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What you should know about Regency’s acquisition of assets in the Permian

Ingrid Pan, CFA

Regency Energy makes two more big purchases (Part 4 of 5)

(Continued from Part 3)

In addition to Eagle Rock’s (EROC) midstream assets, Regency Energy (RGP) also announced that it would purchase certain midstream assets from Hoover Energy Partners (a private company) for ~$290 million. The transaction is expected to close in 1Q14, pending the meeting of certain customary conditions such as anti-trust approval. Hoover Energy provides midstream services such as crude oil gathering, transportation, terminaling, condensate handling, natural gas gathering, treating, processing, and water gathering and disposal services in West Texas, where the Permian Basin is located. Note that the Permian is one of the most active oil plays in the U.S. (For more about the Permian, see Introduction to the Permian Basin.).

Note: The above graphic includes assets from SUGS (Southern Union Gathering Company), which it acquired earlier in 2013 for ~$1.5 billion

Regency management stated that the acquisition increases its footprint in the Bone Spring, Wolfcamp, and Wolfbone geological formations in West Texas, as RGP already had existing operations in the area. The Hoover Acquisition will add to Regency’s services the capability for crude gathering and water gathering, and Regency believes the acquisition will add synergies and new growth opportunities.

Like the Eagle Rock transaction, the Hoover acquisition is expected to be accretive in 2014, meaning that Regency expects higher distributable cash flow per unit due to this transaction.

Financing of the Hoover Acquisition

The purchase price of $290 million will be financed with ~$98 million of Regency common equity issued to Hoover, with the remainder financed with borrowings under Regency’s revolved (debt).

Regency management comments about Hoover Energy’s assets

“This is a great tuck-in acquisition and these assets now further expand our presence in the developing Bone Spring, Wolfcamp and Wolfbone producing areas and provide three very important opportunities for Regency. First, the geographic location of the gas system adds pipe in a key area which will increase flexibility to expand the Regency gathering assets, while adding over 190,000 acres of dedication. Secondly, this transaction as a crude gathering and transportation platform to Regency suite of producer services in one of our core operating areas. This platform is backed by over 160,000 acres of crude dedications. The Perry Ranch Station is a major delivery point for crude gathered by a key customer in the region and is backed by a 20-year dedication.

“Lastly and also very importantly, we will be adding water gathering and disposal services backed by dedications of almost 60,000 acres. Hoover’s Delaware Water System is the only open access water disposal system in the Delaware Basin, and we are seeing increasing demand for this service in the area. With the high level of producer activity in the Permian Basin driven by oil and liquids, we believe this acquisition will provide an even stronger strategic platform on which to further expand our West Texas and the Mexico services through ongoing and proposed organic growth projects.”

Continue to Part 5

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