It’s incredible the strides a company can make in a few years’ time. Take Eagle Rock Energy Partners LP, for example. In 2010, the company was experiencing significant financial challenges with its outstanding credit facility making up for more than half of its enterprise value. Today, its outstanding credit facility accounts for just 25%, and Eagle Rock’s enterprise value jumped from $1.2 billion in March 2010 to $2.1 billion in March 2012. In June, Eagle Rock took the No. 2 spot on the Houston Chronicle’s 100 list of top public companies. Looking forward, the company is focused on its presence in some of the country’s most prolific oil- and gas-producing basins.

Eagle Rock went public as a midstream master limited partnership (MLP) in October 2006. In the Texas Panhandle, where Eagle Rock is considered one of the larger midstream providers, the company owns nearly 3,963 miles of pipeline and seven processing plants. In East Texas and its other midstream operating areas, it has 1,620 miles of pipeline and 10 processing plants. The two primary foundations that Eagle Rock considers to be meaningful drivers of its growth are the Granite Wash and the Austin Chalk plays.

The Granite Wash has been a primary driver of midstream growth and is where Eagle Rock has undertaken most of its expansions. As it continues expanding its footprint, the driving force behind the company’s growth is Eagle Rock’s chief executive, Joseph A. Mills.

Mills has been working in the energy business for about 30 years. He started out with Sonat Exploration Co., where he spent 18 years rising through the ranks until Sonat merged with El Paso Energy Corp. in 1999. At that time, Mills became a senior officer within El Paso’s exploration and production company.

After leaving El Paso in 2003, Mills joined a private minerals company, Black Stone Minerals, before founding Montierra Minerals and Production LP in 2006 with funding from Natural Gas Partners. He sold Montierra’s minerals business to Eagle Rock in 2007 and became Eagle Rock’s chairman and chief executive the same year.

Mills holds a business degree from the University of Texas and an MBA from University of Houston.

MIDSTREAM What initially drew you to begin working in the energy industry?

MILLS It was my father. He was a very successful geologist, and he started in the hard rock business, but he moved into the oil business back in the 1970s during the oil crisis. I followed in his footsteps. I didn’t go into the geological side; I went into the business side. I’m a product of the 1970s: growing up in Houston, and then watching the oil business, and I was always attracted to it. I love what I do. I’m fascinated by our business. In fact, I spend a lot of time trying to convince younger people to come into our business. I think this is a great business. Energy is a big part of our national safety and a big driver in our economy.

MIDSTREAM In recent years, Eagle Rock held a lot of debt. Today, its outstanding credit facility accounts for just a quarter of your enterprise value. How was this accomplished?

MILLS Through a lot of hard work, and I want to give all of the credit to the Eagle Rock staff. When the company went public, it had a lot of debt. When I joined the company, we recognized early on that we needed to shore up our balance sheet. Going back to 2007, we embarked on a pretty aggressive acquisition campaign and funded it substantially using our equity. We got in trouble with our balance sheet with one acquisition. In late 2008, right before the financial crash, we bought a midstream company called Millennium Midstream Partners LP for $213 million. Unfortunately, we financed it primarily using proceeds from our revolver, but our intentions at the time were to go out and issue equity and high-yield debt to finance that acquisition, which is consistent with how we’ve grown historically. If you go back over time, we have typically financed our growth with 50% debt and 50% equity, which is very consistent with the MLP model.

MIDSTREAM What happened this time?

MILLS Unfortunately for us, the timing couldn’t have been worse as the capital markets seized up. We all lived through it; they were pretty scary times. The truth is, the company was strong, and we felt like we could weather our way through it. Unfortunately, when oil prices and natural gas liquids (NGL) prices crashed in early 2009, it just put a lot of pressure on our income statement and balance sheet. Ultimately, it led to one of the most painful decisions we have ever had to make at Eagle Rock and that was cutting our distribution. We were not alone, a few companies had already cut their distributions to protect their balance sheet, and so we found ourselves in the same situation. That’s what led to the recapitalization transactions. In late 2009, early 2010, we knew we needed to shore up our balance sheet and get back to growing the company. We accomplished this by orchestrating a series of transactions that led to the sale of our minerals business and executing a rights offering, which allowed us to pay down a lot of debt, which really strengthened our balance sheet.

MIDSTREAM Is it fair to say you’re now shifting from saving to expanding?

MILLS On the heels of closing the mineral sale in summer 2010, we meaningfully improved our balance sheet and started to expand. Since that time, we’ve announced several major initiatives—major expansions that have all significantly benefited the company and our growth. Shortly after selling our minerals business, we announced an acquisition which was small, but it turned out to be very strategic. We bought, from CenterPoint Energy Field Services, substantially all of their gathering assets in the Texas Panhandle. It was a small deal, $27 million, but very strategic in that it really bolstered our gathering footprint in the heart of the Granite Wash play and allowed us to pursue several meaningful organic growth projects. Since that time, we have announced our new Phoenix plant, which we built and commissioned in October 2010, followed with the announcement of the construction of our Woodall Plant in 2011. We then followed that with the announcement of our Wheeler plant, which will be commissioned in mid 2013. Since the recapitalization in 2010, we will have added 200 million cubic feet (MMcf) per day of processing capacity in the Granite Wash play. There’s an example of how we’ve expanded not only through acquisitions but also organically.

