10-K

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

þ	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the fiscal year ended December 31, 2006
OR
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from          to

Commission file number: 0001-338613

REGENCY ENERGY PARTNERS LP

(Exact name of registrant as specified in its charter)

Delaware (State or other jurisdiction of incorporation or organization)	16-1731691 (I.R.S. Employer Identification No.)
1700 Pacific Avenue, Suite 2900 Dallas, Texas	75201 (Zip Code)
(Address of principal executive offices)

(214) 750-1771

(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report):

[None]

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class	Name of Each Exchange on Which Registered
Common Units of Limited Partner Interests	The Nasdaq Stock Market LLC

Securities registered pursuant to Section 12(g) of the Act:

None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes o     No þ

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.  Yes o     No þ

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes þ     No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  þ

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

Large accelerated filer  o      Accelerated filer  o      Non-accelerated filer  þ

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes o     No þ

As of June 30, 2006, the aggregate market value of the registrant’s common stock held by non-affiliates of the registrant was $397,341,000 based on the closing sale price as reported on the National Association of Securities Dealers Automated Quotation System National Market System.

Indicate the number of outstanding units of each of the registrant’s classes of units, as of the latest practicable date.

Class	Outstanding at March 22, 2007
Common Units	27,844,291
Subordinated Units	19,103,896

DOCUMENTS INCORPORATED BY REFERENCE

None.

REGENCY ENERGY PARTNERS LP
ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2006

TABLE OF CONTENTS

			Page
Part I
		Introductory Statement		3
		Cautionary Statement about Forward-Looking Statements		3
	Item 1	Business		4
	Item 1A	Risk Factors		25
	Item 1B	Unresolved Staff Comments		40
	Item 2	Properties		40
	Item 3	Legal Proceedings		40
	Item 4	Submission of Matters to a Vote of Security Holders		40
Part II
	Item 5	Market for the Registrant’s Common Equity, Related Unitholders Matters and Issuer Purchases of Equity Securities		41
	Item 6	Selected Financial Data		44
	Item 7	Management’s Discussion and Analysis of Financial Conditions and Results of Operations		48
	Item 7A	Quantitative and Qualitative Disclosure about Market Risk		69
	Item 8	Financial Statements and Supplementary Data		71
	Item 9	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		71
	Item 9A	Controls and Procedures		71
	Item 9B	Other Information		72
Part III
	Item 10	Directors, Executive Officers and Corporate Governance		72
	Item 11	Executive Compensation		79
	Item 12	Security Ownership of Certain Beneficial Owners and Management and Related Unitholder Matters		92
	Item 13	Certain Relationships and Related Transactions, and Director Independence		94
	Item 14	Principal Accounting Fees and Services		96
Part IV
	Item 15	Exhibits and Financial Statement Schedules		97
Indenture
Computation or Ratio of Earnings to Fixed Charges
Code of Business Conduct
List of Subsidiaries
Consent of Deloitte & Touche LLP
Certifications Pursuant to Rule 13a-14(a)
Certifications Pursuant to Rule 13a-14(a)
Certifications Pursuant to Section 1350
Certifications Pursuant to Section 1350
Balance Sheet of Regency GP LP

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Introductory Statement

References in this report to “Regency Energy Partners,” “we,” “our,” “us” and similar terms, when used in an historical context, refer to Regency Energy Partners LP, or the Partnership, and to Regency Gas Services LLC, all the outstanding member interests of which were contributed to the Partnership on February 3, 2006, and its subsidiaries. When used in the present tense or prospectively, these terms refer to the Partnership and its subsidiaries. References to “our general partner” or the “General Partner” refer to Regency GP LP, the general partner of the Partnership. References to the “Managing GP” refer to Regency GP LLC, the general partner of the General Partner, which effectively manages the business and affairs of the Partnership. References to “HM Capital” refer to HM Capital Partners LLC. References to “HM Capital Investors” refer to Regency Acquisition LP, HMTF Regency L.P., HM Capital and funds managed by HM Capital, including the Hicks, Muse, Tate & Furst Equity Fund V, L.P., and certain co-investors, including some of the directors and officers of the Managing GP. Regency Acquisition LP is wholly owned by HMTF Regency L.P., which, in turn, is wholly owned by HM Capital, funds managed by HM Capital and certain co-investors.

Cautionary Statement about Forward-Looking Statements

Certain matters discussed in this report include “forward-looking” statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements are identified as any statement that does not relate strictly to historical or current facts. Statements using words such as “anticipate,” “believe,” “intend,” “project,” “plan,” “expect,” “continue,” “estimate,” “goal,” “forecast,” “may” or similar expressions help identify forward-looking statements. Although we believe our forward-looking statements are based on reasonable assumptions and current expectations and projections about future events, we can not give assurances that such expectations will prove to be correct. Forward-looking statements are subject to a variety of risks, uncertainties and assumptions including without limitation the following:

•  changes in laws and regulations impacting the midstream sector of the natural gas industry;

•  the level of creditworthiness of our counterparties;

•  our ability to access the debt and equity markets;

•  our use of derivative financial instruments to hedge commodity and interest rate risks;

•  the amount of collateral required to be posted from time to time in our transactions;

•  changes in commodity prices, interest rates, demand for our services;

•  weather and other natural phenomena;

•  industry changes including the impact of consolidations and changes in competition;

•  our ability to obtain required approvals for construction or modernization of our facilities and the timing of production from such facilities; and

•  the effect of accounting pronouncements issued periodically by accounting standard setting boards.

If one or more of these risks or uncertainties materialize, or if underlying assumptions prove incorrect, our actual results may differ materially from those anticipated, estimated, projected or expected.

Other factors that could cause our actual results to differ from our projected results are discussed in Item 1A of this annual report.

Each forward-looking statement speaks only as of the date of the particular statement and we undertake no obligation to update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.

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PART I

Item 1.   Business

OVERVIEW

We are a growth-oriented publicly-traded Delaware limited partnership engaged in the gathering, processing, marketing and transportation of natural gas. We provide these services through systems located in north Louisiana, Texas and the mid-continent region of the United States, which includes Kansas, Oklahoma, Colorado and the Texas Panhandle. We were formed in April 2005 by HM Capital to capitalize on opportunities in the midstream sector of the natural gas industry.

We divide our operations into two business segments:

•  Gathering and Processing:  in which we provide “wellhead-to-market” services to producers of natural gas, which include transporting raw natural gas from the wellhead through gathering systems, processing raw natural gas to separate natural gas liquids, or NGLs, from the raw natural gas and selling or delivering the pipeline-quality natural gas and NGLs to various markets and pipeline systems; and

•  Transportation:  in which we deliver natural gas from northwest Louisiana to more favorable markets in northeast Louisiana through our 320-mile Regency Intrastate Pipeline system, which has been significantly expanded and extended over the last 18 months.

All of our assets are located in well-established areas of natural gas production that are characterized by long-lived, predictable reserves. These areas are generally experiencing increased levels of natural gas exploration, development and production activities as a result of strong demand for natural gas, attractive recent discoveries, infill drilling opportunities and the implementation of new exploration and production techniques.

BUSINESS STRATEGIES

Our management team is dedicated to increasing the amount of cash available for distribution to each outstanding unit while maintaining financial flexibility. We intend to achieve this by executing the following strategies:

•  Maximizing the profitability of our existing assets.  We intend to increase the profitability of our existing asset base by actively controlling and reducing operating costs, identifying new business opportunities, scaling our operations by adding new volumes of natural gas supplies and undertaking additional initiatives to enhance efficiency.

•  Implementing cost-effective organic growth opportunities.  We intend to build natural gas gathering assets, processing facilities and transportation lines that will enhance our existing systems, further our ability to aggregate supply, and enable us to access premium markets for that supply. Where applicable, we will seek to coordinate each expansion with the needs of significant producers in the area to mitigate speculative risk associated with securing through-put volumes.

•  Pursuing accretive acquisitions of complementary assets.  We intend to pursue strategic acquisitions of midstream assets in or near our current areas of operation that offer the opportunity for operational efficiencies and the potential for increased utilization and expansion of those assets. As in the case of our acquisition of TexStar (see “— Recent Developments-TexStar Acquisition” below), we also intend to pursue opportunities in new regions with significant natural gas reserves and high levels of drilling activity. We believe that there will be additional acquisition opportunities as a result of the ongoing divestiture of midstream assets by large industry participants.

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•  Continuing to reduce our exposure to commodity price risk.  We operate our business in a manner that allows us to generate stable cash flows, while mitigating the impact of fluctuations in commodity prices. We manage our commodity price exposure through an integrated strategy that includes:

•  actively managing our contract portfolio;

•  pursuing new fee-based business opportunities;

•  matching the indices used for purchases and sales of commodities;

•  optimizing our portfolio by monitoring basis and other price differentials in our areas of operations; and

•  executing a comprehensive hedging strategy using swap contracts settled against natural gas, crude oil, ethane, propane, butane and natural gasoline to mitigate expose to commodity prices.

•  Improving our credit ratings and maintaining a flexible capital structure.  We are committed to improving our credit ratings. We intend to finance our growth projects through a combination of funds available under our credit facility, commercial bank borrowings and the issuance of debt and equity securities.

COMPETITIVE STRENGTHS

We believe that we are well positioned to execute our business strategies and to compete in the natural gas gathering, processing, marketing and transportation businesses based on the following competitive strengths:

•  We have a significant market presence in major natural gas supply areas.  We have a significant market presence in each of our operating areas, which are located in some of the largest and most prolific gas-producing regions of the United States: the Louisiana-Mississippi-Alabama Salt basin in north Louisiana, the Permian basin of west Texas, the Hugoton and Anadarko basins in the mid-continent area, the East Texas basin and Edwards, Olmos and Wilcox trends in south Texas. Our geographical diversity reduces our reliance on any particular region, basin or gathering system. Each of these producing regions is well-established with generally long-lived, predictable reserves, and our assets are strategically located in each of the regions. These areas are generally experiencing increased levels of natural gas exploration, development and production activities as a result of strong demand for natural gas, attractive recent discoveries, infill drilling opportunities and the implementation of new exploration and production techniques.

•  Our Regency Intrastate Gas System provides us with significant fee-based transportation through-put volumes and cash flow.  The Regency Intrastate Gas System allows us to capitalize on the flow of natural gas from producing fields in north Louisiana to intrastate and interstate markets in northeast Louisiana. These transportation through-put volumes have limited commodity price exposure and provide us with a stable, fee-based cash flow.

•  We have the financial flexibility to pursue growth opportunities.  We remain committed to maintaining a capital structure that will afford us the financial flexibility to fund expansion projects and other attractive investment opportunities. We believe our ability to access capital and our credit facility provide us with the liquidity and financial flexibility we will need to execute our business strategy.

•  We have an experienced, knowledgeable management team with a proven track record.  Our senior management has an average of over 20 years of industry related experience. Our team’s extensive experience and contacts within the midstream industry provide a strong foundation and focus for managing and enhancing our operations, for accessing strategic acquisition opportunities and for constructing new assets. Additionally, members of our senior management team have a substantial economic interest in us.

•  We are affiliated with HM Capital, a leading private equity investment firm.  Our affiliation with HM Capital has provided us and we expect will continue to provide us with several significant benefits,

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including access to a significant pool of operational, transactional and financial professionals, multiple sources of capital and increased exposure to acquisition opportunities. HM Capital is a leading sector focused private equity firm headquartered in Dallas, Texas and is currently managing and investing a $1.6 billion fund. Since the firm’s founding in 1989, HM Capital has completed more than 150 transactions in its core sectors for a total transaction value in excess of $26 billion.

RECENT DEVELOPMENTS

TexStar Acquisition

On August 15, 2006, we completed the acquisition of all the outstanding equity of TexStar Field Services, L.P. and its general partner, TexStar GP, LLC (together “TexStar”), from an affiliate of HM Capital. The total purchase price for TexStar was $348,909,000, which consisted of $62,074,000 in cash, the issuance of 5,173,189 Class B common units valued at $119,183,000 to an affiliate of HM Capital, and the assumption of $167,652,000 of TexStar’s outstanding bank debt. We financed the cash portion of the purchase price and repaid TexStar’s assumed bank debt through borrowings under our amended and restated credit facility discussed below. TexStar was a midstream natural gas company that provided gathering, compression, treating and processing services to gas producers in south and east Texas.

We believe that the TexStar assets give us attractive competitive positions in east Texas and south Texas. The east Texas assets are strategically located in an area that has experienced a recent increase in development activity. Furthermore, the combined assets provide us with significant geographical diversity, increasing the key regions in which we operate from three to five.

Amended and Restated Credit Facility

In connection with the acquisition of TexStar, we amended and restated our $470,000,000 credit agreement in order to increase the credit facility to $850,000,000, consisting of $600,000,000 in term loans and $250,000,000 in a revolving credit facility, and to increase the availability for letters of credit to $100,000,000. In addition, we have the option to increase the commitments under the revolving credit facility or the term loan facility, or both, by an amount up to $200,000,000 in the aggregate, subject to obtaining commitments therefore. Subsequent to the issuance of senior notes, we reduced the amounts outstanding under the term facility to $50,000,000 and decreased the capacity of our credit facility to $300,000,000. For additional information regarding our credit facility, please read “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Capital Requirements — Fourth Amended and Restated Credit Facility.”

Debt Private Placement

In December 2006, the Partnership and Regency Energy Finance Corp., a wholly-owned subsidiary of Regency Gas Services LP, issued $550,000,000 of senior notes (“senior notes”) that mature on December 15, 2013 in a private placement to qualified institutional buyers. The senior notes bear interest at 8.375 percent and interest is payable semi-annually in arrears on each June 15 and December 15, commencing on June 15, 2007. We used the proceeds from the private placement to repay $550,000,000 in term loans outstanding under our credit facility.

