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EAGLE ROCK ENERGY PARTNERS L P - S-1/A - 20060823 - PROSPECTUS_SUMMARY
SUMMARY
This summary provides a brief overview of information
contained elsewhere in this prospectus. Because it is
abbreviated, this summary may not contain all of the information
that you should consider before investing in the common units.
You should read the entire prospectus carefully, including the
historical and pro forma financial statements and the notes to
those financial statements. The information presented in this
prospectus assumes (1) an initial public offering price of
$20.00 per common unit and (2) unless otherwise
indicated, that the underwriters’ option to purchase
additional units is not exercised. You should read “Risk
Factors” beginning on page 23 for more information
about important risks that you should consider carefully before
buying our common units. We include a glossary of some of the
terms used in this prospectus as Appendix B.
References in this prospectus to “Eagle Rock Energy
Partners, L.P.,” “we,” “our,”
“us” or like terms, when used in a historical context,
refer to both Eagle Rock Pipeline, L.P. and its subsidiaries.
When used in the present tense or prospectively, those terms
refer to Eagle Rock Energy Partners, L.P. and its subsidiaries.
References to “Natural Gas Partners” refer to Natural
Gas Partners VII, L.P. and Natural Gas Partners VIII, L.P. in
the context of any description of our investors, and in other
contexts refer to Natural Gas Partners, L.L.C. d/b/a NGP Energy
Capital Management, which manages a series of energy investment
funds, including Natural Gas Partners VII, L.P. and Natural Gas
Partners VIII, L.P. References to the “NGP Investors”
refer to Natural Gas Partners and some of our directors and
members of our management team.
Eagle Rock Energy Partners, L.P.
We are a growth-oriented Delaware limited partnership engaged in
the business of gathering, compressing, treating, processing,
transporting and selling natural gas and fractionating and
transporting natural gas liquids, or NGLs. Our assets are
strategically located in three significant natural gas producing
regions in the Texas Panhandle, southeast Texas and Louisiana.
We intend to acquire and construct additional assets and we have
an experienced management team dedicated to growing and
maximizing the profitability of our assets.
Our Texas Panhandle operations cover ten counties in Texas and
one county in Oklahoma, consisting of our East Panhandle System
and our West Panhandle System. The facilities that comprise our
East Panhandle System are primarily located in Wheeler, Hemphill
and Roberts Counties in the eastern Texas Panhandle and consist
of:
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approximately 769 miles of natural gas gathering pipelines,
ranging from two inches to 12 inches in diameter, with
33,726 horsepower of associated pipeline compression;
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two active natural gas processing plants with an aggregate
capacity of 65 MMcf/d; and
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two natural gas treating facilities with an aggregate capacity
of 75 MMcf/d.
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In addition, we recently purchased Midstream Gas Services, L.P.,
which consists of facilities located in Roberts County within
our East Panhandle System. The facilities consist of
approximately four miles of natural gas gathering pipelines with
associated pipeline compression and an active natural gas
processing plant with aggregate capacity of 25 MMcf/d.
The facilities that comprise our West Panhandle System are
primarily located in Moore, Potter, Hutchinson, Carson, Roberts,
Gray, Wheeler and Collingsworth Counties in the western Texas
Panhandle and consist of:
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approximately 2,556 miles of natural gas gathering
pipelines, ranging from two inches to 12 inches in
diameter, with 81,178 horsepower of associated pipeline
compression;
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four active natural gas processing plants with an aggregate
capacity of 101 MMcf/d;
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three natural gas treating facilities with an aggregate capacity
of 65 MMcf/d;
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a propane fractionation facility with capacity of
1,000 Bbls/d; and
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a condensate collection facility.
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Our southeast Texas and Louisiana operations are primarily
located in Polk, Tyler, Jasper and Newton Counties, Texas and
Vernon Parish, Louisiana. The facilities that comprise our
southeast Texas and Louisiana operations consist of:
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approximately 850 miles of natural gas gathering pipelines,
ranging from four inches to 12 inches in diameter, with
5,200 horsepower of associated pipeline compression;
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a 100 MMcf/d cryogenic processing plant;
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a 150 MMcf/d cryogenic processing plant, in which we own a
25% undivided interest; and
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a
19-mile
NGL pipeline.
