Bundle of energy

An $18-bn deal straightens out twisted pipelines

An $18-billion deal should straighten out some twisted pipelines. The convoluted structure at Energy Transfer Equity isn't doing it any favours. Combining two master limited partnerships it controls may generate some savings. More importantly, it makes the company slightly easier for increasingly sceptical oil and gas investors to understand.

Energy Transfer Equity, the $30-billion general partner, owns stakes in two subsidiary MLPs, Energy Transfer Partners and Regency Energy Partners. To make matters even more complicated, ETP and ETE also both own an interest in $9-billion Sunoco Logistics Partners.

The parent company has been slowly simplifying itself. In 2013, ETP paid $3.75 billion to ETE to eliminate a joint venture between the two. The latest deal goes further by collapsing the two MLPs.

Regency found itself in a hard place. Owners have become increasingly worried about the exposure to shale and falling energy prices. Regency shares had tumbled by about 25 per cent over the past six months. Combining with ETP provides diversification and the possibility of unspecified cost savings.

What's more, the parent company ETE is throwing in a sweetener, by giving up $320 million in payments that ETP would make over the next five years. Investors in $22-billion ETP are sceptical of any benefit, however. They erased just over $1 billion of its market value, which roughly equates to the premium it has agreed to pay.

The greater benefit is simplicity for ETE. Its market value increased by $2 billion after the joining of the MLPs was announced. When times were headier in energy markets, investors embraced - or at least tolerated - debt and complexity in corporate structures. With the new dynamics, including supply gluts and difficulty refinancing, concerns are growing about diverse revenue streams and investors are becoming less forgiving of opacity. Other MLPs may want to take note.