BreitBurn Energy Partners (BBEP) to Acquire QR Energy (QRE) in $3B Deal

BreitBurn Energy Partners, L.P. (NASDAQ: BBEP) and QR Energy, LP (NYSE: QRE) announced the signing of a definitive merger agreement pursuant to which Breitburn will acquire QR Energy in a unit-for-unit exchange implying a transaction value of approximately $3.0 billion, including QR Energy’s existing net debt and outstanding Class C Convertible Preferred Units.

As a result of the merger, Breitburn will become the largest, oil-weighted upstream oil and gas master limited partnership with a pro forma enterprise value of approximately $7.8 billion and current average daily production of approximately 57,300 boe/d, 67% liquids, based on second quarter results. The combination enhances Breitburn’s ability to generate greater cash flow and creates significant incremental near-term and long-term value for unitholders. The transaction is expected to be accretive to distributable cash flow per unit, and upon closing of the transaction, Breitburn has agreed to recommend to its Board a distribution increase to $2.08 per unit on an annualized basis.

Halbert S. Washburn, Breitburn’s Chief Executive Officer, said, “We are very pleased to reach this agreement with QR Energy, a company that we have always admired given its enviable MLP-friendly assets and engineering-focused operating strategy that is strikingly similar to our own. This world-class portfolio of conventional properties in large, oil rich basins fits perfectly with our asset base and improves our ability to deliver shallow, predictable decline rates that generate industry-leading margins. The combination offers immediate G&A savings and significant accretion for all unitholders. Even more importantly, our enhanced scale, diversification, and intellectual capital will better position Breitburn to efficiently use its capital to create long-term value for unitholders. We look forward to welcoming QR Energy’s employees into the Breitburn organization.”

“We consider Breitburn an ideal merger partner,” said Alan L. Smith, QR Energy’s Chief Executive Officer, “and believe this combination creates an unrivaled operator of mature assets with exposure to nearly every conventional basin in the United States.” Mr. Smith continued, “Breitburn has a proven 26 year track record of making big oil fields bigger and we are excited to see that trend continue with the addition of our extensive inventory of organic growth projects. I am confident that our talented employees will bring unique expertise to Breitburn and that all stakeholders will benefit from the larger, stronger Breitburn. We believe the immediate premium enjoyed by our unitholders will be surpassed by the value shared by all unitholders participating in the future success of the combined company.”

Transaction Details

Under the terms of the merger agreement, holders of QR Energy’s Common and Class B units, including those issuable upon a change in control, will receive approximately 72 million Breitburn common units, or 0.9856 of a BBEP unit for each unit of QRE held. The consideration to be received by QR Energy unitholders is valued at $22.48 per unit, based on Breitburn’s closing price of $22.81 on July 23, 2014, representing a 19% premium to QRE’s closing price of $18.87 on July 23, 2014. The transaction is expected to be tax-free to QR Energy’s unitholders other than the holders of QR Energy Class C Convertible Preferred Units who will receive an aggregate of $350 million cash at closing.

The transaction has been unanimously approved by the boards of directors of Breitburn and QR Energy, including the Conflicts Committee formed by the QR Energy Board of Directors. Certain QR Energy unitholders owning approximately 37% of the votes of the outstanding QRE units have agreed to vote in favor of the transaction. In addition, holders of QRE’s Class B contingent units have agreed to reduce the outstanding number of such units by approximately 42%, subject to closing adjustments. Completion of the transaction is subject to the approval of QR Energy unitholders, certain regulatory approvals, and customary closing conditions. The transaction is expected to close in late 2014 or early 2015.

Breitburn’s senior management team will lead the combined company and intends to employ all of QR Energy’s talented roster of engineering, operations, and support staff, excluding those that are being retained by Quantum Resources Management, LLC. Breitburn will add a new member to its Board of Directors after closing, and Breitburn and QR Energy will mutually agree upon that individual.

Breitburn has received a firm commitment from Wells Fargo Bank, N.A. to increase the borrowing base under Breitburn’s credit facility to $2.5 billion in connection with the transaction. Breitburn will continue to monitor market conditions for opportunistic refinancing transactions over the coming months.

Advisors

UBS Investment Bank acted as exclusive financial advisor to Breitburn, and provided a fairness opinion to the Breitburn Board of Directors; Latham & Watkins LLP acted as legal counsel to Breitburn. RBC Capital Markets and Greenhill & Co., LLC acted as joint financial advisors to QR Energy, and Greenhill & Co., LLC provided a fairness opinion to QR Energy’s Board of Directors; Vinson & Elkins LLP acted as legal counsel to QR Energy. Tudor, Pickering and Holt provided a fairness opinion to the Conflicts Committee of QR Energy’s Board of Directors; Bracewell & Giuliani LLP acted as legal counsel to the Conflicts Committee of QR Energy Board of Directors.

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