Regency Energy Partners LP (RGP) has agreed to buy Southern
Union Gathering Co. from Energy Transfer Equity L.P. (ETE) and
Energy Transfer Partners L.P. (ETP) for $1.5 billion in cash and
stock as the company aims to expand its footprint in the Permian
Basin.
"This acquisition represents a significant growth opportunity
for Regency and is very strategic to our plans for expansion in the
Permian Basin," Regency's Chief Executive Mike Bradley said. "The
integration of the Southern Union Gas Services assets with our
existing operations will position Regency with a broad Permian
Basin gathering and processing footprint."
The deal includes the purchase of a 5,600-mile gathering system
and about 500 million cubic feet per day of processing and treating
facilities in west Texas and New Mexico for natural gas and natural
gas liquids.
Southern Union Gathering Co. owns Southern Union Gas Services,
which is currently finishing construction of a 200 MMcf/d Red Bluff
processing plant with associated treating which is expected to be
in service in the second quarter. The deal is expected to close in
this quarter.
Regency added that an additional 200 MMcf/d cryogenic processing
facility with associated treating is in the planning stages and is
expected to be in service in mid-to-late 2014.
The company expects the deal to be neutral to slightly accretive
this year.
Regency will pay for the purchase by issuing $900 million of new
Regency units to Southern Union, comprising $750 million of new
common units and $150 million of new Class F common units. The
Class F common units will be equivalent to common units except will
not receive distributions for the equivalent of eight consecutive
quarters post-closing. Regency will pay the remaining $600 million
in cash.
Energy Transfer Equity, which owns Regency's general partner and
incentive distribution rights, has agreed to forgo the incentive
distribution rights payments associated with the new common units
issued by Regency. It has also agreed to eliminate the $10 million
annual management fee due from Regency for two years
post-closing.
Energy Transfer Equity and Energy Transfer Partners are
affiliated master limited partnerships. The companies have been
focusing their business on natural-gas pipelines as a supply glut
prompts producers to look for more ways to ship the fuel to
markets. Energy Transfer Partners last year completed its
acquisition of independent refiner Sunoco Inc. in a roughly $5.3
billion deal expected to greatly expand the reach of its pipeline
system, but which could also saddle the company with aging
refineries.
Energy Transfer Partners earlier this month reported its
fourth-quarter earnings rose 49% as revenue soared. Meanwhile,
Energy Transfer Equity reported its profit declined 43% as interest
expenses increased.
Regency also is a master limited partnership, and focuses on 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.
Shares of Regency closed Wednesday at $23.85. Those of Energy
Transfer Equity closed at $52.47, while shares of Energy Transfer
Partners closed at $48.03. All three companies' stocks were
inactive in recent premarket trading.
Write to Saabira Chaudhuri at saabira.chaudhuri@dowjones.com
Subscribe to WSJ: http://online.wsj.com?mod=djnwires