Upstream MLP Breitburn Energy Partners LP (NASDAQ: BBEP) announced July 24 that it intends to purchase QR Energy LP (NYSE: QRE) in a unit-for-unit exchange worth up to $3 billion.

The unit portion of the deal is worth $1.6 billion. Breitburn’s deal also takes over QR’s existing net debt and outstanding Class C convertible preferred units. Combined, the transaction’s value is $3 billion, BBEP said.

A merger would make Breitburn the largest oil-weighted upstream oil and gas MLP with a combined enterprise value of about $7.8 billion. Breitburn’s daily production would increase to about 57,300 barrels of oil per day (boe/d), 67% of which is liquids, based on second quarter results. Adding QRE increases annual production to 2.1 MMboe from 2014 guidance of 1.4 MMboe.

Overall, the deal is a positive for the upstream MLP sector, said Ethan Bellamy, senior analyst for Baird Energy.

Bellamy added that the “merger likely kick starts valuations in other upstream MLPs” including peers EV Energy Partners LP (NASDAQ: EVEP), Eagle Rock Energy Partners LP (NASDAQ: EROC) and Memorial Production Partners LP (NASDAQ: MEMP). “Other higher yielding small cap MLPs may see a boost.”

QRE enhances Breitburn’s ability to generate greater cash flow and creates significant incremental near-term and long-term value for unitholders.

The merger agreement gives holders of QR Energy’s common and Class B units about 72 million Breitburn common units, or 0.9856 of a BBEP unit for each unit of QRE held. QR Energy unitholders would receive $22.48 per unit, based on Breitburn’s closing price of $22.81 on July 23—a 19% premium to QRE’s closing price of $18.87 on July 23.

At closing, Breitburn will ask its board to increase distributions to $2.08 per unit on an annualized basis from $2.01, or 3.48%.

Breitburn had targeted $600 million in acquisitions for 2014. It is unclear if the company will pursue any other deals this year.

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.

Halbert S. Washburn, Breitburn’s CEO, said QR Energy is a company with enviable MLP-friendly assets and engineering-focused operating strategy that is strikingly similar to its 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,” Washburn said. “The combination offers immediate G&A savings and significant accretion for all unitholders.”

The merger would also give Breitburn enhanced scale, diversification, and intellectual capital to better position Breitburn to efficiently use its capital to create long-term value for unitholders, Bellamy said.

However, any immediate bump in distributions to Breitburn unitholders is likely to be modest, Bellamy said. Long term, the deal is positive.

“We see opportunities for a high-graded capital budget, potential G&A savings, enhanced liquidity and other synergies as potential positives,” he said. “Short term, BBEP may come under pressure in [July 24’s] trading session on the new equity supply that will come to market as well as equity financing considerations.”

Alan L. Smith, QR Energy’s CEO, said he considers Breitburn an ideal merger partner. The combination creates an “unrivaled operator of mature assets with exposure to nearly every conventional basin in the United States,” he said.

“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,” Smith said. “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.”

The transaction is subject to the approval of QR Energy unitholders, regulatory approvals and closing conditions.

Latham & Watkins LLP advised Breitburn on the transaction. The transaction is expected to close in late 2014 or early 2015.