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New Midstream Player Buys Chunk of Crosstex Assets

In a move aimed at shoring up its balance sheet and increasing the company's liquidity, Dallas-based Crosstex Energy LP has agreed to sell its natural gas gathering assets in Mississippi, Alabama and South Texas for $220 million to Southcross Energy LLC, a Dallas-based portfolio company of Charlesbank Capital Partners focused on gas transportation and processing.

Crosstex said proceeds from the sale will be used to pay down more than $200 million of its outstanding debt, which will satisfy the targets for debt reductions in September and December established in the partnership's recent amendments to its debt facilities.

The Mississippi and Alabama systems consist of approximately 780 miles of intrastate gathering and transmission pipelines with throughput capacity of about 185,000 MMBtu/d. The South Texas system consists of approximately 1,400 miles of intrastate gathering and transmission pipelines with throughput capacity of about 600,000 MMBtu/d and two processing facilities with a total processing capacity of approximately 195,000 MMBtu/d. Crosstex said these three systems generated gross margin of $12 million and operating expenses of $4 million for 1Q2009.

"The sale of our Mississippi, Alabama and South Texas assets enables us to strengthen our balance sheet as we pursue our strategy to increase liquidity, reduce leverage and improve profitability," said Crosstex CEO Barry E. Davis. "As we have said, asset sales are an important part of our deleveraging initiatives, and we will explore strategic transactions on an ongoing basis that we believe are in the best interests of the company and our stakeholders. We continue to focus on the growth of our strategic assets in North Texas and Louisiana, as well as our treating business, and remain committed to being a premier provider of midstream energy services."

The partnership said it expects the sale to close on July 31 -- contingent on the approval of the lenders under the partnership's revolving credit and senior note agreements and certain other conditions. Crosstex Energy Inc. owns the 2% general partner interest, a 33% limited partner interest and the incentive distribution rights of Crosstex Energy LP. The partnership operates approximately 5,700 miles of pipeline, 12 processing plants, four fractionators and approximately 190 natural gas amine-treating plants and dew point control plants. Crosstex currently provides services for 4 Bcf/d of natural gas, or approximately 8% of marketed U.S. daily production.

Southcross Energy is a newly formed midstream natural gas company established with the management team of Estrella Energy LP and an investment group led by Charlesbank Capital Partners and including a subsidiary of Hunt Power LP, an entity controlled by the family of Ray L. Hunt.

"These are perfect assets to provide the foundation of our new company," said Southcross Energy CEO David Biegler. "This is a well balanced portfolio across a broad range of assets that also provides strong organic, as well as acquisition, growth prospects."

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