Equity Private Placement

In September 2006, we sold 2,857,143 Class C common units directly to certain purchasers in a private placement for $59,942,000, including transaction costs. We used the proceeds from the private offering to repay borrowings under our credit facility that were incurred to fund the TexStar acquisition.

The Class B and C common units converted into common units on February 8, 2007 and February 15, 2007, respectively. Promptly after the filing of this Annual Report with the Securities and Exchange Commission, we intend to file a registration statement with the SEC in order to register the offering and sale

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of certain of the common units into which the Class B and Class C common units were converted in accordance with applicable registration rights agreements.

INDUSTRY OVERVIEW

General.  Raw natural gas produced from the wellhead is gathered and delivered to a processing plant located near the production, where it is treated, dehydrated, and/or processed. Natural gas processing involves the separation of raw natural gas into pipeline quality natural gas, principally methane, and mixed NGLs. Natural gas treating entails the removal of impurities, such as water, sulfur compounds, carbon dioxide and nitrogen. Pipeline-quality natural gas is delivered by interstate and intrastate pipelines to markets. Mixed NGLs are typically transported via NGL pipelines or by truck to a fractionator, which separates the NGLs into its components, such as ethane, propane, butane, isobutane and natural gasoline. The component NGLs are then sold to end users.

The following diagram depicts our role in the process of gathering, processing, marketing and transporting natural gas.

Overview of U.S. market.  The midstream natural gas industry is the link between exploration and production of raw natural gas and the delivery of its components to end-use markets. According to the Energy Information Administration, or EIA, the midstream natural gas industry in the United States includes approximately 530 processing plants that process approximately 42 Bcf of natural gas per day and produce approximately 76 million gallons per day of NGLs. The midstream industry is generally characterized by regional competition based on the proximity of gathering systems and processing plants to natural gas wells. Natural gas remains a critical component of energy consumption in the United States. According to the EIA, total annual domestic consumption of natural gas is expected to increase from 21.98 trillion cubic feet, or Tcf, in 2005 to 26.26 Tcf in 2020, representing an average annual growth rate of 1.3 percent. During the five years ended December 31, 2005, the United States has on average consumed approximately 22.4 Tcf per year, while total marketed domestic production averaged approximately 19.8 Tcf per year during the same period. The industrial and electricity generation sectors currently account for the largest usage of natural gas in the United States.

Gathering.  A gathering system typically consists of a network of small diameter pipelines and, if necessary, a compression system which together collect natural gas from points near producing wells and transport it to larger pipelines for further transportation. We own and operate large gathering systems in five geographic regions of the United States.

Compression.  Gathering systems are operated at design pressures that seek to maximize the total through-put volumes from all connected wells. Since wells produce at progressively lower field pressures as they age, the raw natural gas must be compressed to deliver the remaining production against a higher pressure that exists in the connected gathering system. Natural gas compression is a mechanical process in which a

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volume of gas at a lower pressure is boosted, or compressed, to a desired higher pressure, allowing gas that no longer naturally flows into a higher pressure downstream pipeline to be brought to market. Field compression is typically used to lower the entry pressure, while maintaining or increasing the exit pressure of a gathering system to allow it to operate at a lower receipt pressure and provide sufficient pressure to deliver gas into a higher pressure downstream pipeline.

Processing and treating.  Raw natural gas produced at the wellhead is often unsuitable for long-haul pipeline transportation or commercial use and must be processed and/or treated to remove the heavier hydrocarbon components and/or contaminants. The principal components of pipeline-quality natural gas are methane and ethane, but most raw natural gas also contains varying amounts of NGLs (such as ethane, propane, normal butane, isobutane, and natural gasoline) and impurities, such as water, sulfur compounds, carbon dioxide, or nitrogen. We own and operate natural gas processing and/or treating plants in five geographic regions.

Fractionation.  NGL fractionation facilities separate mixed NGL streams into discrete NGL products: ethane, propane, butane, isobutane and natural gasoline. Ethane is primarily used in the petrochemical industry as feedstock for ethylene, one of the basic building blocks for a wide range of plastics and other chemical products. Propane is used both as a petrochemical feedstock in the production of propylene and as a heating fuel, an engine fuel and an industrial fuel. Normal butane is used as a petrochemical feedstock in the production of butadiene (a key ingredient in synthetic rubber), and as a blend stock for motor gasoline. Isobutane is typically fractionated from mixed butane (a stream of normal butane and isobutane in solution), principally for use in enhancing the octane content of motor gasoline. Natural gasoline, a mixture of pentanes and heavier hydrocarbons, is used primarily as motor gasoline blend stock or petrochemical feedstock. We do not own or operate any NGL fractionation facilities.

Marketing.  Natural gas marketing involves the sale of the pipeline-quality gas either produced by processing plants or purchased from gathering systems or other pipelines. We perform a limited natural gas marketing function for our account and for the accounts of our customers based upon the location of our assets.

Transportation.  Natural gas transportation consists of moving pipeline-quality natural gas from gathering systems, processing plants and other pipelines and delivering it to wholesalers, utilities and other pipelines. We own and operate the Regency Intrastate Pipeline system, an intrastate natural gas pipeline system located in north Louisiana. We also own a 10-mile pipeline that extends from Harrison County, Texas to Caddo Parish, Louisiana.

GATHERING AND PROCESSING OPERATIONS

General

We operate significant gathering and processing assets in five geographic regions of the United States: north Louisiana, the mid-continent, and east, south, and west Texas. We contract with producers to gather raw natural gas from individual wells or central delivery points, which may have multiple wells behind them, located near our processing plants or gathering systems. Following the execution of a contract, we connect wells and central delivery points to our gathering lines through which the raw natural gas flows to a processing plant, treating facility or directly to interstate or intrastate gas transportation pipelines. At our processing plants, we remove any impurities in the raw natural gas stream, and extract the NGLs. Our gathering and processing operations are located in areas that have experienced significant levels of drilling activity, providing us with opportunities to access newly developed natural gas supplies. One of our customers represented 17 percent of the natural gas supply in our gathering and processing segment for the year ended December 31, 2006.

All raw natural gas flowing through our gathering and processing facilities is supplied under gathering and processing contracts having fixed terms ranging from month-to-month to the life of the oil and gas lease. For a description of our contracts, please read “— Our Contracts” and “Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations — Our Operations.”

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The pipeline-quality natural gas remaining after separation of NGLs through processing is either returned to the producer or sold, for our own account or for the account of the producer, at the tailgates of our processing plants for delivery through interstate or intrastate gas transportation pipelines.

The following table sets forth information regarding our gathering systems and processing plants as of December 31, 2006.

					Through-Put
	Length		Compression		Volume Capacity
Asset	(Miles)		(Horsepower)		(MMcf/d)
North Louisiana
Dubach/Calhoun/Lisbon Gathering System		600		24,255		300
Dubach Processing Plant		—		9,554		50
Lisbon Processing Plant		—		4,863		40
Elm Grove Refrigeration Plant		—		—		200
Dubberly Refrigeration Plant		—		—		200
Haughton Refrigeration Plant(1)		—		—		35
East Texas
Eustace Gathering System		314		8,784		100
Eustace Processing Plant		—		8,620		65
Como Gathering System		57		280		50
Como Processing Plant(2)		—		5,911		35
South Texas
Tilden Gathering System		146		—		400
Tilden Processing Plant		—		2,400		115
Mainline Gathering System		305		2,573		75
Various Other Gathering Systems		562		2,487		295
Palafox Gathering System		34		9,592		30
Eagle Pass Processing Plant		—		—		10
West Texas
Waha Gathering System		750		32,296		200
Waha Processing Plant		—		8,536		125
Mid-Continent(3)
Hugoton Gathering System		850		27,502		120
Mocane-Laverne Gathering System		500		3,025		100
Greenwood Gathering System		250		9,350		40
Mocane Processing Plant		—		—		50
Wheeler County Processing Plant		—		—		5

(1)	The 35 MMcf/d Haughton refrigeration plant is accounted for in our Transportation segment.
(2)	The Como processing plant was taken out of service in March 2007 and the Como Gathering System volumes were routed to our Eustace Processing Plant.
(3)	Excludes 80 MMcf/d of through-put capacity available at our inactive Lakin processing facility.

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North Louisiana Region

Our north Louisiana region includes the Dubach and Lisbon processing plants and the Dubach/ Calhoun/ Lisbon gathering system, which is a large integrated natural gas gathering and processing system located primarily in four parishes of north Louisiana and includes 600 miles of gathering pipelines.

The following is a map of our north Louisiana gathering and processing system.

This system is located in active drilling areas in north Louisiana. Through our Dubach/Calhoun/Lisbon gathering system and its interconnections with our Regency Intrastate Pipeline system in north Louisiana described in “— Transportation Operations,” we offer producers wellhead-to-market services, including natural gas gathering, compression, processing, marketing and transportation.

Natural Gas Supply.  The natural gas supply for our north Louisiana gathering systems is derived primarily from natural gas wells located in Claiborne, Union, Lincoln and Ouachita Parishes in north Louisiana. Our operating areas have experienced significant levels of drilling activity, providing us with opportunities to access newly developed natural gas supplies. Natural gas production in this area has increased as a result of the additional drilling, which includes deeper reservoirs in the Cotton Valley and Hosston trends.

Dubach/Lisbon/Calhoun Gathering System.  The Dubach/ Lisbon/ Calhoun gathering system consists of 600 miles of natural gas gathering pipelines ranging in size from two inches to 10 inches in diameter. The system gathers raw natural gas from producers and delivers approximately 85 percent of the raw natural gas to either the Dubach or Lisbon processing plant for processing. The remainder of the raw natural gas is lean natural gas, which does not require processing and is delivered directly to interstate pipelines and our Regency Intrastate Pipeline system.

Dubach Processing Plant.  The Dubach processing plant is a cryogenic natural gas processing plant that processes raw natural gas gathered on the Dubach and Calhoun gathering systems. This plant, which was acquired by us in 2003, was originally constructed in 1980 and was subsequently reassembled in its present location in 1994.

Lisbon Processing Plant.  The Lisbon processing plant is a cryogenic natural gas processing plant that processes raw natural gas gathered on the Lisbon gathering system. This plant, which was acquired by us in 2003, was constructed in 1980 and was subsequently reassembled in its present location in 1996.

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Elm Grove and Dubberly Refrigeration Plants.  The Elm Grove and Dubberly refrigeration plants process raw natural gas located in Bossier and Webster parishes in northeastern Louisiana. Elm Grove was placed into service in May 2006 and Dubberly was placed into service in December 2006.

East Texas Region

Our east Texas region includes:

•  the Eustace Gathering System, a large integrated natural gas gathering and processing system located in Rains, Wood, Van Zandt and Henderson Counties and includes 314 miles of gathering pipelines and 8,784 horsepower of field compression and flows into the Eustace processing plant; and

•  the Como Gathering System, which is a smaller integrated natural gas gathering and processing system located in Franklin, Wood, Hopkins and Rains Counties and includes 57 miles of gathering pipelines and 280 horsepower of field compression and flows into the Como processing plant.

These east Texas gathering assets gather, compress and dehydrate natural gas. Natural gas produced in this region is high in hydrogen sulfide content. Both systems are connected to processing and treating facilities that include sulfur removal units.

The following is a map of our east Texas gathering and processing systems:

Natural Gas Supply.  The natural gas supply for our east Texas gathering systems is derived primarily from natural gas wells located in east Texas. These wells are located in a mature basin and generally have long lives and predictable gas flow rates.

Eustace Processing Plant.  The Eustace Processing Plant is a cryogenic natural gas processing plant that was constructed in its current location in 1981. It includes a 70 MMcf/d amine treating unit, a 50 MMcf/d cryogenic NGL recovery unit and an 840 ton liquid (per day) sulfur recovery unit. This plant removes hydrogen sulfide from the natural gas stream, which in this region contains a high concentration of hydrogen sulfide, recovers NGLs and condensate, delivers pipeline quality gas at the plant outlet and produces sulfur.

Como Processing Plant.  The Como Processing Plant is a cryogenic natural gas processing plant that was constructed in its current location in 1964. It includes a 35 MMcf/d amine treating unit and nitrogen recovery unit and a 200 ton (per day) liquid sulfur unit. The plant facilities were used to remove hydrogen

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sulfide from the natural gas stream, to recover NGLs and condensate, to deliver pipeline quality gas at the plant outlet and to produce sulfur. As planned in connection with the TexStar acquisition, the Como Processing Plant was removed from active service in March 2007 and all gas deliveries were routed to the Eustace Processing Plant.

South Texas Region

Our south Texas region primarily includes the following natural gas gathering systems located in various counties in south Texas.

•  the Tilden Gathering System, a large integrated natural gas gathering and processing system located in McMullen, Atascosa, Frio and LaSalle Counties in south Texas and includes 146 miles of gathering pipelines and 2,400 horsepower of field compression and flows into the Tilden Processing Plant.

•  the Palafox Gathering System includes natural gas gathering pipelines owned by the Palafox joint venture (which, until February 1, 2007, was 50 percent owned by us and operated by the other joint venture partner) and another small gathering system that we own and operate. On February 1, 2007, we purchased the 50 percent joint venture interest of the other party to the joint venture for $5,000,000 in cash. Together, the pipelines aggregate 34 miles and have a capacity through-put of 30 MMcf/d. Currently, natural gas gathered by this system is delivered to a third party for processing. The system is in proximity to our other south Texas assets and we plan to connect the system to our other assets in the near future.

The following is a map of our south Texas gathering and processing systems:

Natural Gas Supply.  The natural gas supply for our south Texas gathering systems is derived primarily from natural gas wells located in the area. These wells are located in a mature basin and generally have long lives and predictable gas flow rates.

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These south Texas gathering assets gather, compress and dehydrate natural gas. Some of the natural gas produced in this region can have significant hydrogen sulfide content. These systems are connected to processing and treating facilities that include sulfur removal units.