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We commenced operations in 2002 when certain members of our
management team formed Eagle Rock Energy, Inc., an affiliate of
our predecessor, to provide midstream services to natural gas
producers. Since 2002, we have grown through a combination of
organic growth and acquisitions. In connection with the
acquisition in 2003 of the Dry Trail plant, a
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tertiary recovery plant located in the Oklahoma panhandle,
members of our management team formed Eagle Rock Holdings, L.P.,
the successor to Eagle Rock Energy, Inc., to own, operate,
acquire and develop complementary midstream energy assets. Eagle
Rock Holdings, L.P. has benefited from the equity sponsorship of
Natural Gas Partners, one of the largest private equity fund
sponsors of companies in the energy sector, which since 2003 has
provided us with significant support in pursuing acquisitions,
including its equity investment of approximately
$191 million to help facilitate our acquisition of the
Texas Panhandle Systems and other assets.
Business Strategies
Our primary business objective is to increase our cash
distributions per unit over time. We intend to accomplish this
objective by continuing to execute the following business
strategies:
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Maximizing the profitability of our existing assets.
We
intend to maximize the profitability of our existing assets by
adding new volumes of natural gas and undertaking additional
initiatives to enhance utilization and improve operating
efficiencies. For example, we recently constructed a
10-mile
pipeline that
connects our East and West Panhandle Systems. This allows us to
flow gas from our East Panhandle System, which is capacity-
constrained due to high levels of natural gas production, to our
West Panhandle System, which currently has excess processing
capacity. In addition, we plan to:
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market our midstream services and provide superior customer
service to producers in our areas of operation to connect new
wells to our gathering and processing systems, increase
gathering volumes from existing wells and more fully utilize
excess capacity on our systems and
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improve the operations of our existing assets by relocating idle
processing plants to areas experiencing increased processing
demand, reconfiguring compression facilities, improving
processing plant efficiencies and capturing lost and unaccounted
for natural gas.
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Expanding our operations through organic growth projects.
We intend to leverage our existing infrastructure and customer
relationships by expanding our existing asset base to meet new
or increased demand for midstream services. For example, we
recently completed the construction of our Tyler County pipeline
and subsequently commenced construction on a
16-mile
extension that
will allow for the delivery of dedicated natural gas volumes to
our Brookeland processing plant.
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Pursuing complementary acquisitions.
We have grown
significantly through acquisitions and will continue to employ a
disciplined acquisition strategy that capitalizes on the
operational experience of our management team. We believe that
the extensive experience of our management team in acquiring and
operating natural gas gathering and processing assets will
enable us to continue to
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successfully identify and complete acquisitions that will
enhance our profitability and increase our operating capacity.
In pursuing this strategy, our management team seeks to identify:
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assets that are complementary to our existing facilities and
provide opportunities for us to extract operational efficiencies
and the potential to expand or increase the utilization of the
acquired assets as well as our existing facilities;
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acquisitions in areas in which we do not currently operate that
have significant natural gas reserves and are experiencing high
levels of drilling activity; and
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acquisitions of mature assets with excess capacity that will
allow us to capitalize on existing infrastructure, personnel and
producer and customer relationships to provide an integrated
package of services.
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Continuing to reduce our exposure to commodity price
risk.
We intend to continue to operate our business in a
manner that reduces our exposure to commodity price risk. For
example, we instituted a hedging program related to our NGL
business and have hedged substantially all of our share of
expected NGL volumes through 2007 through the purchase of NGL
put contracts, costless collar contracts and swap contracts, and
substantially all of our share of expected NGL volumes related
to our percentage-of-proceeds contracts from 2008 through 2010
through a combination of direct NGL hedging as well as indirect
hedging through crude oil costless collars. We have also hedged
substantially all of our share of our short natural gas position
for 2006 and 2007. We anticipate that after 2007, our short
natural gas position will become a long natural gas position
because of our increased volumes in the Texas Panhandle and the
volumes contributed from our acquisition of the Brookeland and
Masters Creek systems. In addition, where market conditions
permit, we intend to pursue fee-based arrangements and to
increase retained percentages of natural gas and NGLs under
percent-of
-proceeds
arrangements.
