Midstream merger and acquisition (M&A) activity in 2012 continues at a fairly robust pace, with total announced transaction value of approximately $19 billion across 23 transactions since January 1. Of the transactions announced to date, Energy Transfer Partners LP's announced $8.9-billion acquisition of Sunoco Inc., Williams Partners LP's $2.5-billion acquisition of Caiman Energy LLC's Caiman Eastern Midstream LLC and Suburban Propane Partners LP's announced $1.8-billion acquisition of Inergy LP's retail propane business are noteworthy because they track three trends discussed previously in this column: (1) Master limited partnerships (MLPs) using acquisitions to de-risk their greenfield development activity; (2) realignment within the propane sector; and (3) continued consolidation of the midstream space by the large, diversified MLPs.

Williams' purchase of Caiman Eastern Midstream LLC (Caiman Eastern) is another example of an established MLP de-risking its greenfield development activity through the acquisition of a privately held midstream company rather than taking the development risk directly. Caiman Energy LLC (Caiman) began development activities in connection with the Caiman Eastern system in Marshall and Wetzel counties, West Virginia, in November 2009, started flowing gas in March 2010 and brought its first cryogenic processing plant online in January 2011.

Prior to Caiman's arrival, there was no infrastructure in place in the area capable of gathering and processing substantial volumes of liquids-rich natural gas. Caiman and its private-equity sponsors were willing to build infrastructure based on acreage dedications, rather than volume commitments, which exposed Caiman to substantial development risk. Many MLPs, even those with experience developing greenfield assets, are not willing to take substantial development risk in a new producing area (even one with the resource base of the southwestern Marcellus shale) given the potential negative impact to distributable cash flow if something were to go wrong.

Those MLPs are, however, willing to take acquisition risk to acquire a system once enough assets are in place and operating to effectively de-risk the play. With Caiman, Williams effectively de-risked its development activities in the southwestern Marcellus shale while maintaining substantial upside from the ongoing buildout of the Caiman Eastern system.

Suburban's announced acquisition of Inergy's retail propane business is the most recent example of the ongoing realignment in the retail propane sector. Inergy has been de-emphasizing its retail propane business following the initial public offering of its midstream subsidiary, Inergy Midstream LP, and Suburban has been looking for ways to enhance growth while diversifying its retail propane operations. As a result of this transaction, Inergy will be a pure-play midstream company in terms of its operating businesses, although it will retain some exposure to the retail propane business through its ownership of an approximate 25% equity interest in Suburban.

Suburban will effectively double its retail propane operations in terms of customers and retail gallons sold and in doing so will become the third largest retail propane company. In addition, Suburban will add 11 new states to its operating footprint. This increased size and scale further diversifies Suburban's retail propane business and reduces its overall weather sensitivity.

Energy Transfer's announced acquisition of Sunoco will result in Energy Transfer owning the general partner of Sunoco Logistics Partners LP (SXL), SXL's incentive distribution rights and a 32.4% equity interest in SXL as well as Sunoco's retail business, with 4,900 retail locations. In terms of midstream assets, the acquisition will add a crude oil and refined products business that includes approximately 8,000 miles of crude oil and refined products pipelines and approximately 41 million barrels of crude oil and refined products storage capacity.

The proposed acquisition would not only diversify Energy Transfer in terms of operating assets and cash flow, it would also expand Energy Transfer's range of growth opportunities—both on and off-system. Combining SXL's asset footprint and robust connectivity with Energy Transfer's already extensive network of natural gas and natural gas liquids pipelines and storage facilities furthers Energy Transfer's transition to a diversified energy logistics company. n

Raymond B. Strong is a senior managing director and Christopher C. Juban is a managing director for Evercore Partners, an independent investment-banking advisory firm that provides strategic advisory services for mergers, acquisitions, divestitures and capital markets transactions. Evercore Partners is currently advising Kinder Morgan Inc. on its announced transaction with El Paso Corp. and Suburban Propane Partners LP, on its acquisition of Inergy LP's retail propane business.