Tilden Processing Plant.  The Tilden Processing Plant is a natural gas treating plant that was constructed in its current location in 1981. It includes inlet compression, a 60 MMcf/d amine treating unit, a 55 MMcf/d amine treating unit and a 40 ton (per day) liquid sulfur recovery unit. In addition, it includes a second 55 MMcf/d amine treating unit and a 20 ton (per day) liquid sulfur recovery unit, both of which are currently inactive. This plant removes hydrogen sulfide from the natural gas stream, which in this region often contains a high concentration of hydrogen sulfide, recovers condensate, delivers pipeline quality gas at the plant outlet and produces sulfur.

West Texas Region

Our west Texas region includes the Waha gathering system and the Waha processing plant. The following is a map of our Waha gathering and processing system:

The system covers four Texas counties surrounding the Waha Hub, one of Texas’ major natural gas market areas. Through our Waha gathering system, we offer producers wellhead to market services. As a result of the proximity of this system to the Waha Hub, the Waha gathering system has a variety of market outlets for the natural gas that we gather and process, including several major interstate and intrastate pipelines serving California, the mid-continent region of the United States and Texas natural gas markets.

Natural Gas Supply.  The natural gas supply for the Waha gathering system is derived primarily from natural gas wells located in four counties in west Texas near and around the Waha Hub. Natural gas exploration and production drilling in this area has primarily targeted productive zones in the Permian Delaware basin and Devonian basin. These basins are mature basins with wells that generally have long lives and predictable flow rates.

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Waha Gathering System.  The Waha gathering system consists of 750 miles of natural gas gathering pipelines ranging in size from three inches in diameter to 24 inches in diameter. We offer producers four different levels of natural gas compression on the Waha gathering system, as compared to the two levels typically offered in the industry. By offering multiple levels of compression, our gathering system is often more cost-effective for our producers, since the producer is not required to pay for a level of compression that is higher than the level it requires.

Waha Processing Plant.  The Waha processing plant is a cryogenic natural gas processing plant that processes raw natural gas gathered on the Waha gathering system. This plant was constructed in 1965, and, due to recent upgrades to state of the art cryogenic processing capabilities, it is a highly efficient natural gas processing plant. The Waha processing plant also includes an amine treating facility. The treating facility uses an amine treating process to remove carbon dioxide and hydrogen sulfide from raw natural gas that is gathered in our Waha gathering system before the natural gas is introduced to the processing plant.

Mid-Continent Region

Our mid-continent region includes natural gas gathering systems located primarily in Kansas and Oklahoma. Our mid-continent gathering assets are extensive systems that gather, compress and dehydrate low-pressure gas from approximately 1,500 wells. These systems are geographically concentrated, with each central facility located within 90 miles of the others. We operate our mid-continent gathering systems at low pressures to increase the total through-put volumes from the connected wells. Wellhead pressures are therefore adequate to access the gathering lines without the cost of wellhead compression. In addition, we process natural gas from the Mocane-Laverne Gathering System at our Mocane Processing Plant.

The following is a map of our Mid-Continent Region gathering and processing systems.

Natural Gas Supply.  Our mid-continent systems are located in two of the largest and most prolific natural gas producing regions in the United States, including the Hugoton Basin in southwest Kansas and the Anadarko Basin in western Oklahoma and the Texas panhandle. These mature basins have continued to

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provide generally long-lived, predictable reserves. Recent increases in production in these areas have been driven primarily by continued infill drilling, compression enhancements, and advanced well bore completion technology. In addition, the application of 3-D seismic technology in these areas has yielded better-defined reservoirs for continuing development of these basins.

Hugoton Gathering System.  The Hugoton gathering system is located in southwestern Kansas. It consists of 850 miles of natural gas gathering pipelines ranging in size from two inches to 20 inches in diameter. Substantially all of the raw natural gas gathered by the Hugoton gathering system is delivered to a third party’s processing plant. We pay the third party a fee to process the gas for our account.

Mocane-Laverne Gathering System.  The Mocane-Laverne gathering system is located in Beaver and Harper counties in the Oklahoma panhandle and Meade County in southwestern Kansas. It consists of 500 miles of natural gas gathering pipelines ranging in size from two inches to 24 inches in diameter. The system gathers raw natural gas from producers and delivers it for processing to the Mocane processing plant.

Greenwood Gathering System.  The Greenwood gathering system is located in Morton and Stanton Counties in southwestern Kansas and Baca County in southeastern Colorado. It consists of 250 miles of natural gas gathering pipelines ranging in size from four inches to 20 inches in diameter. The raw natural gas gathered by this system is delivered to a third party’s processing plant. We pay the third party a fee to process the gas for our account.

Mocane Processing Plant.  The Mocane Processing Plant is a cryogenic natural gas processing plant that processes raw natural gas gathered on the Mocane-Laverne gathering system. This plant was constructed in 1975 and acquired by us in 2003.

Other.  We also own the Lakin Processing Plant, a cryogenic processing plant with nitrogen rejection and helium recovery capabilities. This plant has a capacity of 80 MMcf/d. The plant was constructed in 1995 and was acquired by us in 2003. We are currently evaluating opportunities to utilize the Lakin processing plant, which may include connecting a new source of supply to the plant or moving the plant to another area.

TRANSPORTATION OPERATIONS

General.  We own and operate a 320-mile intrastate natural gas pipeline system, known as the Regency Intrastate Pipeline system, in north Louisiana extending from northwest Louisiana to northeast Louisiana. This system includes total system capacity of 910 MMcf/d, 27,400 horsepower of compression and a 35 MMcf/d refrigeration plant. The following map presents the location of the Regency Intrastate Pipeline system:

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Regency Intrastate Pipeline system averaged through-put volumes of 587,098 MMBtu/d during the year ended December 31, 2006. Natural gas generally flows from west to east on the pipeline from wellhead connections or connections with other gathering systems. The Regency Intrastate Pipeline system transports natural gas produced from the Vernon field, the Elm Grove field and the Sligo field, which are the three of the four largest natural gas producing fields in Louisiana.

Our Regency Intrastate Pipeline consists of approximately 320 miles of pipeline ranging from 12” to 30” diameter, extending from Caddo Parish to Franklin Parish in northern Louisiana.

Our transportation operations are located in areas that have experienced significant levels of drilling activity providing us with opportunities to access newly developed natural gas supplies. Three customers represented 19 percent, 15 percent and 10 percent of our transportation segment natural gas supply for the year ended December 31, 2006.

A significant purchaser of pipeline-quality gas on the Regency Intrastate Pipeline system is Alabama Gas Corporation, which represented 11 percent of consolidated external revenues from such sales for the year ended December 31, 2006.

New Transportation Contracts.  As of March 1, 2007, we had definitive agreements (with terms ranging from less than one year to five years for 562,900 MMBtu/d of firm transportation on the Regency Intrastate Pipeline System, of which 500,679 MMBtu/d was utilized in February 2007. During the month of February 2007, we also provided 195,395 MMBtu/d of interruptible transportation. Additionally, we are currently engaged in discussions with other parties interested in utilizing the system’s remaining firm transportation.

Eastside Compressor Fire.  On March 18, 2007, a fire occurred at the Eastside Compressor Station on our Regency Intrastate Pipeline system. Of the three compressor units in the station, one was damaged beyond repair, the second unit sustained reparable damage and the third was slightly damaged. The third unit was restored to service in 40 hours and the second is expected to be back in service in six to eight weeks. There were no personal injuries as a result of the incident. We are moving two smaller surplus compressors to the site which we expect to be operating in the first week of April. Another rental compressor is expected to be operating by the second week of April. The replacement unit for the severely damaged compressor is not expected to be in service for about six months. Pending installation of the rental compressors and the restoration of the second unit to service, we are managing the system with existing compressors on other parts of the system and with careful gas management. Thereafter, we expect little or no effect on our ability to maintain pre-incident levels of gas flow. The Louisiana Department of Environmental Quality has granted a request for an emissions variance for the temporary compressors. While preliminary estimates of property damage are in the range of $5,000,000 to $6,500,000, the equipment is fully insured, subject to a deductible of $250,000. To date, this incident has had no material effect on our business. We anticipate that through careful management of the system we will be able to mitigate any material disruption to our business. If we are unable to do so, however, we maintain business interruption insurance that we believe will protect us against any materially adverse financial effect. Our business interruption insurance is subject to a deductible for losses and expenses incurred during the first 30 days following an incident which will include our costs of mobilizing and installing the rental compressors, estimated at $600,000.

OTHER TRANSPORTATION ASSETS

Gulf States Transmission, our interstate pipeline, consists of 10 miles of 12 inches in diameter and 20 inches in diameter pipeline that extends from Harrison County, Texas to Caddo Parish, Louisiana. The pipeline has a Federal Energy Regulatory Commission (“FERC”) certificated capacity of 150 MMcf/d.

OUR CONTRACTS

Gathering and Processing Contracts

We contract with producers to gather raw natural gas from individual wells or central delivery points located near our gathering systems and processing plants. Following the execution of a contract with the producer, we connect the producer’s wells or central delivery points to our gathering lines through which the

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natural gas is delivered to a processing plant (whether owned and operated by us or a third party) for a fee. We obtain supplies of raw natural gas for our gathering and processing facilities under contracts having terms ranging from month-to-month to life of the lease. We categorize our processing contracts in increasing order of commodity price risk as fee-based, percentage-of-proceeds, or keep-whole contracts. Additionally, it is common for a percentage-of-proceeds or keep-whole contract to have a fee component in addition to its commodity price-sensitive component. For a description of our fee-based arrangements, percent-of-proceeds arrangements, and keep-whole arrangements, please read “Item 7 — Management’s discussion and analysis of financial condition and results of operations — Our Operations.” During the twelve months ended December 31, 2006, purchases from Duke Energy Field Services made up 12 percent of the volumes represented as the cost of gas and liquids on our consolidated statement of operations.

For the year ended December 31, 2006, the mixture of our gathering and processing contracts by category and by geographic region is set forth in the following table:

	Nature of Contract
	(Measured by 2006 Volumes)
Geographic Region	Keep-Whole			POP			Fee-Based
North Louisiana		9	%		39	%		52	%
East Texas		—			100			—
South Texas		1			10			89
West Texas		14			57			29
Mid-Continent		26			46			28
Total Gathering and Processing		12			41			47

Transportation Contracts

Fee Transportation Contracts.  We provide natural gas transportation services on the Regency Intrastate Pipeline pursuant to contracts with natural gas shippers. These contracts are all fee-based. Generally, our transportation services are of two types: firm transportation and interruptible transportation. When we agree to provide firm transportation service, we become obligated to transport natural gas nominated by the shipper up to the maximum daily quantity specified in the contract. In exchange for that obligation on our part, the shipper pays a specified reservation charge, whether or not the capacity is utilized by the shipper, and in some cases the shipper also pays a commodity charge with respect to quantities actually shipped. When we agree to provide interruptible transportation service, we become obligated to transport natural gas nominated and actually delivered by the shipper only to the extent that we have available capacity. The shipper pays no reservation charge for this service but pays a commodity charge for quantities actually shipped. We provide our transportation services under the terms of our contracts and under an operating statement that we have filed and maintain with FERC with respect to transportation authorized under Section 311 of the Natural Gas Policy Act of 1978, or NGPA.

Merchant Transportation Contracts.  We perform a limited merchant function on our Regency Intrastate Pipeline system. We purchase natural gas from producers or gas marketers at receipt points on our system at a price adjusted to reflect our transportation fee and transport that gas to delivery points on our system at which we sell the natural gas at market price. We regard the total segment margin with respect to those purchases and sales as the economic equivalent of a fee for our transportation service.

These contracts are frequently settled in terms of an index price for both purchases and sales. In order to minimize commodity price risk, we attempt to match sales with purchases at the same index price on the date of settlement.

COMPETITION

The natural gas gathering, processing, marketing and transportation businesses are highly competitive. We face strong competition in each region in acquiring new gas supplies. Our competitors in acquiring new gas supplies and in processing new natural gas supplies include major integrated oil companies, major interstate

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and intrastate pipelines and other natural gas gatherers that gather, process and market natural gas. Competition for natural gas supplies is primarily based on the reputation, efficiency and reliability of the gatherer and the pricing arrangements offered by the gatherer.

Many of our competitors have capital resources and control supplies of natural gas substantially greater than ours. Competition in natural gas transportation is characterized by price of transportation, the nature of the markets accessible from a transportation pipeline and nature of service. Our major competitors in each region include:

•  North Louisiana:  CenterPoint Energy Gas Marketing Company; Gulf South Pipeline L.P.; PanEnergy Louisiana Intrastate, LLC (Pelico).

•  East Texas:  Enbridge Energy Partners LP.

•  South Texas:  Enterprise Products Partners LP, Duke Energy Field Services, L.P.

•  West Texas:  Southern Union Gas Services

•  Mid-Continent:  Duke Energy Field Services, L.P.; ONEOK Energy Marketing and Trading, L.P.; Penn Virginia Corporation.

In transporting natural gas across north Louisiana, we face major competition from CenterPoint Energy Gas Marketing Company, Gulf South Pipeline, L.P., and Texas Gas Transmission, LLC.

RISK MANAGEMENT

To manage commodity price risk, we have implemented a risk management program under which we seek to match sales prices of commodities (especially natural gas) with purchases under our contracts; to manage our portfolio of contracts to reduce commodity price risk; to optimize our portfolio by active monitoring of basis, swing, and fractionation spread exposure; and to hedge a portion of our exposure to commodity prices.

To the extent that we purchase or commit contractually to purchase raw natural gas that we gather and process, we are exposed to commodity price changes in both the natural gas and NGL markets. Operationally, we mitigate this price risk by generally purchasing natural gas and NGLs at prices derived from published indices, rather than at a contractually fixed price and by marketing natural gas and natural gas liquids under similar pricing mechanisms. In addition, we optimize the operations of our processing facilities on a daily basis, for example by rejecting ethane in processing when recovery of ethane as an NGL is uneconomical.

