Breitburn Energy Partners LP agreed Thursday to buy out onshore rival QR Energy LP in a transaction valued at $3 billion that would create the largest domestic upstream master limited partnership (MLP) focused primarily on oil.

Breitburn, headquartered in Los Angeles, owns crude oil and natural gas reserves in Michigan, Oklahoma, Texas, Wyoming, California, Florida, Indiana and Kentucky. Houston’s QR has overlapping assets in the Permian Basin and Michigan, as well as in the Midcontinent and the Ark-La-Tex region. It also would bring to the partnership the Jay Field on the Gulf Coast.

Once the merger is completed, Breitburn would have a pro forma enterprise value of about $7.8 billion and average production of 57,300 boe/d, 67% weighted to liquids.

QR has “enviable MLP-friendly assets and an engineering-focused operating strategy that is strikingly similar to our own,” said Breitburn CEO Halbert Washburn.

Breitburn is “an ideal merger partner,” added QR CEO Alan L. Smith. The combination “creates an unrivaled operator of mature assets with exposure to nearly every conventional basin in the United States.”

Breitburn has operating assets in Michigan’s Antrim Shale and other formations (27%); the Oklahoma Panhandle (20%); Permian Basin in Texas (19%); Wyoming’s Green River, Wind River, Big Horn and Powder River basins (17%); California’s Los Angeles and San Joaquin basins (11%); Florida’s Sunniland trend (5%); and the New Albany Shale in Indiana and Kentucky (1%).

QR had an estimated 109.1 million boe of proved reserves at the end of December. Most of the proved reserves are in the Ark-La-Tex (45%, 49.3 million boe); Permian (31%, 33.7 million boe); Gulf Coast of Alabama and Mississippi (19%, 20.9 million boe); and Midcontinent (4%, 4.9 million boe).

Under terms of the agreement, which has been approved by both boards, Breitburn agreed to pay $1.46 billion and acquire QR’s debt. Unitholders of QR Energy units would receive 72 million Breitburn common units, or 0.9856/unit. The consideration is valued at $22.48/unit, based on Breitburn’s closing price on Wednesday of $22.81. QR closed on Wednesday at $18.87.

Breitburn management would lead the combined company and intends to employ all of QR’s engineering, operations and support staff, except those retained by Quantum Resources Management LLC. Quantum is QR’s sponsor (see Daily GPI, Sept. 13, 2011).

The one transaction has helped Breitburn blow past its annual acquisition target for this year, said Motley Fool’s Matt DiLallo. Because of the overlapping assets, Breitburn “sees the deal immediately saving the combined company $13 million per year from synergies. Further, the company sees future upside from operational efficiencies, portfolio optimization and cost of capital reduction.

“These synergies, along with the accretive nature of the transaction, will provide an immediate boost to investors. BreitBurn…plans to increase its distribution by 7 cents/share, or 3.5% upon closing. That boost also represents a 5% increase for QR Energy investors.”

Another important aspect of the transaction, said DiLallo, is solidifying Breitburn’s place as the second-largest upstream MLP. “That increased scale will enable it to better compete for deals in the future as it should lower the company’s cost of capital while providing it with the scale it needs to be in the position to acquire larger asset packages.”

Breitburn “is adding scale where scale matters” because QR “is among the most levered MLPs in the space” to oil production. The merger boosts Breitburn’s liquids weighting from 60% to 67%. The QR reserves, said the analyst, are heavily weighted to oil (58%), with 8% natural gas liquids, compared to Breitburn’s current 53% weighting to oil.

“This really is a transformative acquisition for BreitBurn Energy Partners,” said DiLallo.

Breitburn has been on an acquisition spree over the past year. In late 2013 it agreed to buy some Permian Basin properties from CrownRock LP (see Shale Daily, Dec. 13, 2013). Last summer it paid Whiting Petroleum Corp. $86 million to buy stakes in the Postle and North East Hardesty oilfields in Oklahoma (see Shale Daily, June 25, 2013).