Exhibit 99.1
Unaudited Pro Forma Combined Financial Information
The unaudited pro forma combined financial information has been prepared to reflect the contribution of the midstream business of Eagle Rock Energy Partners, L.P. (“Eagle Rock”) to Regency Energy Partners LP (the “Partnership”) completed on July 1, 2014, the merger of PVR Partners, L.P. (“PVR”) with the Partnership completed on March 21, 2014 (the “PVR Acquisition”), and the contribution of the wholly-owned subsidiaries of Hoover Energy Partners, L.P. (“HEP”) to the Partnership completed on February 3, 2014 (the “HEP Acquisition”), as if such transactions were completed on January 1, 2014.
The Partnership filed a Current Report on Form 8-K on December 24, 2013 to report that the Partnership, Eagle Rock, and Regal Midstream LLC, a Delaware limited liability company and wholly-owned subsidiary of the Partnership, entered into a Contribution Agreement, pursuant to which Eagle Rock agreed to contribute to Regal Midstream LLC all of the issued and outstanding member interests in (i) Eagle Rock Marketing, LLC, a Delaware limited liability company, (ii) Eagle Rock Pipeline GP, LLC, a Delaware limited liability company, and (iii) Eagle Rock Gas Services, LLC, a Delaware limited liability company, and 100% of the outstanding partner interests of (a) Eagle Rock Pipeline, L.P., a Delaware limited partnership, and (b) EROC Midstream Energy, L.P., a Delaware limited partnership (collectively, the “EROC Interests”). The assets held and operated by the EROC Interests collectively comprise Eagle Rock’s midstream business (the “Midstream Business”).
The consideration paid by the Partnership in exchange for the Midstream Business is valued at $1.3 billion and consists of (1) the issuance of 8,245,859 common units of the Partnership to Eagle Rock, (2) the assumption of $499 million of outstanding 8.375% senior notes due 2019 of Eagle Rock, and (3) a cash payment to Eagle Rock equal to the remainder of the purchase price. The cash portion of the purchase price was financed through the issuance of 16,491,717 common units of the Partnership to ETE Common Holdings LLC (“ETE Common Holdings”), a wholly-owned subsidiary of Energy Transfer Equity, L.P., for $400 million and through borrowings under the Partnership’s revolving credit facility.
The accounting for an acquisition of a business is based on the authoritative guidance for business combinations. Purchase accounting requires, among other things, that the assets and liabilities assumed be recognized at their fair values as of the date the merger is completed. Pro forma adjustments for the HEP Acquisition and PVR Acquisition have been made based on allocations of the purchase price to the assets and liabilities acquired. For the Midstream Business acquisition (the “EROC Acquisition”), the pro forma adjustments reflect the assets and liabilities at their historical book values as the allocation of the purchase price is dependent upon certain valuations of the assets and liabilities and other studies that have yet to commence or progress to a stage where there is sufficient information for a definitive measurement. Differences between these historical bases and the final purchase accounting will occur, and these differences could have a material impact on the unaudited pro forma combined per unit information set forth in the following table.
The unaudited pro forma combined statement of operations reflects the transactions and the pro forma adjustments as though the transactions occurred as of January 1, 2014. The pro forma adjustments were prepared applying the rules established by the Securities and Exchange Commission in Article 11 of Regulation S-X. Certain historical amounts have been reclassified to conform to the Partnership’s presentation.
The historical financial information included in the columns entitled “Partnership” was derived from the unaudited financial statements included in the Partnership’s Quarterly Report on Form 10-Q for the nine months ended September 30, 2014. The historical financial information in the column entitled “EROC” was derived from Eagle Rock’s unaudited condensed combined financial statements of its Midstream Business as of June 30, 2014 and for the three and six months ended June 30, 2014. The historical financial information included in the column entitled “PVR” was derived from PVR’s accounting records for the period from January 1, 2014 to March 21, 2014. The historical financial information in the column entitled “HEP” was derived from HEP’s accounting records for the period from January 1, 2014 to February 3, 2014.