As a consequence of our contract portfolio, we derive a portion of our earnings from a long position in NGL products, natural gas and condensate, resulting from the purchase of natural gas for our account or from the payment of processing charges in kind. This long position is exposed to commodity price fluctuations. We hedge this commodity price risk by purchasing a series of contracts relating to swaps of individual NGL, natural gas and crude oil products. Our hedging position and needs to supplement or modify our position are closely monitored by the Risk Management Committee of the Board of Directors of our Managing GP. Please read “Item 7A-Quantitative and Qualitative Disclosures About Market Risk” for information regarding the status of these contracts. As a matter of policy we do not acquire forward contracts or derivative products for the purpose of speculating on price changes.

REGULATION

Industry Regulation

Intrastate Pipeline Regulation.  To the extent that our Regency Intrastate Pipeline system transports natural gas in interstate commerce, the rates, terms and conditions of that transportation service are subject to the jurisdiction of FERC, under Section 311 of the NGPA, which regulates, among other things, the provision of transportation services by an intrastate natural gas pipeline on behalf of an interstate natural gas pipeline. Under Section 311, rates charged for transportation must be fair and equitable, and amounts collected in excess of “fair and equitable” rates are subject to refund with interest. NGPA Section 311 rates deemed fair

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and equitable by FERC are generally analogous to the cost-based rates that FERC deems “just and reasonable” for interstate pipelines under the Natural Gas Act of 1938, or NGA. Certain aspects of FERC rate regulation under the NGA are discussed under the section below entitled “Regulation — Interstate Pipeline Regulation.” Additionally, the terms and conditions of service set forth in the intrastate pipeline’s Statement of Operating Conditions are subject to FERC approval.

FERC Pipeline Regulation.  One of our subsidiaries, Regency Intrastate Gas LLC, or RIGS, transports interstate gas in Louisiana under Section 311(a)(2) of the NGPA for many of its shippers. FERC approves Section 311(a)(2) transportation rates for our intrastate pipeline (as for others) typically on a cost of service basis. FERC requires most of these pipelines, including RIGS, to file triennial rate petitions either justifying its existing rates or requesting new rates. RIGS’ most recent Section 311 maximum rates were established by a FERC order dated September 26, 2005 effective from May 1, 2005 to May 1, 2008, and were set for firm transportation at $0.15 per MMBtu reservation charge, with a $0.05 MMBtu commodity charge, and for interruptible transportation at $0.20 per MMBtu. RIGS is obligated to file its next Section 311 rate case no later than May 1, 2008.

Under Section 311 of the NGPA, intrastate pipelines providing transportation service under NGPA Section 311 are not subject to the provisions of the NGA that would otherwise apply. Any failure on our part:

•  To observe the service limitations applicable to transportation service under Section 311,

•  to comply with the rates approved by FERC for Section 311 service,

•  to comply with the terms and conditions of service established in our FERC-approved Statement of Operating Conditions, or

•  to comply with applicable FERC regulations, the NGPA or certain state laws and regulations

could result in an alteration of our jurisdictional status or the imposition of administrative, civil and criminal penalties, or both.

Our Regency Intrastate Pipeline system in north Louisiana is subject to regulation by various agencies of the State of Louisiana. Louisiana’s Pipeline Operations Section of the Department of Natural Resources’ Office of Conservation is generally responsible for regulating intrastate pipelines and gathering facilities in Louisiana and has authority to review and authorize natural gas transportation transactions and the construction, acquisition, abandonment and interconnection of physical facilities. Historically, apart from pipeline safety, it has not acted to exercise this jurisdiction respecting gathering facilities. Louisiana also has agencies that regulate transportation rates, service terms and conditions and contract pricing to ensure their reasonableness and to ensure that the intrastate pipeline companies that they regulate do not discriminate among similarly situated customers.

Interstate Pipeline Regulation.  FERC also has broad regulatory authority over the business and operations of interstate natural gas pipelines, such as the pipeline owned by our subsidiary Gulf States Transmission Corporation, or GSTC. Under the NGA, rates charged for interstate natural gas transmission must be just and reasonable, and amounts collected in excess of just and reasonable rates are subject to refund with interest. GSTC holds a FERC-approved tariff setting forth cost-based rates, terms and conditions for services to shippers wishing to take interstate transportation service. FERC’s authority extends to:

•  rates and charges for natural gas transportation and related services;

•  certification and construction of new facilities;

•  extension or abandonment of services and facilities;

•  maintenance of accounts and records;

•  relationships between the pipeline and its energy affiliates;

•  terms and conditions of service;

•  depreciation and amortization policies;

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•  accounting rates for ratemaking purposes;

•  acquisition and disposition of facilities;

•  initiation and discontinuation of services; and

•  information posting requirements.

Gathering Pipeline Regulation.  Section I(b) of the NGA exempts natural gas gathering facilities from the jurisdiction of FERC under the NGA. We own a number of natural gas pipelines that we believe meet the traditional tests FERC has used to establish a pipeline’s status as a gatherer not subject to FERC jurisdiction. The distinction between FERC-regulated transmission services and federally unregulated gathering services is the subject of substantial, on-going litigation, so the classification and regulation of our gathering facilities are subject to change based on future determinations by FERC, the courts or the U.S. Congress.

State regulation of gathering facilities generally includes various safety, environmental and, in some circumstances, nondiscriminatory take requirements and in some instances complaint-based rate regulation. We are subject to state ratable take and common purchaser statutes. The ratable take statutes generally require gatherers to take, without undue discrimination, natural gas production that may be tendered to the gatherer for handling. Similarly, common purchaser statutes generally require gatherers that purchase gas to purchase without undue discrimination as to source of supply or producer. These statutes are designed to prohibit discrimination in favor of one producer over another or one source of supply over another. These statutes have the effect of restricting our right as an owner of gathering facilities to decide with whom we contract to purchase or gather natural gas.

Natural gas gathering may receive greater regulatory scrutiny at both the state and the federal levels now that FERC has taken a less stringent approach to regulation of the gas gathering activities of interstate pipeline transmission companies and a number of such companies have transferred gathering facilities to unregulated affiliates. For example, in 2006 the Texas Railroad Commission, or TRRC, approved changes to its regulations governing transportation and gathering services performed by intrastate pipelines and gatherers that prohibit such entities from unduly discriminating in favor of their affiliates. Also, the TRRC submitted to the Governor of Texas and the Texas Legislature its Texas Natural Gas Pipeline Competition Study Advisory Committee’s report on competition in the gas pipeline industry. This study recommends, among other things, that the Texas Legislature give the TRRC certain expanded authority over gas pipelines, including specific authority to enforce its statutory duty to prevent discrimination in natural gas gathering and transportation, authority to enforce the requirement that parties participate in an informal complaint process, and authority to punish purchasers, transporters, and gatherers for retaliating against shippers and sellers in connection with such process. We have no way of knowing what portions of this study, if any, will be adopted by the Texas Legislature and implemented by the TRRC. We cannot predict what effect, if any, the proposed changes, if implemented, might have on our operations.

In addition, many of the producing states have adopted some form of complaint-based regulation that generally allows natural gas producers and shippers to file complaints with state regulators in an effort to resolve grievances relating to natural gas gathering access and rate discrimination. Our gathering operations could be adversely affected should they be subject in the future to the application of state or federal regulation of rates and services. Our gathering operations also may be subject to safety and operational regulations relating to the design, installation, testing, construction, operation, replacement and management of gathering facilities. Additional rules and legislation pertaining to these matters may be considered or adopted from time to time. We cannot predict what effect, if any, such changes might have on our operations, but the industry could be required to incur additional capital expenditures and increased costs depending on future legislative and regulatory changes.

Sales of Natural Gas.  The price at which we buy and sell natural gas currently is not subject to federal regulation and, for the most part, is not subject to state regulation. The prices at which we sell natural gas are affected by many competitive factors, including the availability, terms and cost of pipeline transportation. As noted above, the price and terms of access to pipeline transportation are subject to extensive federal and state regulation. FERC is continually proposing and implementing new rules and regulations affecting interstate

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transportation, including interstate natural gas pipelines and natural gas storage facilities. These initiatives also may affect the intrastate transportation of natural gas under certain circumstances. The stated purpose of many of these regulatory changes is to promote competition among the various sectors of the natural gas industry. We do not believe that we will be affected by any such FERC action in a manner materially differently than other natural gas companies with whom we compete.

Oil Price Controls and Transportation Rates.  Sales of crude oil, condensate and NGLs are not currently regulated. Prices of these products are set by the market rather than by regulation. Effective as of January 1, 1995, FERC implemented regulations establishing an indexing system for transportation rates for oil, NGLs and other products that allowed for an increase in the cost of transporting oil to the purchaser. The implementation of these regulations has not had a material adverse effect on our results of operations.

Regulatory Environment.  In August 2005, Congress enacted and the President signed the Energy Policy Act of 2005. With respect to the oil and gas industry, the legislation focuses on the exploration and production sector, interstate pipelines, and refinery facilities. In many cases, the Act requires future action by various government agencies. We are unable to predict what impact, if any, the Act will have on our business, financial condition, results of operations or cash flows.

Texas Tax Legislation.  In May 2006, the State of Texas passed legislation that imposes a “margin tax” on partnerships. We currently estimate that this legislation will not have a material effect on our business, financial condition, results of operations or cash flows.

Environmental Matters

General.  Our operation of processing plants, pipelines and associated facilities, including compression, in connection with the gathering and processing of natural gas and the transportation of NGLs is subject to stringent and complex federal, state and local laws and regulations, including those governing, among other things, air emissions, wastewater discharges, the use, management and disposal of hazardous and nonhazardous materials and wastes, and the cleanup of contamination. Noncompliance with such laws and regulations, or incidents resulting in environmental releases, could cause us to incur substantial costs, penalties, fines and other criminal sanctions, third party claims for personal injury or property damage, investments to retrofit or upgrade our facilities and programs, or curtailment of operations. As with the industry generally, compliance with existing and anticipated environmental laws and regulations increases our overall costs of doing business, including our cost of planning, constructing and operating our plants, pipelines and other facilities. Included in our construction and operation costs are capital cost items necessary to maintain or upgrade our equipment and facilities to remain in compliance with environmental laws and regulations.

We have implemented procedures to ensure that all governmental environmental approvals for both existing operations and those under construction are updated as circumstances require. We believe that our operations and facilities are in substantial compliance with applicable environmental laws and regulations and that the cost of compliance with such laws and regulations will not have a material adverse effect on our business, results of operations and financial condition.

Under an omnibus agreement, Regency Acquisition LP, the entity that owns our Managing GP and our General Partner, agreed to indemnify us in an aggregate amount not to exceed $8,600,000, generally for three years after February 3, 2006, for certain environmental noncompliance and remediation liabilities associated with the assets transferred to us and occurring or existing before that date. For a discussion of the omnibus agreement, please read “Item 13 — Certain Relationships and Related Transactions, and Director Independence — Omnibus Agreement.”

Hazardous Substances and Waste Materials.  To a large extent, the environmental laws and regulations affecting our operations relate to the release of hazardous substances and waste materials into soils, groundwater and surface water and include measures to control contamination of the environment. These laws and regulations generally regulate the generation, storage, treatment, transportation and disposal of hazardous substances and waste materials and may require investigatory and remedial actions at sites where such material has been released or disposed. For example, the Comprehensive Environmental Response, Compensation and

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Liability Act, or CERCLA, also known as the “Superfund” law, and comparable state laws, impose liability without regard to fault or the legality of the original conduct on certain classes of persons that contributed to a release of a “hazardous substance” into the environment. These persons include the owner and operator of the site where a release occurred and companies that disposed or arranged for the disposal of the hazardous substance that has been released into the environment. Under CERCLA, these persons may be subject to joint and several liability, without regard to fault, for, among other things, the costs of investigating and remediating the hazardous substances that have been released into the environment, for damages to natural resources and for the costs of certain health studies. CERCLA and comparable state law also authorize the federal Environmental Protection Agency, or EPA, its state counterparts, and, in some instances, third parties to take actions in response to threats to the public health or the environment and to seek to recover from the responsible classes of persons the costs they incur. It is not uncommon for neighboring landowners and other third parties to file claims for personal injury and property damage allegedly caused by hazardous substances or other pollutants released into the environment. Although “petroleum” as well as natural gas and NGLs are excluded from CERCLA’s definition of a “hazardous substance,” in the course of our ordinary operations we generate wastes that may fall within that definition, and certain state law analogs to CERCLA, including the Texas Solid Waste Disposal Act, do not contain a similar exclusion for petroleum. We may be responsible under CERCLA or state laws for all or part of the costs required to clean up sites at which such substances or wastes have been disposed. We have not received any notification that we may be potentially responsible for cleanup costs under CERCLA or comparable state laws.

We also generate both hazardous and nonhazardous wastes that are subject to requirements of the federal Resource Conservation and Recovery Act, or RCRA, and comparable state statutes. From time to time, the EPA has considered the adoption of stricter handling, storage, and disposal standards for nonhazardous wastes, including crude oil and natural gas wastes. We are not currently required to comply with a substantial portion of the RCRA requirements at many of our facilities because the minimal quantities of hazardous wastes generated there make us subject to less stringent management standards. It is possible, however, that some wastes generated by us that are currently classified as nonhazardous may in the future be designated as “hazardous wastes,” resulting in the wastes being subject to more rigorous and costly disposal requirements, or that the full complement of RCRA standards could be applied to facilities that generate lesser amounts of hazardous waste. Changes in applicable regulations may result in a material increase in our capital expenditures or plant operating and maintenance expense.

