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Regency Energy Partners To Acquire Southern Union Gathering For $1.5 Bln

Regency Energy Partners LP (RGP) said Wednesday that it has agreed to buy Southern Union Gathering Co. LLC, the owner of Southern Union Gas Services Ltd. or SUGS, from Southern Union Co. for $1.5 billion. The company noted that the acquisition will significantly expand its presence in the Permian Basin, one of the most productive oil and liquids-rich basins in North America.

Southern Union Co. is a jointly owned affiliate of Energy Transfer Equity, L.P. (ETE) and Energy Transfer Partners, L.P. (ETP). Regency Energy is a master limited partnership engaged in the gathering and processing, contract compression, contract treating and transportation of natural gas as well as the transportation, fractionation and storage of natural gas liquids.

Regency Energy noted that the transaction will include the purchase of a 5,600-mile gathering system and about 500 MMcf/d of processing and treating facilities in west Texas as well as New Mexico for natural gas and natural gas liquids.

In addition, SUGS is currently completing construction of the 200 MMcf/d Red Bluff processing plant with associated treating that is expected to be in service in the second quarter of 2013. 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.

Dallas, Texas-based Regency Energy expects the acquisition to close in the second quarter of 2013 and be neutral to slightly accretive in 2013.

Mike Bradley, president and chief executive officer of Regency Energy Partners said, "This acquisition represents a significant growth opportunity for Regency and is very strategic to our plans for expansion in the Permian Basin. The integration of the SUGS assets with our existing operations will position Regency with a broad Permian Basin gathering and processing footprint."

Regency Energy will finance the acquisition by issuing $900 million of new Regency units to Southern Union Co, comprised of $750 million of new common units and $150 million of new Class F common units. The company will pay the remaining $600 million in cash funded from long-term borrowings.

In a separate statement, Energy Transfer Equity or ETE, which owns the general partner and incentive distribution rights of Regency, said it has agreed to forego all IDR payments from Regency on the newly issued Regency units for the first eight consecutive quarters following the closing.

ETE noted that the Class F units will not receive any cash distributions for eight consecutive quarters following the closing, and thereafter, will convert to Regency common units, receiving distributions at the prevailing rate. In addition, Energy Transfer Partners or ETP has agreed to forego the $10 million annual management fee paid by Regency for two years post-closing.

ETP and ETE said that the cash proceeds from the sale of SUGS will be utilized to repay debt, including borrowings outstanding under Southern Union's revolving credit facility. The companies noted that the deal is part of their efforts to simplify their structures and optimize their asset portfolios.

RGP closed Wednesday's trading at $23.85, up $0.48 or 2.05 percent on a volume of 300,597 shares.

ETE closed trading at $52.47, up $1.31 or 2.56 percent on a volume of 516,583 shares, while ETP closed trading at $48.03, up $0.82 or 1.74 percent on a volume of 2.09 million shares.

by RTTNews Staff Writer

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