Despite turmoil in the debt markets that has cooled interest in master limited partnerships (MLP) among some investors, Southern Union Co. remains "committed to an MLP transaction involving our midstream assets," a company vice president told financial analysts recently.

Eric D. Herschmann, senior executive vice president, said the company continues to consider both stand-alone and third-party structures for its planned MLP, which he said would hold the company's gathering and processing assets.

"We remain committed to that decision [to form a midstream MLP] and are moving expeditiously towards a resolution," Herschmann said. "[W]e have received inquiries and proposals from multiple parties and are continuing to review and negotiate those proposals. At this time we have not made a final decision about whether we will form our own MLP, contribute our midstream assets to an existing MLP or form a new joint venture MLP."

Among issues the company is evaluating in the MLP formation are what interest Southern Union would receive in the MLP's general partner, the number of limited partner units and cash it would receive. For transactions with third parties, Herschmann said Southern Union also is considering whether the general partner is publicly traded.

"Because we're considering both a stand-alone and third party structures, the analysis is complex," Herschmann said. "It's not a cash sale where proposals are easily evaluated. Rather, we've been considering first who is the potential partner..."

Herschmann said an MLP announcement is "more likely in weeks than months."

One analyst asked if, given the fact that credit markets are not functioning well right now, it would be prudent to delay the MLP.

"We've been watching these markets obviously very carefully, especially when you talk about having a partner in a transaction...I don't think at this stage we would be prepared to delay it. But it is obviously the timing of things [that] is critical to this process. It's not our intent currently to delay," Herschmann said.

In December 2005, Southern Union announced a deal to buy privately held Sid Richardson Energy Services Co. of Fort Worth. The Sid Richardson enterprise included about 450 MMcf/d of cryogenic processing capacity among six interconnected plants, 930 MMcf/d of high-pressure treating capacity and the pipeline network (see NGI, Dec. 19, 2005). "It is increasingly clear that the Sid Richardson acquisition was a very good one for Southern Union and its shareholders," Herschmann said two weeks ago.

Earlier this year, Southern Union said it planned to have an MLP in place by the end of September that would initially hold its gas storage assets (see NGI, March 5). The MLP was announced as part of the Houston-based company's long-range plans. Other assets were expected to be moved into the partnership later. The decision to create an MLP ended a possible proxy battle with hedge fund Sandell Asset Management, which filed a complaint against Southern Union in December (see NGI, Jan. 22). Under pressure, Southern Union in January agreed to amend its bylaws to allow the nomination of independent board members. Sandell also had suggested the company create an MLP, continue to sell its remaining local gas distribution utilities and raise its annual dividend by $1/share.

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