Eagle Rock Buys BP Plants
Purchased Sunray and Hemphill natural gas processing plants and their 2,500-mile associated gathering system.
Eagle Rock Energy Partners LP (Nasdaq: EROC) plans to buy the Sunray and Hemphill natural gas processing plants and the associated 2,500-mile gathering system servicing the Texas Panhandle from BP America Production Co. for $227.5 million in cash.
In addition, Eagle Rock will enter into a 20-year fixed-fee gas processing and gathering agreement under which it will gather and process BP’s natural gas production from existing connected wells in the region.
Under terms of the processing agreement, BP and its joint venture partners will commit to Eagle Rock Energy Partners all future natural gas production from new wells drilled within an initial two-year period from closing provided they are within a two-mile radius of the existing 2,500 mile gathering system.
The BP Panhandle System gathered in the first half of 2012 an average of 180 MMcf per day and Eagle Rock expects to grow the overall throughput from the area based on the announced drilling program from BP and third party producers in the area.
The agreement expands and complements Eagle Rock’s existing gathering and processing systems in the Granite Wash, Cleveland, Tonkawa, and Hogshooter plays in the Texas Panhandle.
It also establishes a long-term strategic partnership with BP and increases Eagle Rock’s fixed fee contract mix within its midstream operations. The closing of the acquisition is expected to occur on October 1, 2012, subject to the usual regulatory clearances and customary closing conditions.
"We are excited about this transaction as it meaningfully grows and strengthens our midstream gathering and processing position in the liquids-rich Granite Wash and Cleveland plays in the Texas Panhandle,” says Eagle Rock Chairman and chief executive Joseph A. Mills.
“This acquisition brings to Eagle Rock a strong strategic partner in BP and enhanced financial stability with 55% of the existing volumes on the BP Panhandle System being dedicated under attractive long-term, fixed-fee contracts,” he says.
The BP Panhandle System consists of two cryogenic processing plants -- the Sunray and Hemphill Plants - with processing capacity of approximately 220 MMcf/d and approximately 2,500 miles of gathering pipelines serving over 350,000 dedicated acres in Lipscomb, Hemphill, Roberts, Ochiltree, Hansford, Hutchinson, Sherman and Moore Counties in the Texas Panhandle.
Approximately 2,100 wells are currently connected to the BP Panhandle System. BP's natural gas production represents approximately 55% of the system's current throughput, which will be covered by fixed fee-based contracts upon closing.
Going forward, incremental BP and its joint venture partners' natural gas production dedicated to the BP Panhandle System will also be covered under fixed fee-based contracts.
The BP Panhandle System is located immediately adjacent and complementary to Eagle Rock's existing Texas Panhandle assets, which include eight processing plants and approximately 3,963 miles of gathering pipelines. Hemphill County is located in the heart of the Granite Wash play and has recently experienced increased drilling activity due to producers' attractive drilling results in the area.
The Hemphill Plant and supporting infrastructure were designed to accommodate one or more additional expansions and are located just north of Eagle Rock's recently completed 60 MMcf/d cryogenic Woodall Plant. The BP Panhandle System also includes 47 mainline gathering compressors, 25 satellite gathering compressors and 19 in-plant compressors.