DALLAS, May 2 /PRNewswire-FirstCall/ -- Crosstex Energy, L.P.
(Nasdaq: XTEX) (the Partnership) announced today that it will acquire the
natural gas gathering pipeline systems and related facilities of privately-
owned Chief Holdings LLC in the fast-growing Barnett Shale play for
$480 million, subject to customary adjustments at closing.
The transaction is the result of a joint bid by Crosstex and Devon Energy
Corporation (NYSE: DVN) to acquire Chief's assets. Devon, the Barnett Shale's
largest producer, has simultaneously entered into an agreement to acquire
Chief's oil and gas properties in the Barnett Shale. Chief is currently the
third largest producer in the area. The Chief gathering systems link
Crosstex's existing facilities and other pipelines with 328 existing producing
wells and thousands of new wells expected to be drilled in the future across
nine North Texas counties.
"This acquisition enhances our position in the hottest natural gas play in
the U.S. and creates a strong alliance with Devon, the largest U.S.-based
independent and the biggest producer in the Barnett Shale. The commitment of
the Chief acreage and acreage owned by Devon and other producers in the area
ensures a continuing supply of natural gas for our new North Texas Pipeline.
Additionally, it significantly enhances our organic growth and consolidation
strategy in the play and potentially creates an opportunity for us to build
additional takeaway capacity," said Barry E. Davis, President and Chief
"We have a long relationship with Chief as they were the first shipper to
commit to our North Texas Pipeline. They've done a terrific job of creating
one of the best positions in the Barnett Shale, and we are pleased to step
into their position," said Mr. Davis.
The Crosstex agreement with Chief has been approved by Crosstex's Board of
Directors, and is subject only to customary regulatory approvals and
completion of certain pre-closing conditions by both parties. Crosstex expects
to close this transaction on June 29, 2006.
The acquired systems consist of approximately 250 miles of existing
pipeline with up to an additional 400 miles of planned pipelines, located in
Parker, Tarrant, Denton, Palo Pinto, Erath, Hood, Somervell, Hill and Johnson
counties. They also include a 125 million cubic feet per day CO2 treating
plant and compression facilities with 26,000 horsepower. At closing,
approximately 160,000 net acres owned by Chief and 60,000 net acres owned by
other producers will be dedicated to the systems.
The acquired systems have a current throughput of approximately 125
million cubic feet per day with an additional 44 million cubic feet per day
awaiting pipeline connections. The systems have substantially greater volume
potential as Devon pursues an accelerated drilling schedule and optimizes
production from existing wells over the next several years. In addition,
Crosstex intends to utilize its current and expanding facilities to provide a
full range of value-added midstream services to other Barnett Shale producers.
Crosstex's existing assets include the 140-mile, 24-inch North Texas
Pipeline that has a current capacity of 250 million cubic feet per day that
will be expanded to 375 million cubic feet per day by early 2007, a 35 million
cubic feet per day Goforth processing plant, and a 50 million cubic feet per
day Azle processing plant, which is currently under construction. Both plants
are in Parker County.
The Barnett Shale is the largest active natural gas play in the
continental United States. Currently, natural gas production from the Barnett
Shale averages 1.4 billion cubic feet per day with predicted growth of up to 3
billion cubic feet per day during the next three to five years, according to
The Partnership currently anticipates financing at least 50 percent of the
acquisition price with newly issued subordinated units, and the remainder will
be financed with debt. The subordinated units would not participate in
distributions for the first eighteen months after the close, and would then
convert to common units. The Partnership believes that at that point, Devon's
expanded drilling program will have had an opportunity to increase production
and cash flows from the system to support distributions on the subordinated
units as they convert to common units. The Partnership expects to directly
place up to 60 percent of these units with Crosstex Energy, Inc.
(Nasdaq: XTXI) (the Corporation), and an additional amount directly with
certain members of the Board of Directors or their affiliates. These proposed
transactions are specifically subject to the approvals discussed below. It
expects to place any additional units directly with institutional investors.
Subject to review and approval by the Conflicts Committee of the Board of
Directors of the general partner of the Partnership, and a similar review and
approval by the Special Committee of the Board of Directors of the
Corporation, it is anticipated that the subordinated units would be sold to
the Corporation and to certain investors who are affiliates of Board members.
