Devon Energy and Crosstex Energy to form pipeline company

Devon Energy Corporation and Crosstex have announced the signing of definitive agreements to combine all US midstream assets to form a new midstream business.

The new business will consist of two publicly traded entities: the Master Limited Partnership and a General Partner entity (“the New Company”). A name for the New Company will be announced prior to the closing of the transaction.

Combined assets
The combination of Devon’s and Crosstex’s extensive midstream systems, including gathering and transportation pipelines, and processing, fractionation and logistics assets, provides the New Company with diversification and scale, along with an enhanced liquids-oriented growth profile. These assets are located in many of North America’s premier oil and gas regions, including the Barnett Shale, Permian Basin, Cana and Arkoma Woodford, Eagle Ford, Haynesville, Gulf Coast, Utica and Marcellus.

The New Company will have approximately 7300 m of gathering and transportation pipelines, 13 processing plants, as well as barge and rail terminals, product storage facilities, brine disposal wells and an extensive crude oil trucking fleet.

Terms of the agreement
Under the terms of the agreements, Devon will contribute its equity interest in a newly formed Devon subsidiary and US$ 100 million in cash. Devon Holdings will own Devon’s midstream assets in the Barnett Shale in North Texas, the Cana and Arkoma Woodford Shales in Oklahoma and Devon’s interest in Gulf Coast Fractionators in Mt. Belvieu, Texas. The Master Limited Partnership and the General Partner will each own 50% of Devon Holdings.

Current stockholders of Crosstex Energy, Inc. will receive one unit in the General Partner entity for each share of Crosstex Energy, Inc. they own, as well as a one-time cash payment at closing of approximately US$ 2.00 per share or US$ 100 million in aggregate. Devon’s contributed assets are valued at US$ 4.8 billion in the transaction.

Long-term growth in distributable cash flow
Devon, with its strong upstream development portfolio, will be the New Company’s largest customer. Devon’s inventory of organic exploration and development opportunities, combined with Crosstex’s other high-quality third-party customers, provides the Master Limited Partnership a visible path to long-term growth in distributable cash flow. Over time, the potential exists for the General Partner to drop down its 50% interest in Devon Holdings to the Master Limited Partnership, further enhancing growth for unitholders. Owners of the General Partner entity will benefit from the increased capacity to pay dividends and the acceleration of achievement of the highest-tier incentive distributions through this transaction.

“The combined company’s midstream assets and expertise greatly accelerate the value proposition of Devon’s previously announced standalone master limited partnership in a manner that is highly accretive to our shareholders,” said John Richels, Devon’s President and Chief Executive Officer. “Additionally, this transaction provides Devon a market-based valuation for these assets on a go forward basis.”

“The integration of Devon’s midstream assets with Crosstex provides the New Company with greater operating leverage and strong sponsorship from a leading North American exploration and production company,” said Barry E. Davis, Crosstex’s President and Chief Executive Officer. “Indeed our equity holders, customers and employees will benefit from a larger, stronger company. The enhanced financial position will support both existing and new growth projects, provide capacity for greater distribution payouts, and is expected to result in a higher valuation of our equity.”

Adapted from press release by Hannah Priestley-Eaton

Read the article online at: https://www.worldpipelines.com/business-news/21102013/devon_energy_and_crosstex_energy_to_form_pipeline_company/