MIDSTREAM In 2011, Eagle Rock acquired Crow Creek Energy in Tulsa, Okla. for $563 million. How significant was this purchase?

MILLS That was really significant. Prior to that time, roughly 70% of our business had been midstream, and 30% was upstream. The Crow Creek acquisition signaled our intention that we very much want to grow both of our businesses. The Crow Creek acquisition, which we financed with 60% equity, really helped strengthen our balance sheet, gave us a new focus area and an entry into several new plays. Did it add assets to our midstream business? No, other than it gave us a new focus area, so we are looking for opportunities to expand our midstream focus in and around the Crow Creek assets. A lot of people have asked me if this signaled that we are not going to focus on the midstream business. The answer to that is absolutely not. We are very focused on growing our midstream business, as was evidenced by all the organic growth projects in the Granite Wash play. We are very focused on growing both of our businesses. We like them both. They are very complementary to each other.

MIDSTREAM Some producers say the Granite Wash is the most economical play now under way. What makes it such an economical play?

MILLS It’s a fantastic play. We provide reliable midstream services to third-party oil and gas producers, our customers. What’s really changed the Granite Wash for everybody is the use of technology. The same things that have made the shale plays accessible—for example, horizontal drilling and frac technology—have really opened up this play. This play is very unique for a couple of reasons. One, it’s not a single reservoir, there are stacked pay zones of the Granite Wash and the producers are just now starting to drill horizontally in each of these various zones. Each zone can, by itself, be very prolific. In addition, other stacked pays in this area are extremely prolific, like the Tonkawa, Hogshooter, Cleveland and Cottage Grove formations. Another factor is the NGLs and the prices received for these NGLs, which significantly helps the oil and gas producers’ netback prices received, even in this low gas-price environment. NGL prices tend to track crude prices. Since crude prices have held up a lot better than gas prices, those NGLs are very valuable. For the producers, these wells generate a very high rate of return on their invested capital. It’s a very economical play for the producers, and the NGLs are really what are driving the economics behind it.

MIDSTREAM What would you consider to be the main challenges with operating in the Granite Wash play?

MILLS Until recently, for the producers, it had been access to rigs and frac crews. We’ve seen that improve lately. I think right now one of the biggest challenges is take-away capacity. While we gather and process, the biggest challenge is getting the liquids out. The growth has been so exponential that the ability to get the liquids out is very challenging. There are not enough pipelines in the area. We clearly are looking to help solve that problem in the near term by looking at loading the condensate product using railcars, but that is an interim solution to a longerterm solution, which means more pipelines. Granted, there is help coming. Oneok has done a lot of expansions and Enterprise announced its Texas Express project, but it won’t come online until 2013. That’s going to help a lot, but I would describe the take-away capacity as one of the main challenges facing the Granite Wash.

MIDSTREAM In general, what would you consider the major challenges affecting the U.S. energy industry?

MILLS The regulatory environment is a major challenge facing the industry, whether it’s the U.S. Environmental Protection Agency, getting right-of-way permits or air permits from state agencies. Air permits, in particular, are a major challenge. In every area we operate—Texas, Louisiana, Alabama or Oklahoma—we’re seeing increased regulatory oversight. That’s not a bad thing, but it certainly makes it more expensive to operate, and the lead times are much longer now.

MIDSTREAM And a second challenge?

MILLS I think finding good, qualified employees is another challenge. It’s kind of sad: In many areas of the country, there is high unemployment, but in our business, we can’t hire good people fast enough. I think the people aspect will remain one of the biggest challenges facing the industry going forward. We don’t have enough young people graduating in the technical sciences, whether it’s geology or petroleum engineering, to satisfy the long-term needs of our industry. The other problem we have is an aging workforce in the energy space. Energy has always been a great place to work back in ‘50s, ‘60s, ‘70s and even the early ‘80s. We had a lot of people coming into the industry. Ever since the mid ‘80s when we had the oil crisis and tremendous volatility around oil prices, and now gas prices, it’s been a bust-andboom cycle in the past 30 years. We now are facing a large, aging workforce, and attrition will be one of our biggest issues in the next 10 years.

MIDSTREAM What are your plans for next year?

MILLS We plan to continue to grow both of our businesses. The truth is, we think in the next two to four years, our goal will be to meaningfully increase the scale and size of Eagle Rock’s operations. We’ll do that organically by building more infrastructure, and we’ll also do it through acquisitions. We are an acquisitive company, no different from our competitors. We are aggressive. We are looking for high quality acquisitions to grow our midstream footprint, as well as our upstream footprint.

MIDSTREAM It sounds like acquisitions are a big part of your growth strategy.

MILLS If you look at our track record of how we’ve grown our company, it has absolutely been through the acquisition arena. Only in the past two years have we started to grow organically, either by building infrastructure or new plants. I like to build infrastructure, but the challenge is that it takes time. Acquisitions can be done pretty fast. A big part of our growth strategy will be through acquisitions as we gobble up players smaller or equal to us in size.