$7.8 Billion Merger Combines Complementary Asset Profiles and
Like-Minded Operating Philosophies to Form the Largest Oil-Weighted
Upstream MLP
Breitburn Energy Partners LP (NASDAQ:BBEP) and QR Energy, LP
(NYSE: QRE) today announced the signing of a definitive merger
agreement pursuant to which Breitburn will acquire QR Energy in a
unit-for-unit exchange implying a transaction value of
approximately $3.0 billion, including QR Energy’s existing net debt
and outstanding Class C Convertible Preferred Units.
As a result of the merger, Breitburn will become the largest,
oil-weighted upstream oil and gas master limited partnership with a
pro forma enterprise value of approximately $7.8 billion and
current average daily production of approximately 57,300 boe/d, 67%
liquids, based on second quarter results. The combination enhances
Breitburn’s ability to generate greater cash flow and creates
significant incremental near-term and long-term value for
unitholders. The transaction is expected to be accretive to
distributable cash flow per unit, and upon closing of the
transaction, Breitburn has agreed to recommend to its Board a
distribution increase to $2.08 per unit on an annualized basis.
Halbert S. Washburn, Breitburn’s Chief Executive Officer, said,
“We are very pleased to reach this agreement with QR Energy, a
company that we have always admired given its enviable MLP-friendly
assets and engineering-focused operating strategy that is
strikingly similar to our own. This world-class portfolio of
conventional properties in large, oil rich basins fits perfectly
with our asset base and improves our ability to deliver shallow,
predictable decline rates that generate industry-leading margins.
The combination offers immediate G&A savings and significant
accretion for all unitholders. Even more importantly, our enhanced
scale, diversification, and intellectual capital will better
position Breitburn to efficiently use its capital to create
long-term value for unitholders. We look forward to welcoming QR
Energy’s employees into the Breitburn organization.”
“We consider Breitburn an ideal merger partner,” said Alan L.
Smith, QR Energy’s Chief Executive Officer, “and believe this
combination creates an unrivaled operator of mature assets with
exposure to nearly every conventional basin in the United States.”
Mr. Smith continued, “Breitburn has a proven 26 year track record
of making big oil fields bigger and we are excited to see that
trend continue with the addition of our extensive inventory of
organic growth projects. I am confident that our talented employees
will bring unique expertise to Breitburn and that all stakeholders
will benefit from the larger, stronger Breitburn. We believe the
immediate premium enjoyed by our unitholders will be surpassed by
the value shared by all unitholders participating in the future
success of the combined company.”
Transaction Details
Under the terms of the merger agreement, holders of QR Energy’s
Common and Class B units, including those issuable upon a change in
control, will receive approximately 72 million Breitburn common
units, or 0.9856 of a BBEP unit for each unit of QRE held. The
consideration to be received by QR Energy unitholders is valued at
$22.48 per unit, based on Breitburn’s closing price of $22.81 on
July 23, 2014, representing a 19% premium to QRE’s closing price of
$18.87 on July 23, 2014. The transaction is expected to be tax-free
to QR Energy’s unitholders other than the holders of QR Energy
Class C Convertible Preferred Units who will receive an aggregate
of $350 million cash at closing.
The transaction has been unanimously approved by the boards of
directors of Breitburn and QR Energy, including the Conflicts
Committee formed by the QR Energy Board of Directors. Certain QR
Energy unitholders owning approximately 37% of the votes of the
outstanding QRE units have agreed to vote in favor of the
transaction. In addition, holders of QRE’s Class B contingent units
have agreed to reduce the outstanding number of such units by
approximately 42%, subject to closing adjustments. Completion of
the transaction is subject to the approval of QR Energy
unitholders, certain regulatory approvals, and customary closing
conditions. The transaction is expected to close in late 2014 or
early 2015.
Breitburn’s senior management team will lead the combined
company and intends to employ all of QR Energy’s talented roster of
engineering, operations, and support staff, excluding those that
are being retained by Quantum Resources Management, LLC. Breitburn
will add a new member to its Board of Directors after closing, and
Breitburn and QR Energy will mutually agree upon that
individual.
Breitburn has received a firm commitment from Wells Fargo Bank,
N.A. to increase the borrowing base under Breitburn’s credit
facility to $2.5 billion in connection with the transaction.
Breitburn will continue to monitor market conditions for
opportunistic refinancing transactions over the coming months.
