Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



Regency Energy Partners Strikes Two Deals to Close Out 2013

Watch stocks you care about

The single, easiest way to keep track of all the stocks that matter...

Your own personalized stock watchlist!

It's a 100% FREE Motley Fool service...

Click Here Now

Regency Energy Partners (UNKNOWN: RGP.DL  ) made headlines on Monday when it announced it would acquire the midstream assets of the beleaguered master limited partnership Eagle Rock Energy Partners (UNKNOWN: EROC.DL  ) . My Foolish colleague Matt DiLallo has a nice write-up from EROC's perspective, but today's focus is on Regency. The partnership has inked several major deals this year in addition to Monday's announcement, and investors are wondering if it may finally be worthy of their attention.

Background on Regency
Coming into 2013, Regency Energy Partners was the red-headed stepchild of the Energy Transfer family. Its general partner is Energy Transfer Equity (NYSE: ETE  ) , but it receives nowhere near the investor attention as Energy Transfer Partners (NYSE: ETP  ) , based both on average trading volume and media coverage. With a market cap of $5.5 billion, it commands a market presence roughly one-third the size of ETP.

From an operational standpoint, its assets are focused in the mid-continent region, Texas, and Louisiana, consisting primarily of gathering and processing infrastructure, as well as natural gas and NGL transportation and storage.

Buy and grow
Regency kicked off the year with its acquisition of Southern Union Gathering, a $1.5 billion deal announced in February that closed in April. The deal brought Regency a 5,600-mile natural-gas-gathering system in the Permian Basin, along with processing facilities with a capacity of about 500 million cubic feet per day.

After a quiet few months, Regency's growth spurt really began in October with its megadeal to acquire PVR Partners. The $5.6 billion deal gave Regency a foothold in the Marcellus Shale, as well as important assets in the Texas panhandle.

Which brings us to Monday's two deals. Beginning with the smaller deal, Regency announced it planned to acquire the midstream assets of Hoover Energy for $290 million. Hoover's footprint is in the Delaware Basin area of West Texas and is comprised of crude-oil gathering and transportation, as well as natural-gas gathering and processing. Significantly, it also includes the area's only open-access water gathering and disposal system.

The biggest news, however, was Regency's $1.3 billion acquisition of Eagle Rock Energy Partners' midstream assets. Shares popped close to 10% on the news, as the partnership picked up 8,100 miles of gathering pipeline, as well as processing capacity of 800 million cubic feet per day. Management expects the acquisition to trigger 6% to 8% distribution growth in 2014, which is very likely what drove the stock higher.

Long-term outlook
Regency's distribution guidance is especially intriguing right now. In its most recent quarter, the partnership posted a mere 3% distribution increase, year over year, which was very near the lowest increase out of every MLP that posted one. In the same vein, it has only increased its distribution for two straight quarters, which means many investors likely passed on Regency in an effort to find growth and consistency elsewhere.

Going forward, the one aspect of the new and improved Regency I would watch closely involves the Eagle Rock assets. Only 40% of the gross margin derived from the new infrastructure is fee-based, which is not ideal. In contrast, the majority of gross margin was fee-based in the PVR acquisition, which lends itself well to long-term stability. When this deal closes, Regency's gross-margin exposure to commodity risk will grow from 22% to 27%. That isn't the end of the world, by any means, but it is less than ideal. A transition to a higher percentage of fee-based cash flow is possible -- in fact, PVR Partners did it quite successfully -- but we will have to wait and see for now.

Dividend stocks can make you rich
It's as simple as that. While they don't garner the notoriety of high-flying growth stocks, they're also less likely to crash and burn. And over the long term, the compounding effect of the quarterly payouts, as well as their growth, adds up faster than most investors imagine. With this in mind, our analysts sat down to identify the absolute best of the best when it comes to rock-solid dividend stocks, drawing up a list in this free report of nine that fit the bill. To discover the identities of these companies before the rest of the market catches on, you can download this valuable free report by simply clicking here now.

Read/Post Comments (0) | Recommend This Article (1)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2776144, ~/Articles/ArticleHandler.aspx, 9/28/2016 2:55:20 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated Moments ago Sponsored by:
DOW 18,310.38 82.08 0.45%
S&P 500 2,166.98 7.05 0.33%
NASD 5,308.57 2.86 0.05%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

12/31/1969 7:00 PM
EROC.DL $0.00 Down +0.00 +0.00%
Eagle Rock Energy… CAPS Rating: ***
ETE $16.71 Up +0.30 +1.83%
Energy Transfer Eq… CAPS Rating: ***
ETP $38.14 Up +1.28 +3.47%
Energy Transfer Pa… CAPS Rating: ***
RGP.DL $0.00 Down +0.00 +0.00%
Regency Energy Par… CAPS Rating: **