Regency Energy Agrees to Buy Southern Union for $1.5 Billion

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 [e-mail]

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