Devon Plans to Form Master-Limited Partnership for Midstream

Devon Energy Corp., the second-worst performer in the past year among peer oil and natural gas producers, plans to form a master-limited partnership that will initially own a minority stake in its U.S. midstream business.

Devon expects to use the proceeds from the sale of partnership units to fund continuing operations, the Oklahoma City-based company said in a statement today. The partnership, known as an MLP, plans to file a registration statement with the U.S. Securities and Exchange Commission in the third quarter.

The company would follow producers such as Anadarko Petroleum Corp. in selling holdings such as plants and pipelines for cash while keeping operational control. U.S. partnerships don’t pay corporate income tax and have more cash available to pay holders of units, which are like shares.

Devon’s pipelines and processing plants will generate about $475 million in earnings before interest, taxes, depreciation and amortization this year, Scott Hanold, an analyst with RBC Capital Markets LLC, wrote in a note to clients today. Future sales may include Canadian assets, Hanold said.

Initial proceeds from an MLP may be $300 million to $500 million, Chief Financial Officer Jeff Agosta said on a conference call in February. Devon’s U.S. midstream holdings include assets in Texas, Oklahoma and Wyoming.

Devon fell 1.4 percent to $55.83 at the close in New York.

Devon is the second-worst performer in the past year on the Standard & Poor’s 500 Oil & Gas Exploration & Production Index, beating only Newfield Exploration Co.

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