Advisors
UBS Investment Bank acted as exclusive financial advisor to
Breitburn, and provided a fairness opinion to the Breitburn Board
of Directors; Latham & Watkins LLP acted as legal counsel to
Breitburn. RBC Capital Markets and Greenhill & Co., LLC acted
as joint financial advisors to QR Energy, and Greenhill & Co.,
LLC provided a fairness opinion to QR Energy’s Board of Directors;
Vinson & Elkins LLP acted as legal counsel to QR Energy. Tudor,
Pickering and Holt provided a fairness opinion to the Conflicts
Committee of QR Energy’s Board of Directors; Bracewell &
Giuliani LLP acted as legal counsel to the Conflicts Committee of
QR Energy Board of Directors.
Conference Call and
Webcast
Breitburn will host a conference call later today, Thursday,
July 24, 2014, at 9:00 a.m. (EDT) to discuss the transaction and
Breitburn’s second quarter results. Interested parties may access
the conference call over the Internet via the Investor Relations
tab of Breitburn’s website (www.breitburn.com), or via telephone by
dialing (888) 364-3108 (international callers dial +1 (719)
457-1512) a few minutes prior to the beginning of the call to
register. Those listening via the Internet should go to the site 15
minutes early to register and download and install any necessary
audio software. In addition, a replay of the call will be available
through July 31, 2014, by dialing (877) 870-5176 (international
callers dial +1 (858) 384-5517)) and entering replay PIN 2705055,
or by going to the Investor Relations tab of Breitburn’s website
(www.breitburn.com). Breitburn will take questions from securities
analysts and institutional portfolio managers; the call is open to
all other interested parties on a listen-only basis.
QR Energy will also host a webcast and conference call later
today, Thursday, July 24, 2014 at 10:30 a.m. (EDT) to discuss its
second quarter results and the transaction. Interested parties may
join the webcast by visiting QR Energy’s Investor Relations website
at http://ir.qrenergylp.com and
clicking on the webcast link or the conference call by dialing
(877) 861-4516 or (706) 679-6295 five minutes before the call
begins and providing the conference ID 78344267. The webcast will
be available on QR Energy’s Investor Relations website at
http://ir.qrenergylp.com for 14 days
following the call and a telephonic replay will be available for 7
days following the call by dialing (855) 859-2056 or (404) 537-3406
and providing the conference ID 78344267.
About Breitburn Energy Partners
LP
Breitburn Energy Partners LP is a publicly-traded independent
oil and gas master limited partnership focused on the acquisition,
exploitation, development and production of oil and gas properties
throughout the United States. Breitburn’s producing and
non-producing crude oil and natural gas reserves are located in
Michigan, Oklahoma, Texas, Wyoming, California, Florida, Indiana
and Kentucky. See www.breitburn.com
for more information.
About QR Energy
QR Energy is a publicly traded partnership engaged in the
acquisition, production and development of onshore crude oil and
natural gas properties in the United States. QR Energy is
headquartered in Houston, Texas. For more information, visit QR
Energy’s website at www.qrenergylp.com
.
Additional Information about the
Proposed Transactions and Where to Find It
In connection with the proposed transactions, Breitburn intends
to file with the SEC a registration statement on Form S-4 that will
include a prospectus of Breitburn and a proxy statement of QR
Energy. Each of Breitburn and QR Energy also plan to file other
relevant documents with the SEC regarding the proposed
transactions. INVESTORS ARE URGED TO READ THE PROXY
STATEMENT/PROSPECTUS AND OTHER RELEVANT DOCUMENTS FILED WITH THE
SEC IF AND WHEN THEY BECOME AVAILABLE BECAUSE THEY WILL CONTAIN
IMPORTANT INFORMATION. You may obtain a free copy of the proxy
statement/prospectus (if and when it becomes available) and other
relevant documents filed by Breitburn and QR Energy with the SEC at
the SEC’s website at www.sec.gov. You may also obtain these
documents by contacting Breitburn Investor Relations in writing at
515 S. Flower Street, Suite 4800, Los Angeles, CA, 90071, or via
e-mail by using the “Contact Form” located at the Investor
Relations tab at www.breitburn.com or by calling (213) 225-0390; or
by contacting QR Energy Investor Relations in writing at 1401
McKinney Street, Suite 2400, Houston, TX 77010, or via e-mail at
ir@qracq.com or by calling (713)
452-2990.
