Regency Energy Partners LP plans to expand its pipeline system in North Louisiana to bring natural gas from the Haynesville Shale - one of the most active new natural gas plays in the United States - to market. The $1.1 billion expansion of the Regency Intrastate Gas System will provide 1.45 Bcfd of new capacity to handle expected increases in production from the region. Regency has obtained letters of intent for long-term transportation agreements from anchor shippers covering approximately 76% of the incremental capacity and is also seeing strong demand for the remaining capacity.

The Haynesville expansion project includes looping the existing pipeline, extending the system and adding new compression. Construction of the project will be divided into two phases. Phase one is expected to be completed during the first half of 2009, adding 300 MMcfd of capacity once fully operational. Phase one will comprise approximately $375 million of the total cost of the project. Phase two will add an incremental 1.15 Bcfd and is expected to be online by the end of 2009 and is expected to be fully operational in the first quarter of 2010. Overall, the project will add 204 miles of pipeline, ranging in diameter from 24 to 42 inches, and 49,000 horsepower of compression.

Regency has obtained several commitments from UBS Investment Bank, Morgan Stanley Senior Funding, Inc. and RBS Greenwich Capital for approximately $600 million of debt financing needs associated with this project, which will be utilized to reduce borrowings outstanding under the Partnership's revolving credit facility. This funding will allow Regency to utilize its revolving credit facility to finance all of the project costs associated with phase one and a portion of phase two costs. The debt financing is subject to the execution of definitive loan documentation and other terms and closing conditions. Regency intends to finance the remaining costs of phase two by using available capacity under its revolving credit facility and through future equity offerings. The $1.1 billion in capital needed for the project includes $121.5 million in commitments approved by Regency's board in July 2008 for longer lead-time items, such as pipe, compression and rights-of-way.

"By launching this project to expand our existing midstream infrastructure in the heart of the Haynesville Shale, Regency has a 'first-mover' advantage in meeting existing and future demand," said Byron Kelley, chairman, president and chief executive officer of Regency. "We expect significant drilling in North Louisiana for many years, and our strategic footprint in the region together with the incremental capacity from this project will position us well to handle this growth."

"Based on expected costs and contractual terms, the project will be significantly accretive to Regency unitholders once the project is operational and fully flowing," Kelley said. "A substantial increase in Regency's EBITDA will be accomplished primarily with fee-based cash flows derived from long-term firm transportation contracts, supporting our strategy to consistently grow unitholder value and achieve investment-grade status over the next three years."

Regency also plans to expand some of its existing interconnections with interstate pipelines and is exploring new intrastate and interstate market options for its shippers. The system reaches across North Louisiana, from Caddo Parish to Franklin Parish and will be expanded to the southwest into Desoto Parish to interconnect with Regency's Logansport gathering system. The project is subject to obtaining all required regulatory approvals.

Tags: Regency Energy Partners LP