Acquisition of TexStar Field Services, L.P. July 13, 2006
Forward Looking Statements Under the Private Securities Litigation Act of 1995 This presentation may contain statements about future events and Regency Energy Partners LP s ( Regency Energy Partners, Regency or the Partnership ) outlook and expectations, which are forward-looking statements. Although Regency believes that the assumptions underlying these statements are reasonable, investors are cautioned that such forward-looking statements are inherently uncertain and necessarily involve risks that may affect Regency s business prospects and performance, causing actual results to differ from those discussed during this presentation. Any forward-looking statements made are subject to all of the risks and uncertainties, many of which are beyond management s control, involved in gathering, processing, marketing and transportation of natural gas and natural gas liquids, or NGLs. Should one or more of these risks or uncertainties occur, or should underlying assumptions prove incorrect, Regency s actual results and plans could differ materially from those expressed in any forward-looking statements. These risks and uncertainties are discussed in more detail in Regency s filings with the Securities and Exchange Commission, copies of which are available to the public. The Partnership undertakes no obligation to update publicly any forward-looking statements, whether as a result of new information or future events. 1
Transaction Overview 2
Transaction Overview Regency has executed a definitive agreement to acquire TexStar Field Services LP from affiliates of HM Capital Partners LLC for $350 million TexStar s natural gas gathering, treating and processing assets will expand Regency s operations into two new geographic regions We expect to finance the transaction 50% with bank debt and 50% with equity The transaction will be immediately accretive to unitholders TexStar provides a solid platform for future organic growth Closing is anticipated during the third quarter 3
Acquisition Rationale The TexStar acquisition provides many strategic advantages to Regency Rationale Combined System Provides significant geographical diversity to Regency, increasing our key regions from three to five Strategically located to take advantage increased drilling activity Prolific and long lived reserves Long-term dedication by BlackBrush Oil & Gas, an affiliate of TexStar Significant organic growth opportunities Gas Treating / Processing Facility Regency Existing Assets TexStar Assets 4
Assets Being Acquired TexStar s assets are located in South and East Texas Como Plant Eagle Pass Plant Tilden Plant Eustace Plant South Texas: Key Operating Statistics Pipe Line 1,048 miles Facilities 2 Processing Plants Compression 14,300 hp System capacity 265 MMcf/d Treating capacity 100 MMcf/d Processing capacity 8 MMcf/d East Texas: Key Operating Statistics Pipe Line 428 miles Facilities 2 Processing Plants Compression 22,500 hp System capacity 150 MMcf/d Treating capacity 125 MMcf/d Processing capacity 85 MMcf/d 5
TexStar Overview TexStar s strategy has been to acquire underutilized assets, invest capital and improve financial performance through higher utilization TexStar has been built over the last two years through a series of acquisitions The Enbridge asset acquisition in late 2005 provided critical mass to connect the many previous assets acquisitions in South Texas and provides a footprint in East Texas The pending Como acquisition will provide additional scale to TexStar s East Texas assets TexStar Acquisition History Date Asset Miles July 2004 PJV Pipeline 34 September 2004 Panna Maria Pipeline 35 January 2005 Link Pipeline 119 February 2005 Triumph Pipeline 50 April 2005 FinTex Pipeline 106 July 2005 Torch Pipeline 56 July 2005 Pettus Pipeline 223 September 2005 Eagle Pass Plant Na December 2005 Enbridge System 796 July 2006 Valence Assets 57 Total 1,476 6
Identified Organic Growth Projects Management has identified approximately $30 million in near-term growth capital projects Regency s management team has extensive experience in South and East Texas Together with TexStar s management team, Regency will pursue four types of organic growth projects Refurbish existing plants to increase fuel and operating efficiencies Achieve processing upgrades on rich gas not currently processed Extend and connect pipes for additional gathering volumes Build out low pressure gathering system Longer-term, high levels of drilling activity in South Texas and renewed drilling activity in East Texas provide numerous opportunities for additional growth 7
Combined Company Overview The TexStar acquisition will expand Regency s scale and scope Combined Company Pipeline (miles) 3,270 1,476 4,746 Treating/Processing Plants 7 4 11 Compression (hp) 130,650 36,800 167,450 Geographic Regions 3 2 5 8
Financial Information 9
Financing Plan Regency will fund the acquisition with 50% bank debt and 50% equity Sources of funds are expected to be as follows: Regency has received commitments for a new $850 million credit facility, which will consist of a $600 million Term Loan facility and a $250 million revolving credit facility The new facility will be used to: Refinance approximately $400 million of existing Regency bank debt Fund the cash portion of the acquisition price Provide an expanded revolving credit facility After Additional ($ millions) At Closing Equity Issuance Bank Debt $ 235 $ 175 Equity 115 175 Total $ 350 $ 350 At closing, HM Capital will receive approximately 5.2 million restricted common units New units will not participate in distributions for 2 distribution periods following closing New units will convert to common approximately 6 months after closing Regency intends to raise sufficient additional equity that, together with the units issued in the transaction, will finance 50% of the purchase price 10
Financial Impact Regency expects the TexStar acquisition to be immediately accretive to unitholders No distributions for the balance of 2006 on new units issued to HM Capital TexStar assets are expected to produce approximately $40 million of EBITDA in 2007 Depending upon the timing of the near-term growth capital projects, TexStar s EBITDA could increase by up to 25% Recurring maintenance capital for TexStar s assets is expected to be approximately $3 million annually 11
Commodity Exposure Regency will fold TexStar into its existing risk management strategy Contract Mix TexStar s contract mix is approximately 24% POP, 75% fee, and 1% KW on a volumetric basis On a combined basis, Regency s contract mix will change only slightly POP 19.3% 2006P Volumetric Contracted Mix Regency Standalone KW 4.0% PF for TexStar Acquisition POP 20.2% KW 3.5% Fees 76.7% Fees 76.3% Hedging TexStar s POP contracts will create significant additional exposure to NGLs Regency intends to hedge a significant portion of the NGLs through at least 2008 Exposure to natural gas commodity prices will increase minimally (about 2 MMBtu/d) as a result of TexStar s POP contracts These volumes are not of sufficient quantity to hedge 12
Accounting Impact From an accounting perspective, Regency and TexStar are considered to be controlled by the same entity, HM Capital As a result, Regency is required to use the pooling of interests method of accounting for the transaction rather than the purchase method Using Regency s expected sources of funding at closing, the two types of accounting would yield different results Pro forma at March 31, 2006 Unaudited, rounded to millions, for illustrative purposes only Purchase Method Pooling of Interests Method ($ millions) Regency TexStar Combined Regency TexStar Combined Current and other assets $ 98 $ 21 $ 119 $ 98 $ 21 $ 119 Property, Plant and Eqt 487 1 300 787 487 216 703 Goodwill 58 43 101 58-58 Total assets $ 643 $ 364 $ 1,007 $ 643 $ 237 $ 880 Current and other liab $ 88 $ 14 $ 102 $ 88 $ 14 $ 102 Debt 377 235 612 377 235 612 Partners' equity 178 115 293 178 (13) 165 Total Liabilities and Equity $ 643 $ 364 $ 1,007 $ 643 $ 237 $ 880 1 Assume purchase price allocation to tangible plant is $300 million; no purchase price allocation study has been completed for accounting purposes As the example above illustrates, pooling of interests accounting treatment does not take into account the fair market value of TexStar s assets Creates a permanent difference in Regency s debt/capital ratio Pooling of interests accounting also does not allow transaction costs to be capitalized Regency will have to expense its TexStar-related transaction costs this year 13