Billionaire Warren Defends Gas Pipeline While Selling Stake

(Bloomberg) -- Billionaire pipeline magnate Kelcy Warren, who just months ago defeated environmentalists to finish his controversial Dakota Access oil pipeline, has stepped into the limelight once again -- this time, to defend a natural gas line being built across the eastern U.S.

In a letter to U.S. lawmakers Monday, Warren said he was “baffled” by federal energy regulators' allegations that his company, Energy Transfer Partners LP, violated rules in building the $4.2 billion, 700-mile (1,127-kilometer) Rover gas pipeline and defended how the project has been constructed. That same day, his company reached a deal to sell a 32 percent stake in its Rover unit to Blackstone Group LP for about $1.57 billion in cash.

The letter was a rare public statement for Warren, who has largely stayed out of the spotlight even as Energy Transfer's pipeline projects became mired in controversy. Thousands of protesters had camped out at the site of the Dakota Access crude pipeline before Warren issued a memo in its defense. Regulators suspended work on portions of the Rover pipeline after Energy Transfer disclosed massive spills of drilling fluids and are investigating the company's demolition of a historic house in Ohio.

Warren was responding to a letter that U.S. Senator Maria Cantwell and Representative Frank Pallone, both Democrats, had written to the Federal Regulatory Energy Commission, calling for an investigation into what they described as “troubling incidents” involving the Rover pipeline. An investigation like that would be “both unprecedented and unnecessary,” Warren wrote in his letter to the lawmakers.

Energy Transfer has meanwhile agreed to sell a stake in the pipeline to Blackstone, saying it'll use the cash to pay down debt, fund projects and reduce equity issuances. The deal is expected to close in the fourth quarter.

The sale is similar to a $2 billion one Energy Transfer made with Enbridge Inc. and Marathon Petroleum Corp. for interest in the pipeline system that includes Dakota Access. For Blackstone, the Rover stake builds on recent investments in the U.S. gas business. Just four months ago, the company spent $2 billion on a gas pipeline system in Texas's Permian Basin.

Last year, Blackstone was said to have been in talks to buy a $5 billion stake in Energy Transfer assets, but those discussions fell through, people with knowledge of the situation said in January, asking not to be identified because the information wasn't public.

Energy Transfer Partners was up as much as 4.8 percent to $21.68 on Tuesday, the highest intraday level since June 7. Evercore ISI analyst Timm Schneider said in a research note that the stake sale will cut the pipeline operator's funding needs and will probably “eliminate an apparent equity overhang at the complex.”

The Rover project is already behind schedule. Up until two weeks ago, Energy Transfer had been projecting that the first part of the line would be in service by the beginning of July.

The delays have helped boost U.S. natural gas futures as traders bet more of the fuel will need to be shipped from the Gulf Coast to meet demand. Once in service, the Rover system will be capable of moving more than 3 billion cubic feet of gas from eastern U.S. shale formations to other markets daily.

For its part, the energy commission said in a filing Monday that a third-party review of Energy Transfer's drilling program for the Rover project in Ohio failed to confirm that the company complied with standards because its records were too limited.

--With assistance from Tim Loh and Catherine Traywick

To contact the reporter on this story: Naureen S. Malik in New York at nmalik28@bloomberg.net.

To contact the editors responsible for this story: Lynn Doan at ldoan6@bloomberg.net, Jim Efstathiou Jr.