Regency Buys Southern Union Permian Unit for $1.5 Billion

Regency Energy Partners LP agreed to buy Southern Union Gathering Co. for $1.5 billion in cash and stock, adding Permian Basin pipelines and processing to capitalize on increasing output oil and natural gas from shale.

The deal between partnerships controlled by Energy Transfer Equity LP and Energy Transfer Partners LP is expected to be completed in the second quarter, Dallas-based Regency said in a statement yesterday. It includes 5,600 miles (9,000 kilometers) of pipelines and plants in Texas and New Mexico.

The acquisition from Southern Union Co. allows Regency to expand in the Permian Basin amid a surge in production of oil and gas rich in petroleum liquids. Increased output from the Bakken Shale, Permian Basin and Eagle Ford formation helped U.S. oil production exceed 7.06 million barrels in the week ended Feb. 8, the highest level since December 1992.

“This acquisition represents a significant growth opportunity for Regency and is very strategic to our plans for expansion in the Permian Basin,” Chief Executive Officer Mike Bradley said in the statement.

Energy Transfer Equity controls publicly traded Regency through ownership of its general partner, according to yesterday’s statement. Southern Union is a jointly owned affiliate of Energy Transfer Equity and Energy Transfer Partners.

Shale Gas

Regency collects and processes gas in shale regions including the Haynesville, Eagle Ford and Marcellus, according to its website. It will issue $900 million of new partnership units to Southern Union, while the remaining $600 million will be paid in cash funded from long-term borrowings, the company said.

The announcement was made after the close of regular trading in New York. Energy Transfer Equity rose 2.6 percent to $52.47 yesterday. Energy Transfer Partners rose 1.7 percent to $48.03 and Regency rose 2 percent to $23.85.

JPMorgan Chase & Co. and Locke Lord LLP advised Regency on the deal. Evercore Partners Inc. and Akin Gump Strauss Hauer & Feld LLP advised Regency’s conflicts committee, according to the statement.

Credit Suisse AG advised Southern Union’s parent company.