Regency Energy Partners LP RGP.N, owned by billionaire Kelcy Warren's Energy Transfer Equity LP (ETE.N), said it would buy pipeline and related assets for about $1.6 billion to take advantage of soaring crude production in Texas.
The pipeline operator plans to buy assets in the Texas Panhandle from Eagle Rock Energy Partners EROC.O for $1.3 billion and assets in the Delaware basin from Hoover Energy Partners for $290 million.
Eagle Rock's shares jumped as much as 17 percent to $6.17 on the Nasdaq on Monday. Regency shares rose 12 percent to $27.21 on the New York Stock Exchange.
"(The deal) is a great Christmas present for EROC unitholders," Robert Baird & Co analyst Ethan Bellamy said.
Massive growth in output from shale fields has led to a shortage of pipelines that can move crude oil to refining hubs.
Natural gas that is produced along with the oil needs to be processed and this has raised the premium for facilities owned by infrastructure companies.
Texas, home to the Permian Basin and the Eagle Ford shale field, is particularly lucrative for pipeline operators.
Texas is pumping 35 percent of the United States' oil, helping make the country the world's top crude producer, according to the Energy Information Agency.
Both Regency and Eagle Rock are structured as master limited partnerships (MLPs), firms that pay virtually no corporate taxes and give out nearly all their earnings to investors.
Eagle Rock cut its third-quarter cash distribution on October 28, citing insufficient cash flow. It shares have fallen more than 28 percent since then.
Eagle Rock's high debt level, which stood at $1.2 billion as of September30, had limited its investments in oil and gas, the company's chief executive, Joseph Mills, said on a conference call on Monday.
The company is selling about 8,100 miles of pipelines and processing plants with a total capacity of more than 800 million cubic feet per day to Regency.
Regency expects the deal with Eagle Rock to immediately add to its distributable cash flow and the company is looking to raise its distribution by about 6 percent to 8 percent in 2014.
Regency said its $290 million deal with Hoover Energy is expected to add to cash flow next year.
Monday's deals come two months after Regency agreed to buy PVR Partners LP PVR.N for about $3.8 billion.
Regency has assets in the Permian Basin, South Texas and North Louisiana.
Energy Transfer, which is buying $400 million of Regency units to help fund the deal, said on Monday it would buy back $1 billion of its units. Energy Transfer also announced a two-for-one stock split.
Energy Transfer shares rose more than 4 percent to $85.08.
(Editing by Saumyadeb Chakrabarty, Rodney Joyce and Maju Samuel)