Jones Day. ArcLight was advised by Wells Fargo Securities LLC and McDermott Will & Emery LLP.

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