It is expected that the price of the units would be a discount from current
market prices of the Partnership's common units intended to reflect the fact
that the units are not liquid and have no distribution for the first eighteen
months. The price is intended to reflect a fair market price for the
subordinated units, based on a review of similar transactions and other market
The Corporation is considering financing its acquisition of the units with
the sale of new shares of the Corporation. Certain members of the Board of
Directors of the Corporation and their affiliates have expressed an interest
in acquiring a portion of such shares. Any such acquisition would be subject
to the review and approval of the Special Committee. It expects to place any
additional shares directly with institutional investors. Alternatively, the
Corporation has a loan commitment from Bank of America for $250 million to
fund its acquisition of the subordinated units.
"Based on this financing structure, we expect the impact of the
acquisition would be neutral to the Partnership's distributions in the first
six months. After that, we believe drilling operations will increase
production dedicated to the system and that the transaction will be highly
accretive to the Partnership," Mr. Davis said.
Based on a 1:1 coverage of distributable cash flow, the acquisition is
expected to add approximately 20 to 30 cents to the 2007 and 2008
distributions. After 2008, the strategic value of the acquisition is expected
to be evidenced by more material increases in the distribution, as production
accelerates in the Barnett Shale area.
Similarly, the Corporation expects the acquisition will be neutral to the
dividend in the first eighteen months after the transaction, if the
Corporation finances the acquisition with new shares. After that, it is
anticipated that the dividend will increase materially due to the acquisition.
The Corporation believes the acquisition could add over $2.00 to its annual
dividend in the third year after closing, and significantly more in subsequent
years, assuming continued drilling success in the Barnet Shale.
Crosstex will hold a conference call to discuss this transaction on
Tuesday, May 2, 2006 at 1:30 p.m. Central Time (2:30 p.m. Eastern Time). The
dial-in number for the call is 866-578-5771, pass code 20512142. A live
Webcast of the call with accompanying slides can be accessed on the investor
relations page of Crosstex Energy's Web site at http://www.crosstexenergy.com.
The call will also be available for replay for 30 days by dialing
888-286-8010, pass code 26448654, or by going to the investor relations events
page of the Company's Web site.
About the Crosstex Energy Companies
Crosstex Energy, L.P., a midstream natural gas company headquartered in
Dallas, operates over 5,000 miles of pipeline, ten processing plants, four
fractionators, and approximately 150 natural gas amine treating plants and 22
dew point control plants. Crosstex currently provides services for over 3.0
Bcf/day of natural gas, or approximately 6.0 percent of marketed U.S. daily
production based on August 2005 Department of Energy data. Crosstex Energy,
Inc. owns the two percent general partner interest, an approximately 38
percent limited partner interest, and the incentive distribution rights of
Crosstex Energy, L.P. Additional information about the Crosstex companies can
be found at http://www.crosstexenergy.com .
This press release contains "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. All statements other
than statements of historical facts included herein, including statements
regarding accretion and expected increases in distributions and dividends,
constitute forward-looking statements. These statements are subject to
numerous risks and uncertainties, including the level of future drilling
activities in the Barnett Shale and our other areas of operation, a decline in
the price and market demand for natural gas and natural gas liquids and the
inability to obtain new sources of natural gas supplies. For information
concerning these risks and uncertainties, see the Partnership's and the
Corporation's publicly available filings with the Securities and Exchange
Commission. Although the Partnership and the Corporation believe that the
expectations reflected in the forward-looking statements are reasonable, they
can give no assurances that such expectations will prove to be correct.
SOURCE Crosstex Energy, L.P.
/CONTACT: William W. Davis, Executive V.P. and Chief Financial Officer,
or A. Chris Aulds, Executive V.P. - Public and Industry Affairs, both of
Crosstex Energy, L.P., +1-214-953-9500/
/Web site: http://www.crosstexenergy.com /
(XTEX XTXI DVN)
CO: Crosstex Energy, L.P.; Chief Holdings LLC; Devon Energy Corporation;
Crosstex Energy, Inc.
SU: TNM CCA RLE
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0604 05/02/2006 08:00 EDT http://www.prnewswire.com