Regency Energy To Buy Midstream Assets Of Eagle Rock, Hoover For $1.615 Bln

(RTTNews) - Natural gas pipeline operator Regency Energy Partners LP (RGP) said Monday that it has agreed to acquire the midstream businesses of Eagle Rock Energy Partners, L.P. (EROC) and Hoover Energy Partners L.P. for a total value of about $1.615 billion.

Dallas, Texas-based Regency Energy noted that the Eagle Rock transaction, valued at $1.325 billion, will complement its core gathering and processing business and further diversify its basin exposure in the Texas Panhandle, East Texas and South Texas when combined with the proposed acquisition of PVR Resources.

In mid-October, Regency Energy said it agreed to acquire rival PVR Partners L.P. (PVR) for a total value of about $5.6 billion, including the assumption of net debt of $1.8 billion.

Eagle Rock's midstream assets include about 8,100 miles of gathering pipeline and over 800 million cubic feet per day or MMcf/d of processing plants. Regency Energy expects the combined system to provide significant synergies, increase efficiencies on its current system, and enhance services for its customers.

Regency Energy said it expects the acquisition to immediately addto its distributable cash flow per common unit, and also expects the acquisition will be accretive to distributable cash flow per common unit on a pro forma basis with the pending acquisition of PVR Partners, L.P.

Regency Energy said it plans to finance the acquisition by issuing $200 million of Regency common units to Eagle Rock as well as $400 million of Regency Energy common units to Energy Transfer Equity, L.P. (ETE), and the assumption and like-kind exchange of up to $550 million of outstanding Eagle Rock senior notes into Regency Energy senior notes.

The company will fund the remaining part of the consideration from borrowings under its revolving credit facility.

Regency Energy said that due to the expected cash flow accretion from the Eagle Rock transaction, its management expects to recommend distribution increases to its board of directors that would represent a growth rate of 6 percent to 8 percent for full-year 2014.

Regency Energy and Eagle Rock Energy expect the transaction to close in the second quarter of 2014. The transaction is subject to the approval of Eagle Rock's unitholders, and other customary closing conditions.

In a separate statement, Houston, Texas-based Eagle Rock Energy noted that the transaction is consistent with its goals of simplifying its structure and reducing its debt balances.

Eagle Rock said that following consummation of the transaction, it will be a pure-play upstream master limited partnership or MLP, with a strong balance sheet and ample liquidity for future growth. The partnership intends to use the cash proceeds from the contribution of its midstream business to pay down borrowings under its revolving credit facility.

Regency Energy noted that its acquisition of Hoover Energy's midstream assets for about $290 million will complement its existing footprint in the southern portion of the Delaware Basin as well as expand its services to producers into crude and water gathering.

Hoover Energy's midstream services include crude oil gathering, transportation and terminaling, condensate handling, natural gas gathering, treating, processing, and water gathering and disposal services. The deal is expected to close in the first quarter of 2014.

Regency Energy noted that 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.

Regency Energy expects the acquisition to be accretive in 2014. The company intends to finance the transaction by issuing about $98 million of its common units to Hoover Energy and fund the remaining portion of the consideration from borrowings under its revolving credit facility.

In Monday's regular session , RGP is trading at $24.71, up $0.52 or 2.15 percent on a volume of 86,210 shares.

EROC is trading at $5.97, up $0.71 or 13.50 percent on a volume of 998,876 shares.