Enterprise GP Holdings LP late Monday made good on its intentions to enter the interstate pipeline market after announcing two separate transactions that give it a minority stake in Energy Transfer Equity LP and TEPPCO Partners LP. The transactions, which together are worth an estimated $2.8 billion, are expected to increase Enterprise's distributable cash flow per unit in 2008 by more than 10%.

With the transactions, Enterprise becomes the first publicly traded partnership to own direct or indirect interests in the general partners of multiple publicly traded partnerships: Enterprise Products Partners, TEPPCO Partners, Energy Transfer Equity, Energy Transfer Partners LP and Duncan Energy Partners LP. The aggregated assets of the five separate partnerships consist of about 59,500 miles of pipelines that transport natural gas, natural gas liquids (NGL), refined products, crude oil and petrochemicals, 103 Bcf of working natural gas storage capacity, 168 million bbl of NGL storage capacity, 27 million bbl of refined products and crude oil terminal capacity, 39 natural gas processing and treating facilities, 14 NGL and petrochemical fractionation and butane isomerization plants, and an NGL import/export facility.

Enterprise executives had indicated in March that they were looking for entry into the interstate pipeline market (see Daily GPI, March 30). Enterprise GP Holdings CEO Michael A. Creel presided over a conference call Tuesday to discuss the transactions.

"These transactions fit our objectives and our long-term returns," Creel said. "Through our interests in TEPPCO, we gain exposure to the stable and growing cash flows from its refined products and crude oil transportation and terminaling businesses, and through our interests in Energy Transfer Equity, we have achieved one of our long-stated objectives of investing in interstate natural gas pipelines. Based on current distribution rates, Enterprise GP Holdings will now receive over $260 million of distributions per year originating from five publicly traded partnerships."

In one transaction, private equity fund Natural Gas Partners (NGP) sold 55% of its ownership interest in Energy Transfer Equity LP, the parent of Energy Transfer Partners LP, for $744 million, or a per share unit price of $42. NGP, based in Irving, TX, also sold a majority of its equity interests in LE GP LLC, the general partner of Energy Transfer Equity. Enterprise GP Holdings purchased the Energy Transfer stake from co-CEO Ray C. Davis and Kelcy L. Warren. The total value of the transaction was $1.65 billion, and it gives Enterprise a 17.6% minority stake in Energy Transfer.

Enterprise GP Holdings also purchased all of the member interests in Texas Eastern Products Pipeline Co. LLC, the general partner of TEPPCO, and 4.4 million TEPPCO common units, or 4% of TEPPCO's outstanding common units, from affiliates of privately held EPCO Inc. In exchange, EPCO received 14.2 million Class B units and 16 million Class C units, together valued at $1.1 billion.

"We have admired the partnership that Kelcy Warren and Ray Davis have built, especially their recent acquisition of the Transwestern interstate natural gas pipeline," Creel said. "The purchase of the Energy Transfer equity units was an attractive opportunity to make a meaningful investment in the general partner of Energy Transfer Partners (ETP), which has been one of the best-performing partnerships. ETP has a number of significant pipeline projects under construction that are expected to support its distribution growth over the next several years, and it also has one of the best distribution coverage ratios in the partnership sector."

The transactions have no effect on the management teams or operations of TEPPCO, Energy Transfer Equity or Energy Transfer Partners. However, Robert G. Phillips, a director, CEO and president of the general partner of Enterprise Products Partners, resigned from the board of directors of the general partner of Enterprise GP Holdings to avoid any potential future conflicts of interests and to focus on the operations of Enterprise Products Partners and its subsidiaries. Randa Duncan Williams will succeed Phillips as a director on the board of the general partner of Enterprise GP Holdings.

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