A subsidiary of OGE Corp (NYSE:OGE), OGE Enogex Partners L.P., has filed registration papers with the SEC for an IPO of 7.5 million common units in a master limited partnership (MLP) that will trade under the symbol “OGP.” OGE will retain a 63.9% limited partner interest in OGP, and will also claim the 2% general partner interest.  An overallotment of 1.125 million units will be made available to the underwriters, UBS and Lehman Brothers. The IPO is expected to raise about $130 million.

OGE has a market cap of $3.42 billion and is the largest public utility in the state of Oklahoma. The mid-stream assets that it is passing along to OGP include nearly 5,500 miles of natural gas gathering systems and almost 2,300 miles of gas transmission lines from the Arkoma and Anadarko basins, and include 64 interconnection points with other pipelines transporting gas to the west.

As pipeline MLPs go, OGP will be relatively small; Kinder Morgan owns and operates more than 15,000 miles of natural gas pipelines. But, OGP starts life with a ‘AAA’ rating from Fitch Ratings. That’s a good thing, particularly as MLPs are notorious borrowers. Leverage of 50% or even more is not uncommon as these partnerships try to keep returns flowing both to their parent companies and to the limited partners. OGE has been well-managed and its Enogex subsidiary have been well-managed to this point, and Fitch is betting that will continue. As OGP tries to keep its returns high, the temptations will be many.

Paul Ausick
July 2, 2007