By Laura Sanicola and Arathy Somasekhar

-Shares of gas pipeline operator ONEOK Inc fell about 9% on Monday on questions about potential synergies from its deal to acquire oil pipeline operator Magellan Midstream Partners.

ONEOK on Sunday said it would pay $18.8 billion in cash and stock for Magellan to diversify its natural gas and gas-liquids transportation business into oil and oil products.

The businesses are quite distinct and the potential value from the deal depends heavily on the impact on ONEOK’s future tax liabilities, analysts said. The price represents a 22% premium to Magellan’s closing price on Friday.

“The deferral of Oneok’s corporate cash taxes seems like a major deal component,” Mizuho analysts wrote in a research note. “There is little if any reason to get excited about near-term commercial synergy potential.”

Magellan, registered as a master limited partnership (MLP), largely avoids corporate income taxes by paying all its profit to unitholders. It would provide about $1.5 billion in tax benefits to ONEOK between 2024 and 2027 as part of the conversion, the Mizuho analysts wrote.

Brian Freed, chief executive of EPIC Midstream Holdings, said the deal reflects the difficult of getting new pipeline permits approved, raising the value of existing operators.

“It’s much harder to put steel in the ground today than it was five to 10 years ago,” Freed said in a interview. “Companies with healthy balance sheets are going to need to acquire to augment their assets.”

U.S. gas producers last week slashed the number of drilling rigs by the most in seven years, in a sign of future weakness for gas-pipeline companies.

The combined company will have 44% of its business in transporting natural gas liquids, 21% in refined products, 7% in crude products, 10% in gas pipelines and 18% in gathering and processing, according to an investor presentation.

It would compete against gas- and oil-pipeline operators including Enterprise Products Partners, Kinder Morgan Inc, and Enbridge Inc.

ONEOK shares were trading at $58.17 on Monday, off 8.7%, while Magellan was up 14% at $63.17.

The deal would build ONEOK’s presence in top U.S. shale fields including the Permian Basin and Bakken shale, said Stacey Morris, head of energy research with VettaFi.

“ONEOK and Magellan have geographical overlap among their assets, but their primary businesses are very different,” Morris said.

(Reporting by Laura Sanicola; Editing by Leslie Adler)

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