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Energy Transfer Acquiring North Louisiana Gathering

Energy Transfer Partners LP (ETP) is acquiring interests in PennTex Midstream Partners LP (PTXP) from multiple sellers for about $640 million total, giving it access to North Louisiana infrastructure that serves Range Resources Corp., among others.

ETP will own 100% of the general partner of PTXP, together with all of its incentive distribution rights (IDR), as well as 6.3 million common units and all 20 million subordinated units of PTXP, representing 65% of the total limited partner interests in PTXP.

The acquisition consideration paid by ETP will be 50% ETP common units issued directly to the sellers and 50% cash. The cash portion will be funded with a combination of proceeds from common units recently issued under ETP's At-The-Market program and borrowings under its revolving credit facility. In conjunction with the transaction, Energy Transfer Equity LP (ETE) has agreed to an IDR waiver in the amount of $33 million annually that will run in perpetuity.

Analysts at Jefferies said in a note Tuesday that the deal is "noteworthy" given ETE's history of deal-making and "...questions about its abilities in the wake of the failed WMB [Williams] merger" (see Daily GPI, Aug. 22). ETE and WMB had embarked on a friendly combination that quickly turned sour amid deteriorating market conditions.

"Today's transaction marks the first third-party acquisition for ETP since the ETE/WMB merger terminated in late June; however, we highlight that each of the ETE-subsidiary MLPs [master limited partnerships]...have now announced and/or completed third-party M&A since mid-year."

The transaction is expected to close in the fourth quarter, subject to conditions.

PTXP owns midstream assets  in the Terryville Complex in northern Louisiana that consist of a rich natural gas gathering system, two cryogenic natural gas processing plants totaling 400 MMcf/d of capacity, along with residue gas and natural gas liquids pipelines. "These assets complement ETP's existing midstream footprint in the region and position ETP for significant growth and value creation," the company said.

PTXP's primary customer is Range. In addition to long-term fee-based gathering and processing agreements that include minimum volume commitments, PTXP and Range are parties to an agreement that provides PTXP the exclusive right to build all of the midstream infrastructure for Range within an area of mutual interest (AMI) in northern Louisiana and to provide midstream services to support the company's current and future production on substantially all of its operated acreage within the AMI.

Earlier this year Appalachia-focused Range announced a deal to acquire Louisiana player Memorial Resource Development Corp. (MRD) in an all-stock deal worth $4.4 billion, including assumption of $1.1 billion of net debt (see Shale Daily, May 16). Houston-based MRD has operated in the Cotton Valley Sands Terryville Complex in Lincoln Parish in North Louisiana. Proved reserves are 1,378 Bcfe and are 71% natural gas. MRD operates all of the assets; first quarter production was 420 MMcfe/d. There are 561 gas-producing wells on 241,130 gross acres, according to the MRD website.

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