A $7.7 billion deal to buy Atlas Energy LP (NYSE: ATLS) positions Targa Resources Corp. (NYSE: TRGP) and Targa Resources Partners LP (NYSE: NGLS) to be a midstream powerhouse in the Permian Basin.

Atlas said Oct. 13 it will sell its Atlas Pipeline Partners LP (NYSE: APL) as well. The remainder of the company’s E&P holdings will be spun off before they are acquired by TRGP.

Atlas is the only MLP with general partner interests in E&P and midstream.

The E&P assets include seven rigs in Marble Falls, the Mississippi Lime, Eagle Ford and Utica shales. Production is about 282 million cubic feet equivalent per day. They will also be acquired by Targa.

Atlas, of Pittsburgh, made about $2 billion in acquisitions the past two years and offers positions in the top basins by oil production, including the Permian Basin and Bakken Shale, Mississippi Lime and Eagle Ford Shale.

Targa, based in Houston, said the deal combines the companies’ strong Permian positions to create a premier franchise. In the basin, its combined processing capacity will be 1,439 million cubic feet per day (MMcf/d).

Following the transaction, Targa’s combined pro forma market cap will be $17 billion and the company’s pro forma enterprise value $23 billion.

Combined positions across the Permian will create one of the most active producing basins in North America with a combined 1,439 MMcf/d of processing capacity and 10,250 miles of pipelines. Atlas owns 3,600 miles of pipeline in the basin and Targa 6,650 miles.

Atlas’ West Texas system sits in the core of the Midland Basin between Targa’s existing San Angelo Operating Unit (SAOU) and Sand Hills systems. More than 75% of the rigs currently running in the Midland Basin are in counties served by the systems.

Pro forma, NGLS will be the second largest Permian processor with 1.4 billion cubic feet per day (Bcf/d) in gross processing capacity.

"This transaction with Targa is enormously beneficial for all of the Atlas companies and our stakeholders." said Edward E. Cohen, CEO of Atlas Energy. "It should be noted that the value ATLS shareholders will receive for the sale of the company without its upstream assets is equivalent to the most recent trading price of ATLS units inclusive of the valuable non-midstream assets of the company."

Financial Terms

Atlas Energy will be acquired for stock and cash following the spinoff of holdings not associated with midstream assets. APL unitholders will receive .5846 NGLS units and $1.26 per APL common units, a 15% premium.

Non-midstream assets will be bought by TRGP for $1.869 billion. Following the estimated close of the transaction in the first quarter of 2015, NGLS expects 11-13% distribution growth. Targa Resources has arranged committed financing of $1.1 billion to replace its existing revolving credit facility and to fund the cash components of the transaction.

Through the deal, Targa adds the Woodford/SCOOP, Mississippi Lime and Eagle Ford plays and additional Permian assets to the partnership's existing Permian, Bakken, Barnett and Louisiana Gulf Coast operations.

Growth outlook should be strong with capex of $1.2 billion for 2014 and more than $1.2 billion in 2015. Growing NGL production from gathering and processing business supports Targa's leading NGL fractionation and export position (Mont Belvieu / Galena Park / Lake Charles).