IPO Watch: OGE Enogex Partners L.P.

OGE Enogex Partners L.P.
www.enogexpartners.com
NYSE: OGP
Scheduled for the week of Jan. 14
$142.5 million estimated proceeds
$468.5 million estimated post-money valuation

The University of Oklahoma’s football team lost its bowl game, which made me sad because the coach’s father was my high school American history teacher. Yes, there’s a tangential relationship between my anecdote and the OGE Enogex Partners IPO: OGE is Oklahoma Gas and Electric, and its parent company, OGE Energy, is spinning out its gas midstream services business that collects natural gas from wells in Oklahoma and the Texas panhandle, then processes, transports and stores the gas until other utility companies need it.

This business is set up as a limited partnership, offering units instead of shares. Unlike shareholders, unit holders can’t vote on the general partner or the board of directors, but they should receive good-sized cash distributions. The partnership itself doesn’t pay income taxes. Instead, it sends partners a form listing their share of the income and expenses, and then the partner pays the applicable taxes. This makes limited partnerships popular with such tax-exempt investors as pension plans and charitable endowments. When those investors buy shares in a corporation, the corporation pays taxes before making any distributions. With a limited partnership, a partner who doesn’t have to pay taxes has the potential to make bigger profits off of the investment.

OGE Enogex Partners plans to pay $0.34 per quarter ($1.35 per year) per unit, to change based on the performance of the business. If natural gas prices increase, then the partners should be making money. OGE Enogex had limited partnership income of $20.2 million on $659 million in revenue for the first nine months of 2007. It plans to pay down debt with the offering proceeds.

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