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Maintaining a disciplined financial policy.
We will
continue to pursue a disciplined financial policy by maintaining
a prudent capital structure, managing our exposure to interest
rate and commodity price risk and conservatively managing our
cash reserves. We are committed to maintaining a balanced
capital structure, which will allow us to use our available
capital to selectively pursue accretive investment opportunities.
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Competitive Strengths
We believe that we are well positioned to execute our business
strategies successfully because of the following competitive
strengths:
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Our assets are strategically located in major natural gas
supply areas.
Our assets are strategically located in the
Texas Panhandle, southeast Texas and Louisiana. Our Texas
Panhandle Systems are located in areas that produce natural gas
with high NGL content, especially in the West Panhandle System.
Our East Panhandle System is experiencing significant drilling
activity related to the Granite Wash play and our West Panhandle
System is connected to wells that generally have long lives with
predictable, steady flow rates and minimal decline.
Additionally, our southeast Texas and Louisiana assets,
specifically in Tyler and Polk Counties, are located in areas
characterized by high volumes of natural gas and significant
drilling activity, which provides us with attractive
opportunities to access newly developed natural gas supplies. We
believe that our extensive existing presence in these regions,
together with our available capacity and the limited
alternatives available to local producers, provide us with a
competitive advantage in capturing new supplies of natural gas.
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We provide a distinct and integrated package of midstream
services.
We provide a broad range of midstream services to
natural gas producers, including gathering, compressing,
treating, processing, transporting and selling natural gas and
fractionating and transporting NGLs. For example, in the Texas
Panhandle, we treat natural gas to extract impurities such as
carbon dioxide and hydrogen sulfide and we fractionate NGLs to
extract propane. Our competitors in this area do not provide
these services. Additionally, many of our gathering systems,
including our Texas Panhandle
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Systems, operate at lower inlet pressures, which allows us to
provide gathering services to customers at a lower cost and on a
more timely basis than our competitors, who are often required
to add compression to provide gathering services to new wells.
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We have the financial flexibility to pursue growth
opportunities.
We currently have a $500 million credit
facility, under which we have approximately $100 million in
available borrowing capacity. This credit facility will be
amended and restated prior to the completion of this offering
and we anticipate that it will continue to provide for an
aggregate of $500 million in borrowing capacity, of which
we expect approximately $105 million will continue to be
available for general partnership purposes, including capital
expenditures and acquisitions. We believe the available capacity
under this credit facility, combined with our expected ability
to access the capital markets, will provide us with a flexible
financial structure that will facilitate our strategic expansion
and acquisition strategies.
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We have an experienced, knowledgeable management team with a
proven record of performance.
Our management team has a
proven record of enhancing value through the investment in, and
the acquisition, exploitation and integration of, natural gas
midstream assets. Our senior management team has an average of
over 22 years of industry-related experience. Our
team’s extensive experience and contacts within the
midstream industry provide a strong foundation for managing and
enhancing our operations, accessing strategic acquisition
opportunities and constructing new assets. After giving effect
to this offering, members of our senior management team will
have a substantial economic interest in us.
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We are affiliated with Natural Gas Partners, a leading
private equity capital source for the energy industry.
Natural Gas Partners, a leading private equity firm focused on
the energy industry, owns a significant equity position in Eagle
Rock Holdings, L.P., which will own 3,634,224 common and
20,951,772 subordinated units and all of the equity interests in
our general partner upon completion of this offering. We expect
that our relationship with Natural Gas Partners will provide us
with several significant benefits, including increased exposure
to acquisition opportunities and access to a significant group
of transactional and financial professionals with a successful
track record of investing in midstream assets. Founded in 1988,
Natural Gas Partners is among the oldest of the private equity
firms that specialize in the energy industry. Through its family
of eight institutionally-backed investment funds, Natural Gas
Partners has sponsored over 100 portfolio companies and has
controlled invested capital and additional commitments totaling
$2.9 billion.
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