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Energy Transfer Picks Up Houston Pipe Line from AEP for $825M

Energy Transfer Partners said it purchased a majority of the entity that owns Houston Pipe Line and related storage assets from American Electric Power Corp. (AEP) for about $825 million. AEP had been planning to sell the assets since last year as part of its strategy to refocus on core regulated operations.

The partnership's natural gas midstream and transportation operating partnership, La Grange Acquisition LP, acquired all but a 2% limited partner interest in the entity owning the assets. The HPL system includes about 4,200 miles of intrastate pipeline with aggregate capacity of 2.4 Bcf/day, plus substantial storage facilities and related transportation assets. The transaction was financed through a combination of borrowings under Energy Transfer's current credit facilities and a private placement of $350 million of partnership common units with institutional investors.

"HPL is one of the most extensive natural gas midstream systems in Texas and the Gulf Coast," said Steve Anderson, vice president of mergers and acquisitions at Energy Transfer. "This acquisition enables the partnership to expand its current transportation systems into areas where it did not previously have a presence." He added that the combination of Energy Transfer's midstream transportation assets with the HPL system will provide direct transportation from major producing basins to the Houston Ship Channel industrial corridor, the largest industrial natural gas consuming area in the U.S.

Energy Transfer expects the transaction to be immediately accretive to unitholders and to result in $0.40-$0.50 per common unit of distributable cash flow on an annual basis. As a result, management will recommend to the board of directors a $0.20 increase in the annual cash distribution from $3.50 to $3.70 per common unit.

Earlier this month Dallas-based Atmos Energy Corp. entered into a letter of intent with Energy Transfer to jointly construct, own and operate a large-diameter intrastate gas pipeline in the northern portion of the Dallas-Fort Worth Metroplex. The proposed pipe would interconnect with both Atmos Energy's and Energy Transfer's existing pipeline systems near Frisco, which is north of Plano, TX. The NSL project is expected to be in service by Dec. 31, with an initial capacity of 200,000 MMBtu/d. The line would have the ability to be expanded to 500,000 MMBtu/d at a later date.

In other action on Thursday, Energy Transfer's board approved a two-for-one split for each class of the partnership's limited partner units. Holders of record on Feb. 28 will receive one additional partnership unit for each partnership unit owned on that date. Energy Transfer said that the move "highlights the board's confidence in the partnership's financial performance and growth prospects. It also reflects the board's continued commitment to improving liquidity and broadening the ownership of the partnership units."

Based upon the current annual distribution of $3.50 per unit, the annual cash distribution rate will be $1.75 per unit, or $0.4375 per unit quarterly, after the two-for-one split of the partnership units. Management previously announced its intention to recommend to the board a $0.20 increase in the annual distribution to $3.70 per unit. If the increase is approved, the annual distribution following the unit split would be $1.85, or $0.4625 quarterly. The partnership will have 102.2 million common units outstanding following the split and a private placement of $350 million common units in connection with the financing of the HPL acquisition.

Energy Transfer's gas operations include 12,000 miles of natural gas gathering and transportation pipelines with an aggregate throughput capacity of 7.6 Bcf/d. The company also is the fourth largest retail marketer of propane in the United States, serving more than 650,000 customers.

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