September 16, 2014 / 2:06 PM / 3 years ago

Morgan Stanley buys into Magnum Hunter's pipeline unit

(Reuters) - Magnum Hunter Resources Corp MHR.N said Morgan Stanley (MS.N) would become a co-owner in its natural gas gathering subsidiary that operates in the Marcellus and Utica shale fields.

Magnum Hunter, whose shares were up more than 3 percent in early trade, will sell a 6.5 percent stake in Eureka Hunter Holdings to Morgan Stanley Infrastructure for $65 million, valuing the pipeline company at $1 billion.

The Morgan Stanley unit will also acquire ArcLight Capital Partners LLC’s 41 percent stake for an unspecified amount.

Magnum Hunter and Morgan Stanley Infrastructure would then hold an equal equity interest, or a total of about 98 percent, after the transactions close and follow-on capital contributions by the Morgan Stanley unit.

“We have found a new equity partner ... which will allow this tremendous asset to grow and prosper in preparation for an anticipated MLP offering sometime next year,” said Magnum Hunter CEO Gary Evans in a statement.

Master Limited Partnerships are popular among energy companies as they are not taxed at the U.S. federal level, lowering the parent companies’ cost of capital.

The transaction includes a restructuring of the capital structure of Eureka Hunter, including the elimination of preferred shares.

    Magnum Hunter will have the right to defer its portion of some future capital contributions to Eureka Hunter. If Magnum Hunter selects to do so, Morgan Stanley Infrastructure will make the capital contributions.

    The Eureka Hunter gas gathering system has more than 100 miles of pipeline in Ohio and West Virginia with interconnections to multiple processing plants and interstate pipelines.

    There are more than 50 additional miles under construction, most of which are scheduled for completion in 2014.

    Magnum Hunter’s shares were trading at $6.29 on the New York Stock Exchange on Tuesday.

    Reporting By Kanika Sikka in Bangalore; Editing by Savio D'Souza

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