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Regency's Eagle Rock Midstream Acquisition Gets FTC Approval

Zacks Equity Research

Natural gas infrastructure service provider, Regency Energy Partners L.P.’s (RGP) $1.3 billion acquisition of Eagle Rock Energy Partners, L.P.’s (EROC) midstream business has been cleared by the U.S. Federal Trade Commission (FTC). Earlier, the transaction was clouded by the ongoing investigation by FTC.

The Eagle Rock assets comprise gathering pipelines of about 8,100 miles and processing plants with a capacity of more than 800 million cubic feet per day (MMcf/d). Moreover, the cash flow from these midstream assets are aided by the dedicated large, long-term acreage.

This acquisition will result in diversification of Regency’s asset portfolio. This will provide an additional growth opportunity for Regency to explore the liquid-rich areas. The partnership expects this acquisition to increase unitholder value with the transaction having immediate positive effect on distributable cash flow. This increased distribution could result in 6% to 8% growth for full-year 2014.

Regency is a growth-oriented master limited partnership engaged in the gathering and processing, compression, treating and transportation of natural gas and the transportation, fractionation and storage of natural gas liquids. It operates in Texas, Louisiana, Oklahoma and Kansas. The partnership witnessed strong performance in the first quarter owing to significant volume growth in its gathering and processing and NGL services businesses.

Lately, Regency has been focusing on both organic and inorganic growth. In the first quarter, the partnership incurred $188 million in growth capital expenditures, of which $83 million was for the Gathering and Processing segment, $80 million for the Contract Services segment, $23 million for the NGL Services segment and $2 million for the Transportation segment.

In 2014, Regency expects to invest approximately $1.2 billion in growth capital expenditures. Of this, $860 million will be spent on Gathering and Processing growth projects, $250 million is allotted to NGL Services and $110 million to Contract Services.

Dallas, TX-based Regency Energy currently holds a Zacks Rank #3 (Hold). Other better-ranked stocks in the oil and gas sector include Encana Corp (ECA) and Matrix Service Company (MTRX), both with a Zacks Rank #1 (Strong Buy).

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