Devon Energy (NYSE:DVN) will combine virtually all of its U.S. midstream assets with Crosstex Energy (NASDAQ:XTXI) and Crosstex Energy LP (NASDAQ:XTEX) to create a new publicly-traded master limited partnership focused on the booming U.S. gas market.
For a controlling interest of 53% in the new company, Devon will contribute $4.8 billion worth of midstream assets, as well as its equity interest in a newly formed subsidiary Devon Holdings and $100 million in cash.
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Devon earlier this year had announced plans to form a master limited partnership to operate its North American midstream assets. An MLP carries certain tax benefits, including not having to pay state and federal corporate income tax.
The transaction will combine their extensive midstream systems, including gathering and transportation pipelines, as well as processing, fractionation and logistics assets like barge and rail terminals.
Most assets will be located in North America’s premier oil and gas regions, including the Barnett Shale, Permian Basin, Cana and Arkoma Woodford, Eagle Ford, Haynesville, the Gulf Coast, Utica and Marcellus.
The MLP, whose official name won't be unveiled until after the deal closes early next year, is expected to have adjusted EBITDA of roughly $700 million in 2014, before projected synergies, with 7,300 miles of pipelines, 13 processing plants with capacity of 3.3 billion cubic feet per day and six fractionators.
The integration, says Crosstex CEO Barry Davis, “provides the new company with greater operating leverage and strong sponsorship from a leading North American exploration and production company.”
Davis is expected to become CEO of the new company, while Devon CEO John Richels serves as chairman.
Shares of Devon were up about 4.3% in early trade, while those of Crosstex Energy jumped 41% and those of Crosstex Energy LP grew 21%.