The unaudited pro forma combined financial information is based on assumptions that the Partnership believes are reasonable under the circumstances and are intended for informational purposes only. Actual results may differ from the estimates and assumptions used. The unaudited pro forma combined financial information is not necessarily indicative of the financial results that would have occurred if these transactions had taken place on the dates indicated, nor is it indicative of future consolidated results.
| Regency Energy Partners LP | ||||||||||||||||||||||
| Unaudited Pro Forma Combined Statement of Operations | ||||||||||||||||||||||
| For the Nine Months Ended September 30, 2014 | ||||||||||||||||||||||
| (in millions except unit data and per unit data) | ||||||||||||||||||||||
| Partnership | PVR | EROC | HEP | Combined Historical | Pro Forma Adjustments | Pro Forma Combined | ||||||||||||||||
| REVENUES | ||||||||||||||||||||||
| Gas sales, including related party amounts | $ | 1,359 | $ | 110 | $ | 211 | $ | 2 | $ | 1,682 | $ | - | $ | 1,682 | ||||||||
| NGL sales, including related party amounts | 1,308 | 82 | 311 | - | 1,701 | - | 1,701 | |||||||||||||||
| Gathering, transportation and other fees, including related party amounts | 682 | 57 | 42 | 2 | 783 | - | 783 | |||||||||||||||
| Net realized and unrealized loss from derivatives | - | - | (16 | ) | - | (16 | ) | - | (16 | ) | ||||||||||||
| Other | 175 | 29 | - | - | 204 | - | 204 | |||||||||||||||
| Total revenues | 3,524 | 278 | 548 | 4 | 4,354 | - | 4,354 | |||||||||||||||
| OPERATING COSTS AND EXPENSES | ||||||||||||||||||||||
| Cost of sales, including related party amounts | 2,517 | 173 | 445 | 2 | 3,137 | - | 3,137 | |||||||||||||||
| Operation and maintenance | 300 | 15 | 50 | 1 | 366 | - | 366 | |||||||||||||||
| General and administrative, including related party amounts | 123 | 33 | 32 | - | 188 | - | 188 | |||||||||||||||
| Gain on asset sales, net | (1 | ) | - | - | - | (1 | ) | - | (1 | ) | ||||||||||||
| Impairments | - | - | 2 | - | 2 | - | 2 | |||||||||||||||
| Depreciation, depletion and amortization | 384 | 40 | 40 | 1 | 465 | 70 | a | 535 | ||||||||||||||
| Total operating costs and expenses | 3,323 | 261 | 569 | 4 | 4,157 | 70 | 4,227 | |||||||||||||||
| OPERATING INCOME (LOSS) | 201 | 17 | (21 | ) | - | 197 | (70 | ) | 127 | |||||||||||||
| Income from unconsolidated subsidiaries | 143 | - | - | - | 143 | - | 143 | |||||||||||||||
| Interest expense, net | (220 | ) | (23 | ) | (30 | ) | - | (273 | ) | (5 | ) | b | (272 | ) | ||||||||
| 6 | c | |||||||||||||||||||||
| Gain on debt refinancing, net | 2 | - | - | - | 2 | - | 2 | |||||||||||||||
| Other income and deductions, net | (7 | ) | 1 | - | - | (6 | ) | - | (6 | ) | ||||||||||||
| INCOME (LOSS) BEFORE INCOME TAXES | 119 | (5 | ) | (51 | ) | - | 63 | (69 | ) | (6 | ) | |||||||||||
| Income tax expense | 4 | - | - | - | 4 | - | 4 | |||||||||||||||
| NET INCOME (LOSS) | $ | 115 | $ | (5 | ) | $ | (51 | ) | $ | - | $ | 59 | $ | (69 | ) | $ | (10 | ) | ||||
| Net income attributable to noncontrolling interest | (11 | ) | - | - | - | (11 | ) | - | (11 | ) | ||||||||||||
| NET INCOME (LOSS) ATTRIBUTABLE TO REGENCY ENERGY PARTNERS LP | $ | 104 | $ | (5 | ) | $ | (51 | ) | $ | - | $ | 48 | $ | (69 | ) | $ | (21 | ) | ||||
| Amounts attributable to Series A convertible redeemable preferred units | 3 | 3 | ||||||||||||||||||||
| General partner's interest, including IDR | 22 | 22 | ||||||||||||||||||||
| Beneficial conversion feature for Class F common units | 5 | 5 | ||||||||||||||||||||
