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Sunoco Logistics to buy Dakota Access Pipeline builders Energy Transfer Partners

Pipeline companies Sunoco Logistics Partners LP and Energy Transfer Partners, both of which are controlled by general partner Energy Transfer Equity LP, said on Monday, Nov. 21, they would combine in a corporate consolidation to cut borrowing and...

Signs hang from heavy machinery after protesters stopped construction on the Energy Transfer Partners Dakota Access oil pipeline. REUTERS/Andrew Cullen
Signs hang from heavy machinery after protesters stopped construction on the Energy Transfer Partners Dakota Access oil pipeline near the Standing Rock Sioux reservation in Cannon Ball, N.D., Sept. 6, 2016. REUTERS/Andrew Cullen

Pipeline companies Sunoco Logistics Partners LP and Energy Transfer Partners, both of which are controlled by general partner Energy Transfer Equity LP, said on Monday, Nov. 21, they would combine in a corporate consolidation to cut borrowing and operating costs.

Energy Transfer Partners is the main company behind the controversial $3.7 billion Dakota Access Pipeline, which has been delayed since September, when federal regulators decided to re-review permitting for the project to cross land owned by the federal government.

The companies said they expect the combined company's greater scale and diversity to strengthen its balance sheet and projected that the deal will create more than $200 million in yearly commercial cost savings by 2019.

"Other MLPs have significantly lower cost of capital," said Rob Thummel, managing director at top Sunoco Logistics and Energy Transfer Partners investor Tortoise Capital Advisors. He noted that Energy Transfer Equity Chairman Kelcy Warren believes there will be considerable consolidation in the energy infrastructure sector soon.

"So it's going to be tough for him to compete if he doesn't get his cost of capital down," Thummel said.

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Thummel also said he does not believe the deal has anything to do with the Dakota Access Pipeline.

Because master limited partnerships are required to pay out nearly all of their earnings to investors, lower borrowing costs can help the companies to keep growing through acquisition.

That kind of growth helps fuel distributions to investors, much of which goes to general partner Energy Transfer Equity and its chairman, Warren.

Energy Transfer Equity units were up 2.5 percent in midday trade at $17.72 on Monday, but units of Energy Transfer Partners and Sunoco Logistics fell.

Energy Transfer Equity walked away from its more than $20 billion takeover of Williams Cos Inc. earlier this year after months of lawsuits and heated arguments between the rival pipeline companies.

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