(Updates share prices in sixth paragraph.)
Dec. 23 (Bloomberg) -- Regency Energy Partners LP, a pipeline partnership controlled by Energy Transfer Equity LP, agreed to buy two midstream units for about $1 billion to expand in Texas, where crude production has surged.
Regency will acquire the pipelines and processing facilities of Eagle Rock Energy Partners LP for $200 million in stock and $520 million in cash, according to a statement today. Separately, Regency said it would pay $290 million for assets belonging to closely held Hoover Energy Partners LP.
Regency is extending its operations in Texas, where crude oil production has more than doubled since 2009 as companies apply shale-drilling techniques to previously overlooked deposits. Accompanying the oil are natural gas and related liquids that need to be processed by so-called midstream operations.
“Our expanded footprint will strengthen Regency’s position as a midstream provider in the Mid-Continent region,” Chief Executive Officer Mike Bradley said in the statement.
The deal with Houston-based Eagle Rock augments Regency’s $3.88 billion acquisition of PVR Partners LP in October, Bradley said. That purchase boosted Regency’s operations in the Marcellus Shale, the Utica Shale in Ohio and the Granite Wash fields in Texas and Oklahoma.
Energy Transfer, Regency’s largest investor and owner of its general partner, announced today it would buy $400 million worth of units in the Dallas-based partnership. Regency jumped 7.8 percent, the most since August 2011, to $26.07 at the close in New York. The units are up 20 percent this year.
Eagle Rock, which will become a pure exploration and production company with this sale, gained 13 percent to $5.92.
Regency is getting 8,100 miles (13,000 kilometers) of gathering lines in the Texas Panhandle, East Texas and South Texas from Eagle Rock as well as plants capable of processing 800 million cubic feet per day of natural gas. Hoover gathers and treats oil, gas and water in the southern portion of the Permian’s Delaware Basin.
“It’s a fair price for both parties,” said Ethan Bellamy, a Denver-based analyst for Robert W. Baird & Co. who rates units of Regency and Energy Transfer Equity at hold and owns none. Regency is getting the Eagle Rock midstream operations at a slight discount, probably because Eagle Rock needed cash to lower its debt load, he said.
Eagle Rock had $1.2 billion of debt as of Sept. 30, which crimped investments in oil and gas production, CEO Joe Mills said today on a conference call. The partnership expects to buy oil and gas properties next year, he said.
The Eagle Rock deal is expected to close in the first half, said Regency, which will assume $550 million of Eagle Rock debt as part of the transaction.
Energy Transfer will buy Regency’s common units at today’s market price to help finance the Eagle Rock deal. Dallas-based Energy Transfer also announced a two-for-one stock split and $1 billion buyback program.
Evercore Group LLC and Citigroup Inc. advised Eagle Rock. Barclays Plc’s investment banking unit advised Regency on the Eagle Rock transaction.
--Editors: Stephen Cunningham, Jasmina Kelemen