Dallas-based Energy Transfer Partners has debuted on the New York Stock Exchange, the result of a January reverse merger of a private pipeline company by that name and Heritage Propane Partners LP, a public master limited partnership based in Tulsa. "This is the first true natural gas midstream and propane partnership available to the MLP equity market," Ray Davis, ETP co-chairman, told producers in Houston recently. "The company counters the seasonality of winter propane demand with steadier, year-round natural gas demand, enhancing stability of cash flow." With a market capitalization of about $2.2 billion, ETP is the seventh-largest public MLP. Its pipeline predecessor, founded in 1996, had $890 million of assets at the time of the merger, and Heritage was the fourth-largest propane distributor in the U.S. ETP grew by acquiring midstream assets, including significant deals in October 2002 when it acquired assets from Aquila and 1Dow Chemical ? . One of its biggest holdings is the Oasis Pipeline that moves gas from the Waha Hub in West Texas to the Katy Hub near Houston. Current throughput is 830 million cubic feet a day, versus capacity of 1 billion per day. It is also the largest gas gatherer in the Austin Chalk Trend in central Texas. It has room for growth in its southeast Texas system, where capacity is 720 million cubic feet per day, but current throughput is just 260 million per day. Heritage also grew through acquisitions, buying 104 mostly mom-and-pop propane companies since it was formed in 1989. It operates in 31 states, mostly in rural or vacation areas. Since going public in 1996, its total return to investors has been 180%. Energy Transfer plans to keep making acquisitions to grow, as well as creating organic growth through construction of new assets. By mid-2004, its new Bossier pipeline will start providing an additional capacity of 1 billion cubic feet per day for producers in East Texas. Some 400 million per day has already been contracted by Anadarko Petroleum. "We think this cycle of midstream assets coming to market will last another two, three, maybe four years," Davis said. "This is an unusual time and we hope to make more acquisitions." Under the terms of the new deal, ETP gave its assets to Heritage in exchange for $890 million in cash, and it purchased the general partner of Heritage. Two operating units are under the new parent company: a midstream entity and a propane limited partnership. The public now owns 58% of the merged company and management owns 40%. ETP plans to increase its quarterly distribution to unit-holders to 70 cents per unit, or $2.80 per year, according to Davis. At press time, the company was trading at $39.52.
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