Eagle Rock (EROC) to Acquire BP's (BP) Panhandle System Assets for $227.5M; Co.'s Enter Processing Agreement
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Eagle Rock Energy Partners, L.P. (Nasdaq: EROC) has signed a definitive agreement to acquire BP America Production Company's (NYSE: BP) Sunray and Hemphill processing plants and associated 2,500 mile gathering system serving the liquids-rich Texas Panhandle (the "BP Panhandle System") for $227.5 million in cash, subject to customary purchase price adjustments. Eagle Rock and BP will enter into at closing a 20-year, fixed-fee Gas Gathering and Processing Agreement under which Eagle Rock will gather and process BP's natural gas production from the existing connected wells. Furthermore, BP and its joint venture partners will commit to Eagle Rock under the same Gas Gathering and Processing terms all future natural gas production from new wells drilled within an initial two-year period from closing, subject to mutually-agreed extensions, and within a two-mile radius of the existing 2,500 mile gathering system. BP Panhandle System gathering volumes in the first half of 2012 averaged approximately 180 MMcf/d, and the Partnership expects to continue to grow the overall throughput from the Texas Panhandle area based on the drilling programs from BP and third party producers active in the area.
Subject to the GPA, all of BP's wells currently connected to the BP Panhandle System will be dedicated to Eagle Rock for an initial term of 20 years with the option to extend for two separate five-year increments. In addition, all future drilling by BP and its joint venture partners within two miles of the BP Panhandle System, which encompasses approximately 350,000 acres and over 500 drilling locations, for an initial two years after closing, will also be dedicated to Eagle Rock under the GPA, which can be extended by mutual agreement by the parties for additional two year increments. Due to the liquids-rich quality of the natural gas production in the Granite Wash and Cleveland plays in the Texas Panhandle, BP and its joint venture partners have maintained an active drilling and development plan for the Ochiltree and Hemphill County area in 2012 and expect to continue to further develop the dedicated properties in 2013 and beyond. Based on Eagle Rock's expectations of volume growth by BP and its joint venture partners, the Partnership anticipates the fixed-fee based component of its Midstream Business contract mix to increase to approximately 30% in 2014 from the current level of approximately 20%.
Third party producers connected to the BP Panhandle System and active in the area include Apache, Chesapeake, Comstock, ConocoPhillips, EOG, ExxonMobil, Linn Energy, Mewbourne Oil Company and Unit Petroleum. While these producers are not subject to the GPA, Eagle Rock anticipates growing third party volumes through enhanced commercial efforts on the BP Panhandle System, where BP was previously capacity-constrained.
Estimated Financial Impact
Management expects the acquisition to be neutral to distributable cash flow per unit in 2013 and meaningfully accretive (high single-digit accretion to low double-digit accretion) to distributable cash flow per unit in 2014, subject to market and other conditions. Following the anticipated ramp-up in throughput volumes and cost savings as a result of integrating the BP Panhandle System into Eagle Rock's existing system in the area, management estimates the purchase price to represent a 5.5x – 6.5x multiple of the acquired assets' 2014 estimated EBITDA contribution, subject to market and other conditions.
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Subject to the GPA, all of BP's wells currently connected to the BP Panhandle System will be dedicated to Eagle Rock for an initial term of 20 years with the option to extend for two separate five-year increments. In addition, all future drilling by BP and its joint venture partners within two miles of the BP Panhandle System, which encompasses approximately 350,000 acres and over 500 drilling locations, for an initial two years after closing, will also be dedicated to Eagle Rock under the GPA, which can be extended by mutual agreement by the parties for additional two year increments. Due to the liquids-rich quality of the natural gas production in the Granite Wash and Cleveland plays in the Texas Panhandle, BP and its joint venture partners have maintained an active drilling and development plan for the Ochiltree and Hemphill County area in 2012 and expect to continue to further develop the dedicated properties in 2013 and beyond. Based on Eagle Rock's expectations of volume growth by BP and its joint venture partners, the Partnership anticipates the fixed-fee based component of its Midstream Business contract mix to increase to approximately 30% in 2014 from the current level of approximately 20%.
Third party producers connected to the BP Panhandle System and active in the area include Apache, Chesapeake, Comstock, ConocoPhillips, EOG, ExxonMobil, Linn Energy, Mewbourne Oil Company and Unit Petroleum. While these producers are not subject to the GPA, Eagle Rock anticipates growing third party volumes through enhanced commercial efforts on the BP Panhandle System, where BP was previously capacity-constrained.
Estimated Financial Impact
Management expects the acquisition to be neutral to distributable cash flow per unit in 2013 and meaningfully accretive (high single-digit accretion to low double-digit accretion) to distributable cash flow per unit in 2014, subject to market and other conditions. Following the anticipated ramp-up in throughput volumes and cost savings as a result of integrating the BP Panhandle System into Eagle Rock's existing system in the area, management estimates the purchase price to represent a 5.5x – 6.5x multiple of the acquired assets' 2014 estimated EBITDA contribution, subject to market and other conditions.
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