| Limited partners' interest in net income | $ | 74 | $ | (51 | ) | |||||||||||||||||
| Basic and diluted earnings per common unit | ||||||||||||||||||||||
| Amount allocated to common units | $ | 74 | $ | (51 | ) | |||||||||||||||||
| Weighted average number of common units outstanding | 328,989,245 | 377,884,972 | ||||||||||||||||||||
| Basic net income per common unit | $ | 0.22 | $ | (0.13 | ) | |||||||||||||||||
| Diluted net income per common unit | $ | 0.22 | $ | (0.13 | ) | |||||||||||||||||
| Basic and diluted earnings per Class F common unit | ||||||||||||||||||||||
| Amount allocated to Class F common units due to beneficial conversion feature | $ | 5 | $ | 5 | ||||||||||||||||||
| Total number of Class F common units | 6,274,483 | 6,274,483 | ||||||||||||||||||||
| Income per Class F common units | $ | 0.81 | $ | 0.81 | ||||||||||||||||||
| See accompanying notes to unaudited pro forma combined financial information | ||||||||||||||||||||||
Regency Energy Partners LP
Notes to Unaudited Pro Forma Combined Financial Information
The following notes describe the columns presented and the entries made to the unaudited pro forma combined financial information.
Partnership
This column represents the historical unaudited consolidated statement of operations of the Partnership for the nine months ended September 30, 2014. These financial statements were derived from the unaudited financial statements included in the Partnership’s Quarterly Report on Form 10-Q for the nine months ended September 30, 2014.
EROC
This column represents the historical unaudited statement of operations of the Midstream Business for the six months ended June 30, 2014. These financial statements were derived from Eagle Rock’s unaudited condensed combined financial statements of its Midstream Business as of June 30, 2014 and for the three and six months ended June 30, 2014. Certain historical amounts of the Midstream Business have been reclassified to conform to the Partnership’s presentation.
PVR
This column represents the historical unaudited statement of operations of PVR for the period from January 1, 2014 to March 21, 2014. These financial statements were derived from the accounting records of PVR for the period from January 1, 2014 to March 21, 2014.
HEP
This column represents the historical unaudited consolidated statement of operations of HEP for the period from January 1, 2014 to February 3, 2014. These financial statements were derived from the accounting records of HEP from January 1, 2014 to February 3, 2014.
Pro Forma Adjustments
| a. | Represents the additional pro forma depreciation, depletion, and amortization expense that would have been incurred if the PVR Acquisition, HEP Acquisition, and the EROC Acquisition would have closed as of January 1, 2014. |
| b. | Represents the increase in interest expense which would have been incurred by the Partnership related to the additional borrowings under its revolving credit facility of $36 million for the one-time cash payment to PVR unit holders, $176 million due to Eagle Rock and $184 million due to HEP, using a weighted average interest rate of 2.41%, or $5 million for the nine months ended September 30, 2014. |
| c. | Represents the amount of interest expense associated with Eagle Rock’s historical debt balance for the amounts outstanding under its revolving credit facility, which the Partnership is not assuming, using a weighted average interest rate of 2.67%, or $6 million for the six months ended June 30, 2014. |