Vanguard Natural to Acquire Eagle Rock Energy Partners, L.P. for $614 Million

Source: 5/21/2015, Location: North America

Vanguard Natural Resources, LLC and Eagle Rock Energy Partners, L.P. have entered into an Agreement and Plan of Merger pursuant to which a subsidiary of Vanguard will merge into Eagle Rock for total consideration of $474 million in Vanguard common units and the assumption of Eagle Rock's net debt of $140 million as of March 31, 2015. As a result of the transaction, Eagle Rock will become a wholly-owned indirect subsidiary of Vanguard. The transaction, which has been approved by the boards of directors of both companies, will be a tax-free unit-for-unit transaction with an exchange ratio of 0.185 Vanguard common units per Eagle Rock common unit. The consideration to be received by Eagle Rock's unitholders is valued at $3.05 per Eagle Rock common unit based on Vanguard's closing price as of May 21, 2015, representing a 24% premium to Eagle Rock's closing price on May 21, 2015. Vanguard and Eagle Rock expect the transaction to close in the third quarter of 2015. The merger is subject to customary closing conditions, including the approval by both the Vanguard and Eagle Rock unitholders.

Scott W. Smith, Vanguard's President and Chief Executive Officer commented, "The transaction we announced today is another great opportunity for the Company and our unitholders. The assets being acquired are attractive bolt-ons to our Mid-Continent, Permian and Gulf Coast basin operations. Eagle Rock has a meaningful position in the SCOOP and STACK plays which will provide attractive drilling opportunities for the next several years. Considering the previously announced merger agreement with LRR Energy, L.P. (NYSE:LRE), we believe that all three companies' unitholders will benefit from a larger, more diversified entity with lower financial leverage and strong positions in several key U.S. basins. The all-unit nature of the transaction will allow Vanguard, LRR Energy and Eagle Rock unitholders to jointly reap the value growth in an improving commodity price cycle."

Joseph A. Mills, the Chairman of the Board and Chief Executive Officer of Eagle Rock commented, "We are pleased to announce our pending merger with Vanguard. We are excited about the opportunity to align with Vanguard which has a proven track record of creating value for its unitholders. We believe the transaction is compelling for Eagle Rock's unitholders by creating a significantly larger and more diverse asset base, an attractive premium and an opportunity to deliver significant value for our combined unitholders in the future. We have been very impressed with the Vanguard team and look forward to working together to successfully combine our two companies."

Transaction Highlights
Eagle Rock's long-life, low-decline, mature assets are well-suited for Vanguard's upstream MLP model;
Eagle Rock's low leverage will positively impact Vanguard's debt metrics and credit profile;
Eagle Rock's oil and gas production is approximately 80% and 70% hedged in 2015 and 2016 respectively, with additional hedges in place through 2019;
Proved R/P of approximately 12 years;
Balanced reserves mix of 53% natural gas, 21% oil, and 26% natural gas liquids;
Assets add scale in Vanguard's existing East Texas and Permian basins and establishes a new operating platform in the SCOOP/STACK play in the Anadarko basin;
Significant potential for cost savings through G&A synergies;
Opportunity to attract and retain experienced personnel from Eagle Rock to expand Vanguard's employee base;
Q1 2015 production of approximately 79.7 MMcfe/d, increasing Vanguard's Q1 2015 production by 20%;
Proved reserves at December 31, 2014 (SEC pricing) of approximately 318 Bcfe, increases Vanguard's estimated proved reserves by 16%;
Adds approximately 1,778 producing wells and approximately 202,632 net acres; and The transaction is expected to be neutral to cash flow in 2015 and accretive in 2016 and beyond.

Transaction Benefits to Eagle Rock Unitholders
Unit price premium;
Significantly larger and more geographically diverse asset base;
Expected material operating and cost synergies;
Stronger financial position and better access to capital markets;
Enhanced distribution stability, coverage and growth potential;
Ability to participate in the future growth and upside of the combined company; and Improved unit trading liquidity.

Pursuant to the terms and conditions of the recently announced Purchase Agreement and Plan of Merger with LRR Energy, L.P. ("LRR Energy"), Vanguard has obtained consent from the board of directors of the general partner of LRR Energy to enter into, perform and consummate the proposed merger with Eagle Rock.

Wells Fargo Securities acted as the exclusive financial advisor and Paul Hastings LLP acted as legal counsel to Vanguard. Evercore Group LLC acted as the exclusive financial advisor and Vinson & Elkins LLP acted as legal counsel to Eagle Rock.

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Related Articles: Accounting, Statistics  Acquisitions and Divestitures  Asset Portfolio Management  Economics/Financial Analysis  General  Industrial Development  Insurance  Investment  Mergers and Acquisitions  Risk Management 

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