UPDATE 2-Devon Energy, Crosstex to form pipeline partnership
(Adds conference call comment, updates shares)
Oct 21 (Reuters) - Devon Energy Corp said on Monday it would combine most of its U.S. pipeline and processing businesses with those owned by Crosstex Energy Inc and Crosstex Energy LP to form a new midstream partnership.
The new business will consist of two still-unnamed publicly traded companies, a master limited partnership (MLP) and the general partner that will control the MLP. Devon will have a controlling stake in both entities, which will also move natural gas liquids and oil.
U.S. exploration and production companies that own the infrastructure needed to process and move oil and gas frequently form MLPs as a means of unlocking the value of those assets. Devon said the value of the assets it is contributing to the partnership at $4.8 billion.
Shares of Devon rose nearly 3 percent, Crosstex Energy Inc shares rose about 60 percent, while units of shares of Crosstex Energy LP soared more than 40 percent.
Devon, which had previously contemplated an initial public offering of its pipeline and processing assets, opted for a merger instead because it "significantly accelerates," what Devon could do on its own with the creation of a larger company, John Richels, Devon's chief executive officer told analysts on a conference call.
MLPs are a structure favored by energy companies for tax efficiency and a lower cost of capital. Income is not taxed and is paid out to investors, called unitholders, in the form of quarterly distributions.
Crosstex Energy Inc shareholders will receive one unit in the new general partner, plus $2 per share in cash, for each Crosstex Energy Inc share they own. Crosstex Energy LP's unitholders will end up with a 40 percent stake in the new MLP.
Shares of Devon rose $1.66 to $64.87 in midday New York Stock Exchange trading. Crosstex Energy Inc shares rose $12.69 to $33.29 and Crosstex units climbed $8.55 to $28.90 on Nasdaq.
(Reporting by Michael Erman in New York and Anna Driver in Houston, additional reporting by Swetha Gopinath in Bangalore; Editing by Alden Bentley and Terry Wade)