10-08-2012

Eagle Rock announces agreement to acquire BP's Texas panhandle midstream system

Eagle Rock Energy Partners, L.P. announced today that it has signed a definitive agreement to acquire BP America Production Company's ("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.

Strategic benefits of the transaction include:
*  Significantly expands and strategically complements Eagle Rock's existing gathering and processing systems into the Granite Wash, Cleveland, Tonkawa and Hogshooter plays in the Texas Panhandle.
*  Establishes a long-term strategic partnership with BP through BP's commitment of existing and future production in an extensive acreage dedication in the Texas Panhandle.
*  Increases Eagle Rock's fixed-fee contract mix within its Midstream Business.
*  Anticipated volume growth and integration benefits provide a path to meaningful accretion to distributable cash flow per unit in 2014 and beyond.
 
The closing of the acquisition is expected to occur on October 1, 2012, subject to regulatory clearances, including pre-merger notification requirements of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, and other 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. 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. In addition, the acquisition adds significant scale and reach to our existing position in additional liquids-rich natural gas plays," said Joseph A. Mills, Eagle Rock's Chairman and Chief Executive Officer.

Mr. Mills added, "The acquisition of BP's Texas Panhandle midstream assets is consistent with our strategy of pursuing the most accretive long-term opportunities across our Midstream and Upstream Businesses, and we expect this transaction to be accretive to Eagle Rock's distributable cash flow in 2014 and beyond."

BP's Texas Panhandle System
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 prolific 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.

Upon closing the acquisition of the BP Panhandle System, Eagle Rock plans to integrate the BP Panhandle System with its existing system in the area, resulting in approximately 6,463 miles of combined gathering pipelines serving over 5,000 wells and over 480 MMcf/d of combined processing capacity serving the Texas Panhandle, with an additional 60 MMcf/d of capacity expected to come on-line in the first half of 2013 following the completion of Eagle Rock's previously announced Wheeler Plant. The combined system will strengthen Eagle Rock's position in the growing Granite Wash, Cleveland, Tonkawa and Hogshooter plays and provide increased flexibility and capacity in servicing its producer customers. Eagle Rock estimates the total current gathering volumes from the combined systems equal approximately 380 MMcf/d. Activity in the Texas Panhandle remains robust with 17 active rigs on acreage dedicated to the combined Eagle Rock and BP Panhandle systems and over 500 wells permitted over the past six months in the area.

Eagle Rock expects the integration of the two systems to result in future cost savings and the ability to optimize its existing processing capacity.