Participants in the
Solicitation
Breitburn and QR Energy and their respective directors and
executive officers and other members of management and employees
may be deemed to be participants in the solicitation of proxies in
respect of the proposed transactions. Information about Breitburn’s
directors and executive officers is available in Breitburn’s proxy
statement dated April 25, 2014, for its 2014 Annual Meeting of
Unitholders. Information about QR Energy’s directors and executive
officers is available in QR Energy’s proxy statement dated February
3, 2014, for its Special Meeting of Unitholders held on March 10,
2014. Other information regarding the participants in the proxy
solicitations and a description of their direct and indirect
interests, by security holdings or otherwise, will be contained in
the proxy statement/prospectus and other relevant materials to be
filed with the SEC regarding the proposed transactions when they
become available. Investors should read the proxy
statement/prospectus carefully when it becomes available before
making any voting or investment decisions. You may obtain free
copies of these documents from Breitburn or QR Energy using the
sources indicated above.
This document shall not constitute an offer to sell or the
solicitation of an offer to buy any securities, nor shall there be
any sale of securities in any jurisdiction in which such offer,
solicitation or sale would be unlawful prior to registration or
qualification under the securities laws of any such jurisdiction.
No offering of securities shall be made except by means of a
prospectus meeting the requirements of Section 10 of the U.S.
Securities Act of 1933, as amended.
Cautionary Statement Regarding
Forward-Looking Information
This press release contains statements that Breitburn and QR
Energy believe to be “forward-looking statements” within the
meaning of Section 21E of the Securities Exchange Act of 1934. All
statements other than historical facts, including, without
limitation, statements regarding the expected benefits of the
proposed transaction to Breitburn and QR Energy and their
unitholders, the anticipated completion of the proposed transaction
or the timing thereof, the expected future reserves, production,
financial position, business strategy, revenues, earnings, costs,
capital expenditures and debt levels of the combined company, and
plans and objectives of management for future operations, are
forward-looking statements. When used in this press release, words
such as we “may,” “can,” “expect,” “intend,” “plan,” “estimate,”
“anticipate,” “project,” “believe,” “will” or “should” or the
negative thereof or variations thereon or similar terminology are
generally intended to identify forward-looking statements. It is
uncertain whether the events anticipated will transpire, or if they
do occur what impact they will have on the results of operations
and financial condition of Breitburn, QR Energy or of the combined
company. Such forward-looking statements are subject to risks and
uncertainties that could cause actual results to differ materially
from those expressed in, or implied by, such statements.
These risks and uncertainties include, but are not limited to:
the ability to obtain unitholder, court and regulatory approvals of
the proposed transaction; the ability to complete the proposed
transaction on anticipated terms and timetable; Breitburn’s and QR
Energy’s ability to integrate successfully after the transaction
and achieve anticipated benefits from the proposed transaction; the
possibility that various closing conditions for the transaction may
not be satisfied or waived; risks relating to any unforeseen
liabilities of Breitburn or QR Energy; declines in oil, NGL or
natural gas prices; the level of success in exploitation,
development and production activities; adverse weather conditions
that may negatively impact development or production activities;
the timing of exploitation and development expenditures; the
ability to obtain sufficient quantities of CO2 necessary to carry
out EOR projects; inaccuracies of reserve estimates or assumptions
underlying them; revisions to reserve estimates as a result of
changes in commodity prices; impacts to financial statements as a
result of impairment write-downs; risks related to level of
indebtedness and periodic redeterminations of the borrowing base
under Breitburn’s credit agreement; ability to generate sufficient
cash flows from operations to meet the internally funded portion of
any capital expenditures budget; ability to obtain external capital
to finance exploitation and development operations and
acquisitions; federal, state and local initiatives and efforts
relating to the regulation of hydraulic fracturing; the ability to
successfully complete potential asset dispositions and the risks
related thereto; the impacts of hedging on results of operations;
failure of properties to yield oil or gas in commercially viable
quantities; uninsured or underinsured losses resulting from oil and
gas operations; inability to access oil and gas markets due to
market conditions or operational impediments; the impact and costs
of compliance with laws and regulations governing oil and gas
operations; ability to replace oil and natural gas reserves; any
loss of senior management or technical personnel; competition in
the oil and gas industry; risks arising out of hedging
transactions; and other risks described under the caption “Risk
Factors” in Breitburn’s and QR Energy’s Annual Reports on Form 10-K
for the period ended December 31, 2013. Breitburn and QR Energy
assume no obligation, and disclaim any duty, to update the
forward-looking statements in this press release to reflect
subsequent events or circumstances.
BBEP-IR
Breitburn Energy Partners LPJames G. Jackson,Executive
Vice President andChief Financial OfficerorAntonio D’AmicoVice
PresidentInvestor Relations & Government Affairs(213)
225-0390orQR Energy, LPCedric W. BurgherChief Financial
Officer(713) 452-2990orJosh WannarkaDirector of Investor
Relations(713) 452-2200