We currently own or lease sites that have been used over the years by prior owners and by us for natural gas gathering, processing and transportation. Solid waste disposal practices within the midstream gas industry have improved over the years with the passage and implementation of various environmental laws and regulations. Nevertheless, some hydrocarbons and wastes have been disposed of or released on or under various sites during the operating history of those facilities that are now owned or leased by us. Notwithstanding the possibility that these dispositions may have occurred during the ownership of these assets by others, these sites may be subject to CERCLA, RCRA and comparable state laws. Under these laws, we could be required to remove or remediate previously disposed wastes (including wastes disposed of or released by prior owners or operators) or contamination (including soil and groundwater contamination) or to prevent the migration of contamination.

Assets Acquired from El Paso.  Under the agreement pursuant to which our operating partnership acquired assets from El Paso Field Services LP and its affiliates in 2003, we are indemnified for certain environmental matters. Those provisions include an indemnity by the El Paso sellers against a variety of environmental claims for a period of five years up to an aggregate of $84,000,000. The agreement also included an escrow of $9,000,000 relating to claims, including environmental claims.

In response to our submission of a claim to the El Paso sellers for a variety of environmental defects at these assets, the El Paso sellers have agreed to maintain $5,400,000 in the escrow account to pay any claims for environmental matters ultimately deemed to be covered by their indemnity. This amount represents the upper end of the estimated remediation cost calculated by Regency based on the results of its investigations of these assets.

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Since the time of this agreement, a Final Site Investigation Report has been prepared. Based on this additional investigation, environmental issues exist with respect to four facilities, including the two subject to accepted claims and two of our processing plants. The estimated remediation costs associated with the processing plants aggregate $2,750,000. We believe that any of our obligations to remediate the properties is subject to the indemnity under the El Paso PSA, and we intend to reinstate the claims for indemnification for these plant sites.

West Texas Assets.  A Phase I environmental study was performed on our west Texas assets in connection with our investigation of those assets prior to our purchase of them in 2004. Most of the identified environmental contamination had either been remediated or was being remediated by the previous owners or operators of the properties. We believe that the likelihood that we will be liable for any significant potential remediation liabilities identified in the study is remote.

At the time of the negotiation of the agreement to acquire the west Texas assets, management of Regency Gas Services obtained an insurance policy against specified risks of environmental claims (other than those items known to exist). The policy covers clean-up costs and damages to third parties, and has a 10-year term (expiring 2014) with a $10,000,000 limit subject to certain deductibles.

Air Emissions.  Our operations are subject to the federal Clean Air Act and comparable state laws and regulations. These laws and regulations regulate emissions of air pollutants from various industrial sources, including our processing plants, and also impose various monitoring and reporting requirements. Such laws and regulations may require that we obtain pre-approval for the construction or modification of certain projects or facilities expected to produce air emissions or to result in the increase of existing air emissions, that we obtain and strictly comply with air permits containing various emissions and operational limitations, or that we utilize specific emission control technologies to limit emissions. We will be required to incur certain capital expenditures in the future for air pollution control equipment in connection with obtaining and maintaining operating permits and approvals for air emissions. In addition, our processing plants, pipelines and compression facilities are becoming subject to increasingly stringent regulations, including regulations that require the installation of control technology or the implementation of work practices to control hazardous air pollutants. Moreover, the Clean Air Act requires an operating permit for major sources of emissions and this requirement applies to some of our facilities. We believe that our operations are in substantial compliance with the federal Clean Air Act and comparable state laws.

ODEQ Notice of Violation.  In March 2005, the Oklahoma Department of Environmental Quality, or ODEQ, sent us a notice of violation, alleging that we are operating the Mocane processing plant in Beaver County, Oklahoma in violation of the National Emission Standard for Hazardous Air Pollutants from Oil and Natural Gas Production Facilities, or NESHAP, and the requirements to apply for and obtain a federal operating permit (Title V permit). After seeking and obtaining advice from the Environmental Protection Agency, the ODEQ issued an order requiring us to apply for a Title V permit with respect to emissions from the Mocane processing plant. While we believe that the basis for the allegations identified in the notice of violation is inapplicable to the Mocane processing plant, we have complied with the order. No fine or penalty was imposed by the ODEQ and the matter was fully resolved in June 2006.

TCEQ Notice of Enforcement.  In November 2004, the Texas Commission on Environmental Quality, or TCEQ, sent us a notice of enforcement, or NOE, relating to the air emissions at the Waha processing plant in 2001 before it was acquired by us. We settled this NOE with the TCEQ in November 2005 for an immaterial amount.

Regardless of the allegations in the NOE, the air emissions at the Waha processing plant would have been considered “grandfathered;” and therefore not subject to more stringent emission limitations, only until 2007. In anticipation of the expiration of the facility’s “grandfathered” status and regardless of the outcome of the NOE, in February 2005 we submitted an application to the TCEQ for a state air permit for the Waha plant predicated on the use of acid gas reinjection for air emission control and, after completion of the well and facilities, the reinjection of the previously emitted gases. The well was completed in March 2007 pursuant to an extension granted by the TCEQ.

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Clean Water Act.  The Federal Water Pollution Control Act of 1972, as renamed and amended as the Clean Water Act, and comparable state laws impose restrictions and strict controls regarding the discharge of pollutants, including natural gas liquid-related wastes, into waters of the United States. Pursuant to the Clean Water Act and similar state laws, a National Pollutant Discharge Elimination System, or NPDES, or state permit, or both, must be obtained to discharge pollutants into federal and state waters. The Clean Water Act and comparable state laws and their respective regulations provide for administrative, civil and criminal penalties for discharges of unauthorized pollutants into the water and also provide for penalties and liability for the costs of removing spills from such waters. In addition, the Clean Water Act and comparable state laws require that individual permits or coverage under general permits be obtained by subject facilities for discharges of storm water runoff. We believe that we are in substantial compliance with Clean Water Act permitting requirements as well as the conditions imposed thereunder, and that our continued compliance with such existing permit conditions will not have a material adverse effect on our business, financial condition, or results of operations.

Endangered Species Act.  The Endangered Species Act restricts activities that may affect endangered or threatened species or their habitat. While we have no reason to believe that we operate in any area that is currently designated as a habitat for endangered or threatened species, the discovery of previously unidentified endangered species could cause us to incur additional costs or to become subject to operating restrictions or bans in the affected areas.

Employee Health and Safety.  We are subject to the requirements of the federal Occupational Safety and Health Act, referred to as OSHA, and comparable state laws that regulate the protection of the health and safety of workers. In addition, the OSHA hazard communication standard requires that information be maintained about hazardous materials used or produced in operations and that this information be provided to employees, state and local government authorities and citizens. We believe that our operations are in substantial compliance with the OSHA requirements, including general industry standards, recordkeeping requirements, and monitoring of occupational exposure to regulated substances.

Safety Regulations.  Those pipelines through which we transport mixed NGLs (exclusively to other NGL pipelines) are subject to regulation by the U.S. Department of Transportation, or DOT, under the Hazardous Liquid Pipeline Safety Act, or HLPSA, relating to the design, installation, testing, construction, operation, replacement and management of pipeline facilities. The HLPSA requires any entity that owns or operates liquids pipelines to comply with the regulations under the HLPSA, to permit access to and allow copying of records and to submit certain reports and provide other information as required by the Secretary of Transportation. We believe our liquids pipelines are in substantial compliance with applicable HLPSA requirements.

Our intrastate pipeline facilities are subject to regulation by the DOT under the Natural Gas Pipeline Safety Act of 1968, as amended, or the NGPSA, and the Pipeline Safety Improvement Act of 2002, as amended, pursuant to which the DOT has established requirements relating to the design, installation, testing, construction, operation, inspection, replacement and management of pipeline facilities. The NGPSA covers natural gas, crude oil, carbon dioxide, NGL and petroleum products pipelines and requires any entity that owns or operates pipeline facilities to comply with the regulations under the NGPSA, to permit access to and allow copying of records, and to submit certain reports and provide other information as required by the Secretary of Transportation. We believe that our pipeline operations are in substantial compliance with applicable NGPSA requirements.

Louisiana administers federal pipeline safety standards under the NGPSA. The Louisiana Office of Conservation, Pipeline Division, monitors Louisiana intrastate pipeline operators to ensure safety and compliance with regulations. Among other things, the Louisiana Office of Conservation conducts pipeline inspections and accident investigations, and it oversees compliance and enforcement, safety programs, and record maintenance and reporting. The “rural gathering exemption” under the NGPSA currently exempts our gathering facilities from jurisdiction under that statute. The “rural gathering exemption,” however, may be restricted in the future, and that exemption does not apply to our intrastate natural gas pipeline facilities. With respect to recent pipeline accidents in other parts of the country, Congress and the DOT have passed or are

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considering heightened pipeline safety requirements, but such requirements, if adopted, would not be expected to affect us disproportionately relative to other companies in our industry. We believe, based on current information, that any costs that we may incur relating to environmental matters will not adversely affect us. We cannot be certain, however, that identification of presently unidentified conditions, more vigorous enforcement by regulatory agencies, enactment of more stringent laws and regulations, or other unanticipated events will not arise in the future and give rise to material environmental liabilities that could have a material adverse effect on our business, financial condition or results of operations.

EMPLOYEES

Our Managing GP and its affiliates employ 284 employees, of whom 201 are field operating employees and 83 are mid-and senior-level management and staff. None of these employees is represented by a labor union and there are no outstanding collective bargaining agreements to which our Managing GP or any of its affiliates is a party. Our Managing GP believes that it has good relations with its employees.

AVAILABLE INFORMATION

The Partnership files annual and quarterly financial reports, as well as interim updates of a material nature to investors with the Securities and Exchange Commission. You may read and copy any of these materials at the SEC’s Public Reference Room at 100 F. Street, NE, Room 1580, Washington, DC 20549. Information on the operation of the Public Reference Room is available by calling the SEC at 1-800-SEC-0330. Alternatively, the SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. The address of that site is http://www.sec.gov.

The Partnership makes its SEC filings available to the public, free of charge and as soon as practicable after they are filed with the SEC, through its Internet site located at http://www.regencyenergy.com. Our annual reports are filed on Form 10-K, our quarterly reports are filed on Form 10-Q, and current-event reports are filed on Form 8-K and amendments to reports filed or furnished pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934.

ITEM 1A.  Risk Factors

RISKS RELATED TO OUR BUSINESS

We may be unable to successfully integrate the operations of future acquisitions with our operations and we may not realize all the anticipated benefits of the acquisition of TexStar or any future acquisition.

Integration of TexStar with our business and operations has been a complex, time consuming and costly process. Failure to integrate TexStar successfully with our business and operations in a timely manner may have a material adverse effect on our business, financial condition and results of operations. We cannot assure you that we will achieve the desired profitability from TexStar or any other acquisitions we may complete in the future. In addition, failure to assimilate future acquisitions successfully could adversely affect our financial condition and results of operations.

Our acquisitions involve numerous risks, including:

•  operating a significantly larger combined organization and adding operations;

•  difficulties in the assimilation of the assets and operations of the acquired businesses, especially if the assets acquired are in a new business segment or geographic area;

•  the risk that natural gas reserves expected to support the acquired assets may not be of the anticipated magnitude or may not be developed as anticipated;

•  the loss of significant producers or markets or key employees from the acquired businesses;

•  the diversion of management’s attention from other business concerns;

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•  the failure to realize expected profitability or growth;

•  the failure to realize expected synergies and cost savings;

•  coordinating geographically disparate organizations, systems and facilities; and

•  coordinating or consolidating corporate and administrative functions.

Further, unexpected costs and challenges may arise whenever businesses with different operations or management are combined, and we may experience unanticipated delays in realizing the benefits of an acquisition. If we consummate any future acquisition, our capitalization and results of operation may change significantly, and you may not have the opportunity to evaluate the economic, financial and other relevant information that we will consider in evaluating future acquisitions.

While substantial amounts of the transportation capacity of the Regency Intrastate Pipeline System are subject to firm transportation contracts, if we are unable to utilize the remaining transportation capacity, our business and our operating results could be adversely affected.

As of March 1, 2007, we had definitive agreements for 562,900 MMBtu/d of firm transportation on the Regency Intrastate Pipeline System, of which 500,679 MMBtu/d was utilized in February 2007. During the month of February 2007, we also provided 195,395 MMBtu/d of interruptible transportation. If we are unable to commit the remaining uncommitted capacity on the system to firm gas transportation contracts and the parties to existing interruptible transportation contracts fail to utilize the capacity, our business and operating results could be adversely affected.

Because of the natural decline in production from existing wells, our success depends on our ability to obtain new supplies of natural gas, which involves factors beyond our control. Any decrease in supplies of natural gas in our areas of operation could adversely affect our business and operating results.

Our gathering and transportation pipeline systems are dependent on the level of production from natural gas wells that supply our systems and from which production will naturally decline over time. As a result, our cash flows associated with these wells will also decline over time. In order to maintain or increase through-put volume levels on our gathering and transportation pipeline systems and the asset utilization rates at our natural gas processing plants, we must continually obtain new supplies. The primary factors affecting our ability to obtain new supplies of natural gas and attract new customers to our assets are: the level of successful drilling activity near these systems and our ability to compete with other gathering and processing companies for volumes from successful new wells.

The level of natural gas drilling activity is dependent on economic and business factors beyond our control. The primary factor that impacts drilling decisions is natural gas prices. Natural gas prices reached historic highs in 2005 and early 2006 but have declined substantially in the second half of 2006. The averages of the NYMEX daily settlement prices per MMBtu of natural gas for the year ended December 31, 2005 and 2006 were $9.02 per MMBtu and $6.98 per MMBtu, respectively. A sustained decline in natural gas prices could result in a decrease in exploration and development activities in the fields served by our gathering and processing facilities and pipeline transportation systems, which would lead to reduced utilization of these assets. Other factors that impact production decisions include producers’ capital budget limitations, the ability of producers to obtain necessary drilling and other governmental permits and regulatory changes. Because of these factors, even if additional natural gas reserves were discovered in areas served by our assets, producers may choose not to develop those reserves. If we were not able to obtain new supplies of natural gas to replace the natural decline in volumes from existing wells due to reductions in drilling activity or competition, through-put volumes on our pipelines and the utilization rates of our processing facilities would decline, which could have a material adverse effect on our business, results of operations and financial condition.

