Atlas Pipeline pays $1B for Texas venture

Atlas Pipeline Partners L.P., an energy company with deep Philadelphia roots, became the second local firm this month to make a big investment in a booming Texas shale formation.

Atlas announced Tuesday it would pay $1 billion in cash to buy Teak Midstream L.L.C., a privately owned Dallas company that operates a pipeline and natural-gas processing business in the prolific Eagle Ford Shale in South Texas.

Atlas, whose chairman is Edward E. Cohen, is acquiring two cryogenic processing plants, including one scheduled to go into service next year, that purify natural gas and separate valuable liquid components like propane and ethane at subzero temperatures.

The purchase also includes 265 miles of high-pressure pipelines and 275 miles of low-pressure lines that gather gas from individual wells. Most of the earnings come from fixed fees, which are shielded from commodity price fluctuations.

"We have been looking at the Eagle Ford shale for a number of years and are fortunate to have found what we believe is the ideal entry point," Eugene Dubay, the partnership's chief executive, said in a statement. "Teak's assets are the highest quality and best positioned for growth with minimal capital requirements."

While drilling in gas-rich areas like Pennsylvania's Marcellus Shale formation has slowed in the last 18 months because of low prices, developers have shifted their investments to areas like the Eagle Ford, which produce large amounts of oil that fetch premium prices.

This month, Penn Virginia Corp., a Radnor oil and gas producer, announced that it was spending $401 million to expand its acreage in the Eagle Ford.

Atlas will pay for the Teak acquisition with a $400 million issue of preferred convertible shares as well as bank financing from Citigroup and Wells Fargo.

Ledgewood Law, a Philadelphia firm, and Jones Day of Houston acted as legal advisers on the transaction.

Atlas said it expected to expand its Eagle Ford position after 2014.