Zacks_Analysts' Blog : Energy Transfer's Latest JV - Analyst Blog

Energy Transfer Partners, L.P. (ETP) announced that it has partnered with Regency Energy Partners LP (RGNC) to acquire LDH Energy Asset Holdings LLC (“LDH”) from Louis Dreyfus Highbridge Energy LLC (Louis Dreyfus). The total purchase consideration has been settled at $1.925 billion.

Energy Transfer Partners will hold operatorship with a 70% interest in the joint venture against a contribution of $1.35 billion. Regency, on the other hand, will invest $578 million for the remaining 30% stake. Both companies target to utilize their revolving credit facilities to fund the initial stages of the venture.

The assets to be purchased include LDH’s natural gas liquids (NGL) storage facility, which is based in Mont Belvieu and is one of the biggest NGL storage, distribution and trading complexes in North America. The 1,066  mile long intrastate pipeline system along with fractionation and processing properties in Louisiana also form parts of the transaction.

The deal is expected to be closed in the second quarter 2011, pending customary closing conditions and regulatory approvals.

Management of both companies remain highly upbeat regarding this joint venture and expect the acquired properties to broaden the asset base with strong midstream services and transportation and storage businesses. These properties will also provide additional consistent fee-based revenues in the coming months.

Dallas, Texas-based Energy Transfer Partners has a geographically dispersed asset mix and exhibits significant market presence in major natural gas-producing regions of the U.S. In our opinion, this acquisition offers immense potential for the partnership in terms of its growth prospects and high return on capital.

However, webelieve that the near- to medium-term outlook for Energy Transfer Partners’ natural gas gathering and processing business is still weak due to the challenging operating environment.

Accordingly, we expect the partnership to perform in line with its peers such as Enterprise Products Partners L.P. (EPD), Kinder Morgan Energy Partners L.P. (KMP) and Plains All American Pipeline L.P. (PAA) and thereby maintain the long-term Neutral rating.