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We depend on certain key producers and other customers for a significant portion of our supply of natural gas. The loss of, or reduction in volumes from, any of these key producers or customers could adversely affect our business and operating results.

We rely on a limited number of producers and other customers for a significant portion of our natural gas supplies. Three customers represented 44 percent of our natural gas supply in our transportation segment for the year ended December 31, 2006. These contracts have terms that are range from month-to-month to life of lease. As these contracts expire, we will have to negotiate extensions or renewals or replace the contracts with those of other suppliers. For example, a significant contract with ExxonMobil expired in August 2006 and was not renewed. We may be unable to obtain new or renewed contracts on favorable terms, if at all. The loss of all or even a portion of the volumes of natural gas supplied by these producers and other customers, as a result of competition or otherwise, could have a material adverse effect on our business, results of operations and financial condition.

In accordance with industry practice, we do not obtain independent evaluations of natural gas reserves dedicated to our gathering systems. Accordingly, volumes of natural gas gathered on our gathering systems in the future could be less than we anticipate, which could adversely affect our business and operating results.

In accordance with industry practice, we do not obtain independent evaluations of natural gas reserves connected to our gathering systems due to the unwillingness of producers to provide reserve information as well as the cost of such evaluations. Accordingly, we do not have estimates of total reserves dedicated to our systems or the anticipated lives of such reserves. If the total reserves or estimated lives of the reserves connected to our gathering systems is less than we anticipate and we are unable to secure additional sources of natural gas, then the volumes of natural gas gathered on our gathering systems in the future could be less than we anticipate. A decline in the volumes of natural gas gathered on our gathering systems could have an adverse effect on our business, results of operations and financial condition.

Natural gas, NGLs and other commodity prices are volatile, and a reduction in these prices could adversely affect our cash flow and operating results.

We are subject to risks due to frequent and often substantial fluctuations in commodity prices. NGL prices generally fluctuate on a basis that correlates to fluctuations in crude oil prices. In the past, the prices of natural gas and crude oil have been extremely volatile, and we expect this volatility to continue. For example, natural gas prices reached historic highs in 2005 and early 2006, but declined substantially in the second half of 2006. The NYMEX daily settlement price for natural gas for the prompt month contract in 2005 ranged from a high of $15.38 per MMBtu to a low of $5.79 per MMBtu and for the year ended December 31, 2006 ranged from a high of $10.63 per MMBtu to a low of $4.20 per MMBtu. The NYMEX daily settlement price for crude oil for the prompt month contract in 2005 ranged from a high of $69.81 per barrel to a low of $42.12 per barrel and for the year ended December 31, 2006 ranged from a high of $77.03 per barrel to a low of $55.81 per barrel. The markets and prices for natural gas and NGLs depend upon factors beyond our control. These factors include demand for oil, natural gas and NGLs, which fluctuate with changes in market and economic conditions and other factors, including:

•  the impact of weather on the demand for oil and natural gas;

•  the level of domestic oil and natural gas production;

•  the availability of imported oil and natural gas;

•  actions taken by foreign oil and gas producing nations;

•  the availability of local, intrastate and interstate transportation systems;

•  the availability and marketing of competitive fuels;

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•  the impact of energy conservation efforts; and

•  the extent of governmental regulation and taxation.

Our natural gas gathering and processing businesses operate under two types of contractual arrangements that expose our cash flows to increases and decreases in the price of natural gas and NGLs: percentage-of-proceeds and keep-whole arrangements. Under percentage-of-proceeds arrangements, we generally purchase natural gas from producers and retain an agreed percentage of the proceeds (in cash or in-kind) from the sale at market prices of pipeline-quality gas and NGLs or NGL products resulting from our processing activities. Under keep-whole arrangements, we receive the NGLs removed from the natural gas during our processing operations as the fee for providing our services in exchange for replacing the thermal content removed as NGLs with a like thermal content in pipeline-quality gas or its cash equivalent. Under these types of arrangements our revenues and our cash flows increase or decrease as the prices of natural gas and NGLs fluctuate. The relationship between natural gas prices and NGL prices may also affect our profitability. When natural gas prices are low relative to NGL prices, it is more profitable for us to process natural gas under keep-whole arrangements. When natural gas prices are high relative to NGL prices, it is less profitable for us and our customers to process natural gas both because of the higher value of natural gas and of the increased cost (principally that of natural gas as a feedstock and a fuel) of separating the mixed NGLs from the natural gas. As a result, we may experience periods in which higher natural gas prices relative to NGL prices reduce our processing margins or reduce the volume of natural gas processed at some of our plants. For a detailed discussion of these arrangements, please read “Item 1 — Business — Our Contracts.”

In our gathering and processing operations, we purchase raw natural gas containing significant quantities of NGLs, process the raw natural gas and sell the processed gas and NGLs. If we are unsuccessful in balancing the purchase of raw natural gas with its component NGLs and our sales of pipeline quality gas and NGLs, our exposure to commodity price risks will increase.

We purchase from producers and other customers a substantial amount of the natural gas that flows through our natural gas gathering and processing systems and our transportation pipeline for resale to third parties, including natural gas marketers and utilities. We may not be successful in balancing our purchases and sales. In addition, a producer could fail to deliver promised volumes or could deliver volumes in excess of contracted volumes, a purchaser could purchase less than contracted volumes, or the natural gas price differential between the regions in which we operate could vary unexpectedly. Any of these actions could cause our purchases and sales not to be balanced. If our purchases and sales are not balanced, we will face increased exposure to commodity price risks and could have increased volatility in our operating results.

Our results of operations and cash flow may be adversely affected by risks associated with our hedging activities.

In performing our functions in the Gathering and Processing segment, we are a seller of NGLs and are exposed to commodity price risk associated with downward movements in NGL prices. As a result of the volatility of NGLs, we have executed swap contracts settled against ethane, propane, butane, natural gasoline and west Texas intermediate crude market prices, supplemented with crude oil put options. (Historically, changes in the prices of heavy NGLs, such as natural gasoline, have generally correlated with changes in the price of crude oil.) The Partnership has executed swap contracts settled against ethane, propane, butane, natural gasoline, crude oil and natural gas market prices. As of March 29, 2007, we have hedged approximately 71 percent of our expected exposure to NGL in 2007 and 2008 and approximately 28 percent in 2009. We have hedged approximately 66 percent of our expected exposure to condensate prices in 2007 and approximately 64 percent in 2008 and 2009. We have hedged approximately 60 percent of our expected exposure to natural gas prices in 2007. We continually monitor our hedging and contract portfolio and expect to continue to adjust our hedge position as conditions warrant. Also, we may seek to limit our exposure to changes in interest rates by using financial derivative instruments and other hedging mechanisms from time to time. For more information about our risk management activities, please read “Item 7A — Quantitative and Qualitative Disclosures about Market Risk.”

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Even though our management monitors our hedging activities, these activities can result in substantial losses. Such losses could occur under various circumstances, including any circumstance in which a counterparty does not perform its obligations under the applicable hedging arrangement, the hedging arrangement is imperfect, or our hedging policies and procedures are not followed or do not work as planned.

To the extent that we intend to grow internally through construction of new, or modification of existing, facilities, we may not be able to manage that growth effectively, which could decrease our cash flow and adversely affect our results of operation.

A principal focus of our strategy is to continue to grow by expanding our business both internally and through acquisitions. Our ability to grow internally will depend on a number of factors, some of which will be beyond our control. In general, the construction of additions or modifications to our existing systems, and the construction of new midstream assets involve numerous regulatory, environmental, political and legal uncertainties beyond our control. Any project that we undertake may not be completed on schedule, at budgeted cost or at all. Construction may occur over an extended period, and we are not likely to receive a material increase in revenues related to such project until it is completed. Moreover, our revenues may not increase immediately upon its completion because the anticipated growth in gas production that the project was intended to capture does not materialize, our estimates of the growth in production prove inaccurate or for other reasons. For any of these reasons, newly constructed or modified midstream facilities may not generate our expected investment return and that, in turn, could adversely affect our cash flows and results of operations.

In addition, our ability to undertake to grow in this fashion will depend on our ability to finance the construction or modification project and on our ability to hire, train and retain qualified personnel to manage and operate these facilities when completed.

Because we distribute all of our available cash to our unitholders, our future growth may be limited.

Since we will distribute all of our available cash to our unitholders, subject to the limitations on restricted payments contained in the indenture governing our senior notes and our credit facility, we will depend on financing provided by commercial banks and other lenders and the issuance of debt and equity securities to finance any significant internal organic growth or acquisitions. For a definition of available cash, please see our partnership agreement. If we are unable to obtain adequate financing from these sources, our ability to grow will be limited.

Our industry is highly competitive, and increased competitive pressure could adversely affect our business and operating results.

We compete with similar enterprises in each of our areas of operations. Some of our competitors are large oil, natural gas and petrochemical companies that have greater financial resources and access to supplies of natural gas than we do. In addition, our customers who are significant producers or consumers of NGLs may develop their own processing facilities in lieu of using ours. Similarly, competitors may establish new connections with pipeline systems that would create additional competition for services that we provide to our customers. Our ability to renew or replace existing contracts with our customers at rates sufficient to maintain current revenues and cash flows could be adversely affected by the activities of our competitors. All of these competitive pressures could have a material adverse effect on our business, results of operations and financial condition.

If third-party pipelines interconnected to our processing plants become unavailable to transport NGLs, our cash flow and results of operations could be adversely affected.

We depend upon third party pipelines that provide delivery options to and from our processing plants for the benefit of our customers. If any of these pipelines become unavailable to transport the NGLs produced at our related processing plants, we would be required to find alternative means to transport the NGLs out of our

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processing plants, which could increase our costs, reduce the revenues we might obtain from the sale of NGLs or reduce our ability to process natural gas at these plants.

We are exposed to the credit risks of our key customers, and any material nonpayment or nonperformance by our key customers could adversely affect our cash flow and results of operations.

We are subject to risks of loss resulting from nonpayment or nonperformance by our customers. Any material nonpayment or nonperformance our key customers could reduce our ability to make distributions to our unitholders. Furthermore, some of our customers may be highly leveraged and subject to their own operating and regulatory risks, which increases the risk that they may default on their obligations to us.

Our business involves many hazards and operational risks, some of which may not be fully covered by insurance. If a significant accident or event occurs that is not fully insured, our operations and financial results could be adversely affected.

Our operations are subject to the many hazards inherent in the gathering, processing and transportation of natural gas and NGLs, including:

•  damage to our gathering and processing facilities, pipelines, related equipment and surrounding properties caused by tornadoes, floods, fires and other natural disasters and acts of terrorism;

•  inadvertent damage from construction and farm equipment;

•  leaks of natural gas, NGLs and other hydrocarbons or losses of natural gas or NGLs as a result of the malfunction of pipelines, measurement equipment or facilities at receipt or delivery points;

•  fires and explosions;

•  weather related hazards, such as hurricanes; and

•  other hazards, including those associated with high-sulfur content, or sour gas, such as an accidental discharge of hydrogen sulfide gas, that could also result in personal injury and loss of life, pollution and suspension of operations.

These risks could result in substantial losses due to personal injury or loss of life, severe damage to and destruction of property and equipment and pollution or other environmental damage and may result in curtailment or suspension of our related operations. A natural disaster or other hazard affecting the areas in which we operate could have a material adverse effect on our operations. We are not insured against all environmental events that might occur. If a significant accident or event occurs that is not insured or fully insured, it could adversely affect our operations and financial condition.

Due to our lack of asset diversification, adverse developments in our midstream operations would adversely affect our cash flows and results of operations.

We rely exclusively on the revenues generated from our midstream energy business, and as a result, our financial condition depends upon prices of, and continued demand for, natural gas and NGLs. Due to our lack of diversification in asset type, an adverse development in this business would have a significantly greater impact on our financial condition and results of operations than if we maintained more diverse assets.

Failure of the gas that we ship on our pipelines to meet the specifications of interconnecting interstate pipelines could result in curtailments by the interstate pipelines.

The markets to which the shippers on our pipelines ship natural gas include interstate pipelines. These interstate pipelines establish specifications for the natural gas that they are willing to accept, which include requirements such as hydrocarbon dewpoint, temperature, and foreign content including water, sulfur, carbon dioxide and hydrogen sulfide. These specifications vary by interstate pipeline. If the total mix of natural gas shipped by the shippers on our pipeline fails to meet the specifications of a particular interstate pipeline, it may refuse to accept all or a part of the natural gas scheduled for delivery to it. In those circumstances, we may be required to find alternative markets for that gas or to shut-in the producers of the non-conforming gas, potentially reducing our through-put volumes or revenues. Please see “Item 1 — Business.”

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Terrorist attacks, the threat of terrorist attacks, continued hostilities in the Middle East or other sustained military campaigns may adversely impact our results of operations.

The long-term impact of terrorist attacks, such as the attacks that occurred on September 11, 2001, and the magnitude of the threat of future terrorist attacks on the energy transportation industry in general and on us in particular are not known at this time. Uncertainty surrounding continued hostilities in the Middle East or other sustained military campaigns may affect our operations in unpredictable ways, including disruptions of natural gas supplies and markets for natural gas and NGLs and the possibility that infrastructure facilities could be direct targets of, or indirect casualties of, an act of terror.

Changes in the insurance markets attributable to terrorist attacks may make certain types of insurance more difficult for us to obtain. Moreover, the insurance that may be available to us may be significantly more expensive than our existing insurance coverage. Instability in the financial markets as a result of terrorism or war could also affect our ability to raise capital.

We do not own all of the land on which our pipelines and facilities have been constructed, and we are therefore subject to the possibility of increased costs or the inability to retain necessary land use.

