EnLink Midstream Partners LP Stock (ENLK) Down 11% on Secondary Offering

A subsidiary of Devon Energy will sell part of its interest in EnLink Midstream Partners through a secondary offering. Mister Market isn't happy.

Jason Hall
Jason Hall
Mar 25, 2015 at 1:35PM
Energy, Materials, and Utilities

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Midstream oil and gas master limited partnership EnLink Midstream Partners LP (NYSE:ENLK) shares fell as much as 11% this morning, before recovering a little. At noon, the decline was around 9%.

So what: Devon Energy Corp (NYSE:DVN) is the majority owner of EnLink Midstream LLC, which is the general partner of EnLink Partners. Devon Energy also owns 44% of the common units (MLP-speak for shares) of EnLink Partners, essentially giving it full control over the MLP. I tell you this because the public offering is of a portion of the MLP that is owned by Devon Energy through a subsidiary.

In short, Devon's subsidiary is getting the proceeds of this offering -- about $580 million based on the offering price -- and not EnLink Partners. 

Now what: The press release also states that the common units outstanding won't change, indicating that existing unitholders aren't being diluted here, while Devon is decreasing its stake in the MLP. Apparently Devon has plans for that capital -- and based on the current oil and gas market, I can understand why it would want to create more liquidity. Furthermore, as the majority owner of the general partner, EnLink Midstream LLC, this move doesn't change Devon's position of control, though it will lessen its returns when the MLP pays distributions. 

Frankly, this move by Devon doesn't seem to be material to EnLink Midstream Partners' business results, and I wouldn't suggest investors either buy or sell based on it.