Regency Strengthens Midstream Mass In Permian And Panhandle With $1.6 Billion In Deals
To acquire midstream assets including services in the Delaware Basin.
Regency Energy Partners LP (NYSE: RGP) did some major holiday shopping just before New Year’s, spending $1.6 billion on midstream gathering and processing assets in the Texas Panhandle and the Permian.
The deals expand Regency’s existing footprint in the southern portion of the Delaware Basin as well as services to producers in crude and water gathering. In October, Regency splurged on midstream assets in shale plays in Appalachia, West Texas, South Texas, Louisiana and the Midcontinent for $5.6 billion.
Regency announced Dec. 23 that it plans to buy out the midstream business run by Eagle Rock Energy Partners LP (Nasdaq: EROC) for up to $1.325 billion. The next day, RGP announced a deal for the midstream assets of privately owned Hoover Energy Partners LP for about $290 million.
Regency strengthens its East Texas gathering and processing and its foothold in the Permian Basin. The EROC assets are in a core area of liquids-rich basins with a significant presence in attractive shale plays such as the Haynesville, Austin Chalk and Tuscaloosa Marine shale.
The deals comes as Kinder Morgan Energy Partners LP (NYSE: KMP) announced Dec. 23 that it would buy American Petroleum Tankers and State Class Tankers from affiliates of The Blackstone Group and Cerberus Capital Management for $962 million in cash
“These transactions, along with KMP’s announcement, show MLPs are acquiring less stable assets at lower valuations in search for immediate LP accretion,” Tudor, Pickering, Holt and Co. said in an analyst note.
Part of Regency’s payment to EROC will consist of $200 million of newly-issued Regency common units and a combination of cash and assumed debt. The transaction is subject to the approval of Eagle Rock's unitholders, Hart-Scott-Rodino Antitrust Improvements Act of 1976 approval and closing conditions.
Regency will conduct an offer to exchange Eagle Rock's $550 million of outstanding senior unsecured notes into an equivalent amount of Regency senior unsecured notes with the same tenor, coupon and a comparable covenant package.
The deal, expected to close in the first half of 2014, will transform Eagle Rock into a pure-play upstream master limited partnership (MLP) with a strong balance sheet and ample liquidity for future growth. Eagle Rock plans to use the proceeds to pay debt.
“This transaction is consistent with our stated goals of simplifying our structure and reducing our debt balances,” said Joseph A. Mills, Eagle Rock's chairman and CEO. “We are excited to announce this transformative transaction for Eagle Rock, which unlocks the value of our midstream business and positions the partnership for future growth as a pure-play upstream MLP.”
Evercore Group LLC and Citigroup Global Markets Inc. acted as financial advisors and Vinson & Elkins LLP acted as legal counsel to Eagle Rock.
Hoover’s midstream services include crude oil gathering, transportation and terminal storage.
Hoover established a first-mover position in the southern Delaware Basin, where 44 rigs are running in its operating area and drilling activity is extending south and east.
The Perry Ranch Station is a major destination for crude gathered by a customer in the region and is backed by a 20-year dedication. In addition, Hoover’s Delaware Water System is the only open-access water gathering and disposal system in the Delaware Basin.
“This acquisition further extends Regency’s presence in the Delaware Basin in West Texas and supports our goal of diversifying our service offerings to our customers by adding crude and water gathering services,” said Jim Holotik, executive vice president and chief commercial officer for Regency. “Hoover’s geographic footprint enhances our existing Permian Basin service capabilities and expands our strategic presence in the developing Bone Spring, Wolfcamp and Wolfbone producing areas.”
Regency expects the acquisition to be accretive in 2014 and to finance the acquisition by issuing approximately $98 million of Regency common units to Hoover. The remaining portion of the consideration will be funded from borrowings under Regency’s revolving credit facility. Regency is a master limited partnership engaged in the gathering and processing, contract compression, contract treating and transportation of natural gas and the transportation, fractionation and storage of natural gas liquids. Regency’s general partner is owned by Energy Transfer Equity LP (NYSE: ETE).