Regency Energy Partners: A Solid, Growth-Oriented Midstream MLP

Oil and natural-gas production are on the upswing in the United States, meaning investors have a multitude of options to capitalize on this growing trend. It's been widely speculated that energy independence is coming for the United States. And, when you consider the sheer magnitude of some of the most promising discoveries in America, it's not hard to see why.

Companies engaged in all aspects of oil and gas production are lining up to stake their claims across the country, and one such company is midstream Master Limited Partnership Regency Energy Partners (NYSE: RGP  ) . Regency Energy is making big moves that will grant access to massive production opportunities that should provide years of growth and distributions for its unit holders.

Geographic focus is a winning strategy
Regency Energy announced that it would buy $1.3 billion worth of midstream assets, which include pipelines and storage terminals, from Eagle Rock Energy Partners (NASDAQ: EROC  ) . In addition, Regency also revealed it plans to acquire $300 million worth of assets in the Delaware Basin from Hoover Energy Partners. Regency Energy's acquisitions are focused largely in Texas at the Permian Basin and Eagle Ford plays, and for good reason. These regions show substantial promise for oil and gas production, based on their magnitude of recoverable reserves.

The Permian Basin is located in West Texas and eastern New Mexico. The U.S. Energy Information Administration reports that total production at the Permian Basin hit one million barrels per day in 2011. Not surprisingly, the amount of active rigs has exploded in recent years. The EIA states that the active rig count at the Permian Basin has grown from 100 rigs in mid-2009 to over 500 rigs in May 2012.

Meanwhile, the EIA made equally impressive findings regarding the Eagle Ford formation. Total production at Eagle Ford reached 1 million barrels per day in August, and is poised to grow even further in the months ahead. The rapid acceleration of production is truly impressive: Eagle Ford did not have notable oil drilling until early 2009.

The rise in well drilling at Eagle Ford is directly beneficial to EOG Resources (NYSE: EOG  ) which plans to drill as many as 460 new net wells to capitalize on Eagle Ford's production opportunities. These efforts have already paid huge dividends for EOG, as it's the largest acreage holder in the oil-producing area of Eagle Ford. Its success prompted the company to increase its full-year production estimate to 39% growth after releasing third-quarter results.

The new rigs need pipelines and storage facilities to treat and transport all the oil and gas being extracted. That's where Regency Energy Partners comes in, and due to its aggressive acquisition strategy, it's in a prime position to fill the demand.

By contrast, Eagle Rock investors may have reason to worry. Units of Eagle Rock soared on the sale announcement, and it's reasonable to be excited over a gigantic cash infusion. But management explained that the company's high debt level had limited its investments.

And, selling off assets will surely come at a cost to future growth. It remains to be seen how the company can keep production going after unloading more than 8,000 miles of its pipelines to Regency.

The bottom line
Data from the U.S. Energy Information Administration makes it abundantly clear why companies like Regency Energy and EOG Resources are devoting huge resources to domestic production. Massive opportunities exist across several regions of the United States, including the highly promising Permian Basin and Eagle Ford onshore plays. These regions contain huge amounts of oil and gas just waiting to be developed, and the two fields will go a long way in providing the United States true energy independence.

Regency Energy is making intelligent moves at the right time, which is a credit to management. Unit holders are likely to win big, from both rising production as well as the hefty distributions that are normally associated with oil and gas Master Limited Partnerships. As a result, Regency Energy is a company worth paying attention to.

3 ways to profit from our energy revolution 
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  • Report this Comment On December 24, 2013, at 4:44 PM, Zalhari wrote:

    Which Mötley Fool do I believe? Do I believe the one that said I should buy this or the one above that says I should worry. I really wish you guys would get your act together

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