We obtain the rights to construct and operate our pipelines on land owned by third parties and governmental agencies for specified periods of time. Many of these rights-of-way are perpetual in duration; others have terms ranging from five to ten years. Many are subject to rights of reversion in the case of non-utilization for periods ranging from one to three years. In addition, some of our processing facilities are located on leased premises. Our loss of these rights, through our inability to renew right-of-way contracts or leases or otherwise, could have a material adverse effect on our business, results of operations and financial condition.

In addition, the construction of additions to our existing gathering assets may require us to obtain new rights-of-way prior to constructing new pipelines. We may be unable to obtain such rights-of-way to connect new natural gas supplies to our existing gathering lines or to capitalize on other attractive expansion opportunities. If the cost of obtaining new rights-of-way increases, then our cash flows and growth opportunities could be adversely affected.

A successful challenge to the rates we charge on our Regency Intrastate Pipeline may reduce the amount of cash we generate.

To the extent our Regency Intrastate Pipeline transports natural gas in interstate commerce, the rates, terms and conditions of that transportation service are subject to regulation by the FERC, pursuant to Section 311 of the NGPA, which regulates, among other things, the provision of transportation services by an intrastate natural gas pipeline on behalf of an interstate natural gas pipeline. Under Section 311, rates charged for transportation must be fair and equitable, and the FERC is required to approve the terms and conditions of the service. Rates established pursuant to Section 311 are generally analogous to the cost based rates FERC deems “just and reasonable” for interstate pipelines under the NGA. FERC may therefore apply its NGA policies to determine costs that can be included in cost of service used to establish Section 311 rates. These rate policies include the recent FERC policy on income tax allowance that permits interstate pipelines to include, as part of the cost of service, a full income tax allowance for all entities owning the utility asset provided such entities or individuals are subject to an actual or potential tax liability. If the Section 311 rates presently approved for Regency through May 1, 2008 are successfully challenged in a complaint or after such date the FERC disallows the inclusion of costs in the cost of service, changes its regulations or policies, or establishes more onerous terms and conditions applicable to Section 311 service, this may adversely affect our business. Any reduction in our rates could have an adverse effect on our business, results of operations and financial condition.

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A change in the characterization of some of our assets by federal, state or local regulatory agencies or a change in policy by those agencies may result in increased regulation of our assets, which may cause our revenues to decline and operating expenses to increase.

Our natural gas gathering and intrastate transportation operations are generally exempt from FERC regulation under the NGA, but FERC regulation still affects these businesses and the markets for products derived from these businesses. FERC’s policies and practices, including, for example, its policies on open access transportation, ratemaking, capacity release, and market center promotion, indirectly affect intrastate markets. In recent years, FERC has pursued pro-competitive regulatory policies. We cannot assure you, however, that FERC will continue this approach as it considers matters such as pipeline rates and rules and policies that may affect rights of access to natural gas transportation capacity. In addition, the distinction between FERC-regulated transmission service and federally unregulated gathering services is the subject of regular litigation at FERC and in the courts and of policy discussions at FERC, so, in such circumstances, the classification and regulation of some of our gathering facilities or our intrastate transportation pipeline may be subject to change based on future determinations by FERC, the courts or Congress. Such a change could result in increased regulation by FERC.

Other state and local regulations also affect our business. Our gathering lines are subject to ratable take and common purchaser statutes in states in which we operate. Ratable take statutes generally require gatherers to take, without undue discrimination, oil or natural gas production that may be tendered to the gatherer for handling. Similarly, common purchaser statutes generally require gatherers to purchase without undue discrimination as to source of supply or producer. These statutes restrict our right as an owner of gathering facilities to decide with whom we contract to purchase or transport natural gas. Federal law leaves any economic regulation of natural gas gathering to the states. States in which we operate have adopted complaint-based regulation of oil and natural gas gathering activities, which allows oil and natural gas producers and shippers to file complaints with state regulators in an effort to resolve grievances relating to oil and natural gas gathering access and rate discrimination. Please read “Item 1 — Business — Regulation.”

We may incur significant costs and liabilities in the future resulting from a failure to comply with new or existing environmental regulations or an accidental release of hazardous substances into the environment.

Our operations are subject to stringent and complex federal, state and local environmental laws and regulations governing, among other things, air emissions, wastewater discharges, the use, management and disposal of hazardous and nonhazardous materials and wastes, and the cleanup of contamination. Noncompliance with such laws and regulations, or incidents resulting in environmental releases, could cause us to incur substantial costs, penalties, fines and other criminal sanctions, third party claims for personal injury or property damage, investments to retrofit or upgrade our facilities and programs, or curtailment of operations. Certain environmental statutes, including CERCLA and comparable state laws, impose strict, joint and several liability for costs required to clean up and restore sites where hazardous substances have been disposed or otherwise released.

There is inherent risk of the incurrence of environmental costs and liabilities in our business due to the necessity of handling natural gas and petroleum products, air emissions related to our operations, and historical industry operations and waste disposal practices. For example, an accidental release from one of our pipelines or processing facilities could subject us to substantial liabilities arising from environmental cleanup and restoration costs, claims made by neighboring landowners and other third parties for personal injury and property damage, and fines or penalties for related violations of environmental laws or regulations. Moreover, the possibility exists that stricter laws, regulations or enforcement policies could significantly increase our compliance costs and the cost of any remediation that may become necessary. We may not be able to recover these costs from insurance. We cannot be certain, however, that identification of presently unidentified conditions, more vigorous enforcement by regulatory agencies, enactment of more stringent laws and regulations, or other unanticipated events will not arise in the future and give rise to material environmental liabilities that could have a material adverse effect on our business, financial condition or results of operations. Please read “Item 1 — Business — Regulation — Environmental matters” and “Item 7 — Management’s

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Discussion and Analysis of Financial Condition and Results of Operations — Other Matters — Environmental Matters.”

If we fail to develop or maintain an effective system of internal controls, we may not be able to report our financial results accurately or prevent fraud.

We became subject to the public reporting requirements of the Securities Exchange Act of 1934 on February 3, 2006. We produce our consolidated financial statements in accordance with the requirements of GAAP, but we do not become subject to certain of the internal controls standards applicable to most companies with publicly traded securities until 2008. We may not currently meet all those standards. Effective internal controls are necessary for us to provide reliable financial reports to prevent fraud and to operate successfully as a publicly traded partnership. Our efforts to develop and maintain our internal controls compliance program may not be successful, and we may be unable to maintain adequate controls over our financial processes and reporting in the future, including compliance with the obligations under Section 404 of the Sarbanes-Oxley Act of 2002, which we refer to as Section 404. For example, Section 404 will require us, among other things, annually to review and report on, and our independent registered public accounting firm to attest to, our internal control over financial reporting. We must comply with Section 404 for our fiscal year ending December 31, 2007. Any failure to develop or maintain an effective internal controls compliance program or difficulties encountered in its implementation or other effective improvement of our internal controls could harm our operating results or cause us to fail to meet our reporting obligations. Given the difficulties inherent in the design and operation of internal controls over financial reporting, we can provide no assurance as to our conclusions under Section 404, or those of our independent registered public accounting firm, regarding the effectiveness of our internal controls. Ineffective internal controls subject us to regulatory scrutiny and a loss of confidence in our reported financial information, which could have an adverse effect on our business, results of operations and financial condition.

We have a holding company structure in which our subsidiaries conduct our operations and own our operating assets.

We are a holding company, and our subsidiaries conduct all of our operations and own all of our operating assets. We have no significant assets other than the partnership interests and the equity in our subsidiaries. As a result, our ability to make required payments on the senior notes depends on the performance of our subsidiaries and their ability to distribute funds to us. The ability of our subsidiaries to make distributions to us may be restricted by, among other things, our credit facility and applicable state partnership and other laws and regulations. Pursuant to our credit facility, we may be required to establish cash reserves for the future payment of principal and interest on the amounts outstanding under our credit facility. If we are unable to obtain the funds necessary to pay the principal amount of the senior notes at maturity, we may be required to adopt one or more alternatives, such as a refinancing of the senior notes. We cannot assure you that we would be able to refinance the senior notes.

Our leverage may limit our ability to borrow additional funds, comply with the terms of our indebtedness or capitalize on business opportunities.

Our leverage is significant in relation to our partners’ capital. Our debt to capital ratio (calculated as total debt divided by the sum of total debt and partners’ capital) as of December 31, 2006 was 76 percent. As of March 22, 2007, our total outstanding long-term debt was $698,100,000. We will be prohibited from making cash distributions during an event of default under any of our indebtedness. Various limitations in our credit facility, as well as the indentures for the notes, may reduce our ability to incur additional debt, to engage in some transactions and to capitalize on business opportunities. Any subsequent refinancing of our current indebtedness or any new indebtedness could have similar or greater restrictions.

Our leverage may adversely affect our ability to fund future working capital, capital expenditures and other general partnership requirements, future acquisition, construction or development activities, or to otherwise fully realize the value of our assets and opportunities because of the need to dedicate a substantial portion of our cash flow from operations to payments on our indebtedness or to comply with any restrictive

33

terms of our indebtedness. Our leverage may also make our results of operations more susceptible to adverse economic and industry conditions by limiting our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate and may place us at a competitive disadvantage as compared to our competitors that have less debt.

Increases in interest rates, which have recently experienced record lows, could adversely impact our unit price and our ability to issue additional equity, in order to make acquisitions, to reduce debt or for other purposes.

During 2004 and 2005, the credit markets experienced 50-year record lows in interest rates. During the latter half of 2005 and in 2006, interest rates increased. If the overall economy continues to strengthen, monetary policy may tighten further, resulting in higher interest rates to counter possible inflation. The interest rate on our senior notes is fixed and the loans outstanding under our credit facility bear interest at a floating rate. An increase of 100 basis points in the LIBOR rate would increase our annual payment by $1,100,000. Additionally, interest rates on future credit facilities and debt offerings could be higher than current levels, causing our financing costs to increase accordingly. As with other yield-oriented securities, the market price for our units will be affected by the level of our cash distributions and implied distribution yield. The distribution yield is often used by investors to compare and rank yield-oriented securities for investment decision-making purposes. Therefore, changes in interest rates, either positive or negative, may affect the yield requirements of investors who invest in our units, and a rising interest rate environment could have an adverse effect on our unit price and our ability to issue additional equity, in order to make acquisitions, to reduce debt or for other purposes.

You may not be able to sell large blocks of our common units in a single day without realizing a lower than expected sales price.

During the six months ended March 15, 2007, the average daily volume of our common units traded on the NASDAQ was 43,000. The median of the daily volume for the same period was 39,200. The maximum and minimum daily volume for the same period was 120,400 and 8,500, respectively. If we are unable to increase the market demand for our equity securities, you may be adversely affected.

We may not have the ability to raise funds necessary to finance any change of control offer required under our senior notes.

If a change of control (as defined in the indenture) occurs, we will be required to offer to purchase our outstanding senior notes at 101 percent of their principal amount plus accrued and unpaid interest. If a purchase offer obligation arises under the indenture governing the senior notes, a change of control could also have occurred under the senior secured credit facilities, which could result in the acceleration of the indebtedness outstanding thereunder. Any of our future debt agreements may contain similar restrictions and provisions. If a purchase offer were required under the indenture for our debt, we may not have sufficient funds to pay the purchase price of all debt that we are required to purchase or repay.

RISKS RELATED TO OUR STRUCTURE

HM Capital Investors own 60.2 percent of the limited partner units outstanding and control 100 percent of our general partner, which has sole responsibility for conducting our business and managing our operations.

HM Capital Investors own 60.2 percent of the limited partner units outstanding and control 100 percent of our general partner. Although our general partner has a fiduciary duty to manage us in a manner beneficial to us and our unitholders, the directors and officers of our general partner have a fiduciary duty to manage our general partner in a manner beneficial to its owners, the HM Capital Investors. Conflicts of interest may arise between the HM Capital Investors and their affiliates, including our general partner, on the one hand, and us,

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on the other hand. In resolving these conflicts of interest, our general partner may favor its own interests and the interests of its affiliates over our interests. These conflicts include, among others, the following situations:

•  neither our partnership agreement nor any other agreement requires the HM Capital Investors or their affiliates to pursue a business strategy that favors us;

•  our General Partner is allowed to take into account the interests of parties other than us, such as the HM Capital Investors, in resolving conflicts of interest;

•  HM Capital Investors and their affiliates may engage in competition with us;

•  our General Partner has limited its liability and reduced its fiduciary duties, and has also restricted the remedies available to our unitholders for actions that, without the limitations, might constitute breaches of fiduciary duty;

•  our General Partner determines the amount and timing of asset purchases and sales, capital expenditures, borrowings, issuance of additional partnership securities, and reserves, each of which can affect the amount of cash available to pay interest on, and principal of, the notes;

•  our General Partner determines which costs incurred by it and its affiliates are reimbursable by us;

•  our partnership agreement does not restrict our General Partner from causing us to pay it or its affiliates for any services rendered to us or entering into additional contractual arrangements with any of these entities on our behalf;

•  our General Partner intends to limit its liability regarding our contractual and other obligations; and

•  our General Partner controls the enforcement of obligations owed to us by our General Partner and its affiliates.

HM Capital Investors and their affiliates may compete directly with us.

HM Capital Investors and their affiliates are not prohibited from owning assets or engaging in businesses that compete directly or independently with us. In addition, HM Capital Investors or their affiliates may acquire, construct or dispose of any additional midstream or other assets in the future, without any obligation to offer us the opportunity to purchase or construct or dispose of those assets.

Our reimbursement of our general partner’s expenses will reduce our cash available for distribution to you.

Prior to making any distribution on the common units, we will reimburse our general partner and its affiliates for all expenses they incur on our behalf. These expenses will include all costs incurred by our general partner and its affiliates in managing and operating us, including costs for rendering corporate staff and support services to us. Please read “Item 13. Certain Relationships and Related Party Transactions, and Directors Independence.” The reimbursement of expenses of our general partner and its affiliates could adversely affect our ability to pay cash distributions to you.

