OGE Energy, Energy Transfer sign joint venture agreement, plan tender, new notes

By Jennifer Lanning Drey

Portland, Ore., Sept. 23 - OGE Energy Corp. and Energy Transfer Partners, LP have agreed to form a joint venture combining OGE's Enogex midstream business with ETP's interstate operations as well as its midstream operations in the Rocky Mountains, the companies announced Tuesday.

The joint venture, ETP Enogex Partners LLC, will be owned and managed by ETP and OGE on a 50-50 basis.

Under the agreement, in exchange for a 50% interest in ETP Enogex Partners and a cash payment of $266 million, OGE will contribute 100% of its ownership interest in its natural gas midstream subsidiary, Enogex.

In exchange for its half of the joint venture, ETP will contribute 100% of its ownership interest in Transwestern Pipeline, 100% of its 50% ownership interest in Midcontinent Express Pipeline and 100% of its ownership interest in ETC Canyon Pipeline LLC.

OGE believes the combined entity will have broader capabilities for producer relationships, more growth opportunities, a stronger financial base and the opportunity to earn a higher return on investment on its existing assets, Pete Delaney, chief executive officer of OGE, said during a Tuesday conference call held to discuss the transaction.

"The partnership when completed will really help us achieve the strategic repositioning of Enogex that we've been working on for several years, which is to move from a stand-alone business to a larger, more competitive, diversified natural gas and midstream company," Delaney said.

OGE also expects the transaction to provide meaningful synergies over time, he said.

Steps to financing transaction

Under the agreement, the parties have agreed to take various actions to facilitate an initial public offering of ETP Enogex Partners following the closing of the transaction, including the creation of a master limited partnership structure.

In order to close the transaction, both companies have already signed contribution agreements and will work quickly to gain Hart-Scott Rodino clearance, Delaney said.

After gaining the regulatory approval, the companies will need to have a commercial revolving credit facility in place, he said.

Additionally, ETP must launch a tender for outstanding Transwestern notes, as the transaction would trigger a right from the holders to put the bonds at a premium.

Prior to closing, the companies plan to issue Transwestern and ETP Enogex senior notes, repay the Enogex revolver and Transwestern/ ETP intercompany debt and make the $266 million payment to OGE.

"That would give us the financing required to purchase the assets, make the distributions of cash to Energy Transfer Partners and OGE and supply significant liquidity to finance our growth plans moving forward," Delaney said during the call.

Proceeds from $266 million are likely to initially be used by OGE to repay short-term borrowings, Delaney said during the question-and-answer portion of the call.

Both companies have agreed to use reasonable efforts to consummate an initial public offering of ETP Enogex Partners as a master limited partnership within six months of closing.

JV capital structure

During the question-and-answer portion of the call, Delaney said capitalization of ETP Enogex is expected to include $2.8 billion of debt capacity, of which about $2.0 billion would be funded at closing.

The companies will look to secure an $800 million revolving credit facility and put in place $800 million of senior notes at the joint venture level, plus an additional $800 million of senior notes at Transwestern, Mackie McCrea, ETP's president and chief operating officer, said during the call.

ETP Enogex's revolving credit facility would be undrawn once the financing is in place, he said.

Dallas-based Energy Transfer Partners owns and operates a portfolio of energy assets, including natural gas transportation and storage operations.

OGE Energy is the Oklahoma City-based parent company of Oklahoma Gas and Electric Co., a regulated utility.

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