NiSource Inc., owner of utilities that serve northern Indiana, plans to split off its natural-gas pipeline business and form a tax-advantaged partnership to help exploit the shale boom.
Initial holdings of the partnership will include a 14.6 percent interest in CPG OpCo LP, a natural gas transmission, midstream and storage business now owned by NiSource, the Merrillville, Indiana-based company said in a statement. Forming a so-called master-limited partnership, or MLP, will enable a NiSource spinoff to raise cash to expand pipeline networks while retaining control of assets.
A 44 percent surge in U.S. gas output during the past decade, brought on by the expansion of hydraulic fracturing, has driven demand for new pipelines to deliver the fuel to market. NiSource has announced plans to spend about $8 billion to $10 billion over the next five to 10 years to expand and upgrade pipelines serving the Marcellus and Utica shale formations.
“We think the MLP model offers strategic benefits to NI and represents its most attractive alternative financing solution,” Christopher Sighinolfi, an analyst for Jefferies Group LLC in New York, said in a Sept. 22 note to clients. The MLP may have a market value of about $4.1 billion by the end of 2016, he wrote.
In the transaction, NiSource will spin off to shareholders Columbia Pipeline Group Inc., which will control CPG OpCo and initially own most of the units, NiSource spokesman Mike Banas said in a telephone interview. The group will use the MLP to help finance growth, he said.
NiSource filed for the MLP with the U.S. Securities and Exchange Commission Monday. Lazard Ltd. advised NiSource on the transaction.
NiSource will retain the company’s regulated utilities after the split expected next year and will remain based in Merrillville, the company said. Columbia Pipeline Group will be based in Houston. NiSource’s board will name chief executive officers to head each company by the end of the year.
More than 280 pipeline partnerships have gone public in the past decade, raising about $81 billion from initial offerings, according to data compiled by Bloomberg. MLPs pay no federal income tax, allowing them to send more profits to investors. The Alerian MLP Index, which includes 50 partnerships, has gained 13 percent this year, almost twice the growth of the Standard & Poor’s 500 Index.
NiSource shares rose 5.9 percent to $40.84 at the close in New York, bringing its year-to-date gain to 24 percent.
Its announcement follows other utility owners that have formed partnerships, including OGE Energy Corp. and CenterPoint Energy Inc., whose Enable Midstream Partners LP has risen 24 percent since going public in April.
NiSource’s Columbia Pipeline Group operates about 15,700 miles (25,261 kilometers) of lines that stretch from Louisiana to New York. It also owns gas utilities that serve 3.3 million customers in seven states and an electric utility in Indiana.
New pipelines are needed to deliver gas, particularly from the Marcellus Shale centered in Pennsylvania, which yielded almost no gas a decade ago and is now the most productive U.S. deposit. The Utica Shale lies under western Pennsylvania and eastern Ohio.
Marcellus output rose 38 percent to 13.1 billion cubic feet per day as of Aug. 31, according to the Energy Department. Utica production has risen almost 10-fold since January 2012.
Dominion Resources Inc., the third-largest U.S. utility owner, is preparing for an initial offering of Dominion Midstream Partners LP, owner of a liquefied natural gas terminal in Maryland. Sempra Energy has said it is considering forming a partnership to own pipelines and an LNG terminal.