RGNC Regency Energy Partners LP - Common Units Representing Limited Partner Interests (MM)

Lone Star LLC –– a joint venture between Energy Transfer Partners (ETP) and Regency Energy Partners L.P. (RGNC) –– announced that it will construct a 530-mile natural gas liquids (NGL) pipeline for $700 million.

Energy Transfer will fund 70% of the estimated cost, while Regency Energy will contribute the remaining portion.

The new pipeline, connecting Texas’ Winkler County and the Jackson County processing plant, will have a minimum capacity of approximately 130,000 barrels per day. The capacity of the pipeline is expandable, depending on further negotiations.

The venture has over 65% of the capacity contracted with producers and processors and is likely to be completed by the first quarter of 2013.

As elucidated by the spokesperson of Lone Star, the increased drilling activity in the Permian Basin calls for additional NGL transportation capacity from west Texas. Lone Star is favorably positioned to take advantage of this opportunity through various development projects.

In recent times,Energy Transfer, along with Regency Energy Partners acquired LDH Energy Asset Holdings and renamed it Lone Star. We believe that this acquisition will broaden Energy Transfer’s asset base with strong midstream services and transportation and storage businesses apart from providing additional consistent fee-based revenues in the coming months.

As per an announcement made by Lone Star in May, it will construct 100,000 barrels per day natural gas liquids fractionation facility at Mont Belvieu, Texas at an estimated cost of $350 million to $375 million.

We are maintaining our long-term Neutral rating on Energy Transfer, given its growth momentum, aided by acquisitions and joint ventures, strong volume expansion and modest price increases. These positive aspects are somewhat diluted by the challenging macro environment, weak natural gas fundamentals and cost overruns on development projects.

 
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