Our partnership agreement limits our general partner’s fiduciary duties to our unitholders and restricts the remedies available to unitholders for actions taken by our general partner that might otherwise constitute breaches of fiduciary duty.

Our partnership agreement contains provisions that reduce the standards to which our general partner would otherwise be held by state fiduciary duty law. For example, our partnership agreement:

•  permits our general partner to make a number of decisions in its individual capacity, as opposed to its capacity as our general partner. This entitles our general partner to consider only the interests and factors that it desires, and it has no duty or obligation to give any consideration to any interest of, or factors affecting, us, our affiliates or any limited partner. Examples include the exercise of its limited

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call right, its voting rights with respect to the units it owns, its registration rights and its determination whether or not to consent to any merger or consolidation of the partnership;

•  provides that our general partner will not have any liability to us or our unitholders for decisions made in its capacity as a general partner so long as it acted in good faith, meaning it believed the decision was in the best interests of our partnership;

•  provides that our general partner is entitled to make other decisions in “good faith” if it believes that the decision is in our best interests;

•  provides generally that affiliated transactions and resolutions of conflicts of interest not approved by the conflicts committee of our general partner and not involving a vote of unitholders must be on terms no less favorable to us than those generally being provided to or available from unrelated third parties or be “fair and reasonable” to us, as determined by our general partner in good faith, and that, in determining whether a transaction or resolution is “fair and reasonable,” our general partner may consider the totality of the relationships between the parties involved, including other transactions that may be particularly advantageous or beneficial to us; and

•  provides that our general partner and its officers and directors will not be liable for monetary damages to us, our limited partners or assignees for any acts or omissions unless there has been a final and non-appealable judgment entered by a court of competent jurisdiction determining that the general partner or those other persons acted in bad faith or engaged in fraud or willful misconduct.

By purchasing a common unit, a common unitholder will become bound by the provisions in the partnership agreement, including the provisions discussed above.

Unitholders have limited voting rights and are not entitled to elect our general partner or its directors.

Unlike the holders of common stock in a corporation, unitholders have only limited voting rights on matters affecting our business and, therefore, limited ability to influence management’s decisions regarding our business. Unitholders did not elect our general partner or its board of directors and will have no right to elect our general partner or its board of directors on an annual or other continuing basis. The board of directors of our general partner is chosen by the members of our general partner. Furthermore, if the unitholders were dissatisfied with the performance of our general partner, they will have little ability to remove our general partner. As a result of these limitations, the price at which the common units will trade could be diminished because of the absence or reduction of a takeover premium in the trading price.

Even if unitholders are dissatisfied, they cannot remove our general partner without its consent.

The unitholders are currently unable to remove the general partner without its consent because the general partner and its affiliates own sufficient units to be able to prevent its removal. The vote of the holders of at least 662/3 percent of all outstanding units voting together as a single class is required to remove the general partner. Our general partner and its affiliates own 60.2 percent of the total of our common and subordinated units. Moreover, if our general partner is removed without cause during the subordination period and units held by our general partner and its affiliates are not voted in favor of that removal, all remaining subordinated units will automatically convert into common units and any existing arrearages on the common units will be extinguished. A removal of the general partner under these circumstances would adversely affect the common units by prematurely eliminating their distribution and liquidation preference over the subordinated units, which would otherwise have continued until we had met certain distribution and performance tests.

Our partnership agreement restricts the voting rights of those unitholders owning 20 percent or more of our common units.

Unitholders’ voting rights are further restricted by the partnership agreement provision providing that any units held by a person that owns 20 percent or more of any class of units then outstanding, other than our general partner, its affiliates, their transferees, and persons who acquired such units with the prior approval of our general partner, cannot vote on any matter. Our partnership agreement also contains provisions limiting the

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ability of unitholders to call meetings or to acquire information about our operations, as well as other provisions limiting the unitholders’ ability to influence the manner or direction of management.

Control of our general partner may be transferred to a third party without unitholder consent.

Our general partner may transfer its general partner interest to a third party in a merger or in a sale of all or substantially all of its assets without the consent of the unitholders. Furthermore, our partnership agreement does not restrict the ability of the partners of our general partner from transferring their ownership in our general partner to a third party. The new partners of our general partner would then be in a position to replace the board of directors and officers of Regency GP LLC with their own choices and to control the decisions taken by the board of directors and officers.

We may issue an unlimited number of additional units without your approval, which would dilute your existing ownership interest.

Our general partner, without the approval of our unitholders, may cause us to issue an unlimited number of additional common units.

The issuance by us of additional common units or other equity securities of equal or senior rank will have the following effects:

•  our unitholders’ proportionate ownership interest in us will decrease;

•  the amount of cash available for distribution on each unit may decrease;

•  because a lower percentage of total outstanding units will be subordinated units, the risk that a shortfall in the payment of the minimum quarterly distribution will be borne by our common unitholders will increase;

•  the relative voting strength of each previously outstanding unit may be diminished; and

•  the market price of the common units may decline.

Our general partner has a limited call right that may require you to sell your units at an undesirable time or price.

If at any time our general partner and its affiliates own more than 80 percent of the common units, our general partner will have the right, but not the obligation (which it may assign to any of its affiliates or to us) to acquire all, but not less than all, of the common units held by unaffiliated persons at a price not less than their then-current market price. As a result, you may be required to sell your common units at an undesirable time or price and may not receive any return on your investment. You may also incur a tax liability upon a sale of your units. Our general partner and its affiliates now own approximately 31.3 percent of the common units. At the end of the subordination period, assuming no additional issuances of common units, our general partner and its affiliates will own approximately 60.2 percent of the common units.

Your liability may not be limited if a court finds that unitholder action constitutes control of our business.

A general partner of a partnership generally has unlimited liability for the obligations of the partnership, except for those contractual obligations of the partnership that are expressly made without recourse to the general partner. Our partnership is organized under Delaware law and we conduct business in a number of other states. The limitations on the liability of holders of limited partner interests for the obligations of a limited partnership have not been clearly established in some of the other states in which we do business. In most states, a limited partner is only liable if he participates in the “control” of the business of the partnership. These statutes generally do not define control, but do permit limited partners to engage in certain activities, including, among other actions, taking any action with respect to the dissolution of the partnership, the sale, exchange, lease or mortgage of any asset of the partnership, the admission or removal of the general partner

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and the amendment of the partnership agreement. You could, however, be liable for any and all of our obligations as if you were a general partner if:

•  a court or government agency determined that we were conducting business in a state but had not complied with that particular state’s partnership statute; or

•  your right to act with other unitholders to take other actions under our partnership agreement is found to constitute “control” of our business.

Unitholders may have liability to repay distributions that were wrongfully distributed to them.

Under certain circumstances, unitholders may have to repay amounts wrongfully returned or distributed to them. Under Section 17-607 of the Delaware Revised Uniform Limited Partnership Act, we may not make a distribution to you if the distribution would cause our liabilities to exceed the fair value of our assets. Delaware law provides that for a period of three years from the date of the distribution, limited partners who received an impermissible distribution and who knew at the time of the distribution that it violated Delaware law will be liable to the limited partnership for the distribution amount. Substituted limited partners are liable for the obligations of the assignor to make required contributions to the partnership other than contribution obligations that are unknown to the substituted limited partner at the time it became a limited partner and that could not be ascertained from the partnership agreement. Liabilities to partners on account of their partnership interest and liabilities that are non-recourse to the partnership are not counted for purposes of determining whether a distribution is permitted.

TAX RISKS RELATING TO OUR COMMON UNITS

Our tax treatment depends on our status as a partnership for federal income tax purposes, as well as our not being subject to a material amount of entity-level taxation by individual states. If the Internal Revenue Service, or IRS, treats us as a corporation or we become subject to a material amount of entity-level taxation for state tax purposes, it would substantially reduce the amount of cash available for payment for distributions on our common units.

Under Section 7704 of the Internal Revenue Code, a publicly traded partnership may be taxed as a corporation unless it satisfies a “qualifying income” exception that allows it to be treated as a partnership for U.S. federal income tax purposes. We believe that we meet the “qualifying income” exception and currently expect to meet such exception for the foreseeable future. If the IRS were to disagree and if we were treated as a corporation for federal income tax purposes, we would pay federal income tax on our income at the corporate tax rate, which is currently a maximum of 35 percent, and would likely pay state income tax at varying rates. Treatment of us as a corporation would result in a material reduction in the anticipated cash flow and after-tax return to the unitholders, likely causing a substantial reduction in the value of the units.

Current law may change so as to cause us to be treated as a corporation for federal income tax purposes or otherwise subject us to entity-level taxation. In addition, because of widespread state budget deficits, several states are evaluating ways to subject partnerships to entity-level taxation through the imposition of state income, franchise and other forms of taxation. For example, we will be subject to a new entity level tax on the portion of our income that is generated in Texas beginning in our tax year ending in 2007. Specifically, the Texas margin tax will be imposed at a maximum effective rate of 0.7 percent of our gross income apportioned to Texas. Imposition of such a tax on us by Texas, or any other state, will reduce our cash flow.

A successful IRS contest of the federal income tax positions we take may adversely affect the market for our common units, and the cost of any IRS contest will reduce our cash available for distribution to you.

We did not request a ruling from the IRS with respect to our treatment as a partnership for federal income tax purposes or any other matter affecting us. The IRS may adopt positions that differ from the positions we take. It may be necessary to resort to administrative or court proceedings to sustain some or all of the positions we take. A court may not agree with all of the positions we take. Any contest with the IRS may materially and adversely impact the market for our common units and the price at which they trade. In addition, our

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costs of any contest with the IRS will be borne indirectly by our unitholders and our general partner because the costs will reduce our cash available for distribution.

You may be required to pay taxes on income from us even if you do not receive any cash distributions from us.

Because our unitholders will be treated as partners to whom we will allocate taxable income that could be different in amount than the cash we distribute, you will be required to pay any federal income taxes and, in some cases, state and local income taxes on your share of our taxable income even if you receive no cash distributions from us. You may not receive cash distributions from us equal to your share of our taxable income or even equal to the tax liability that results from that income.

Tax gain or loss on disposition of common units could be more or less than expected.

If you sell your common units, you will recognize a gain or loss equal to the difference between the amount realized and your tax basis in those common units. Prior distributions to you in excess of the total net taxable income you were allocated for a common unit, which decreased your tax basis in that common unit, will, in effect, become taxable income to you if the common unit is sold at a price greater than your tax basis in that common unit, even if the price is less than your original cost. A substantial portion of the amount realized, whether or not representing gain, may be ordinary income. In addition, if you sell your units, you may incur a tax liability in excess of the amount of cash you receive from the sale.

Tax-exempt entities and foreign persons face unique tax issues from owning common units that may result in adverse tax consequences to them.

Investment in common units by tax-exempt entities, such as individual retirement accounts (known as IRAs), other retirement plans and non-U.S. persons raises issues unique to them. For example, virtually all of our income allocated to organizations that are exempt from federal income tax, including IRAs and other retirement plans, will be unrelated business taxable income and will be taxable to them. Distributions to non-U.S. persons will be reduced by withholding taxes at the highest applicable effective tax rate, and non-U.S. persons will be required to file United States federal tax returns and pay tax on their share of our taxable income. If you are a tax-exempt entity or a regulated investment company, you should consult your tax advisor before investing in our common units.

We will treat each purchaser of our common units as having the same tax benefits without regard to the actual common units purchased. The IRS may challenge this treatment, which could adversely affect the value of the common units.

Because we cannot match transferors and transferees of common units and because of other reasons, we will take depreciation and amortization positions that may not conform to all aspects of existing Treasury regulations. A successful IRS challenge to those positions could adversely affect the amount of tax benefits available to you. It also could affect the timing of these tax benefits or the amount of gain from the sale of common units and could have a negative impact on the value of our common units or result in audit adjustments to your tax returns.

You may be subject to state and local taxes and tax return filing requirements.

In addition to federal income taxes, you will likely be subject to other taxes, including state and local taxes, unincorporated business taxes and estate, inheritance or intangible taxes that are imposed by the various jurisdictions in which we do business or own property, even if you do not live in any of those jurisdictions. You will likely be required to file state and local income tax returns and pay state and local income taxes in some or all of these jurisdictions. Further, you may be subject to penalties for failure to comply with those requirements. We own assets and do business in Texas, Oklahoma, Kansas, Louisiana, and Colorado. Each of these states, other than Texas, currently imposes a personal income tax as well as an income tax on corporations and other entities. Texas imposes a franchise tax (which is based in part on net income) on

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corporations and limited liability companies. As we make acquisitions or expand our business, we may own assets or do business in additional states that impose a personal income tax. It is your responsibility to file all United States federal, foreign, state and local tax returns.

Item 1B.   Unresolved Staff Comments

None.

Item 2.   Properties

Substantially all of our pipelines, which are located in Texas, Louisiana, Oklahoma, Kansas and, to a minor extent, Colorado, are constructed on rights-of-way granted by the apparent record owners of the property. Lands over which pipeline rights-of-way have been obtained may be subject to prior liens that have not been subordinated to the right-of-way grants. We have obtained, where necessary, easement agreements from public authorities and railroad companies to cross over or under, or to lay facilities in or along, watercourses, county roads, municipal streets, railroad properties and state highways, as applicable. In some cases, properties on which our pipelines were built were purchased in fee.

We believe that we have satisfactory title to all our assets. Record title to some of our assets may continue to be held by prior owners until we have made the appropriate filings in the jurisdictions in which such assets are located. Substantially all our assets are subject to either a security interest in favor of our senior notes or a first priority lien and security interest in favor of the lending banks under our credit facility. Title to our assets may also be subject to other encumbrances. We believe that none of such encumbrances should materially detract from the value of our properties or our interest in those properties or should materially interfere with our use of them in the operation of our business.

Office Facilities

Our executive offices occupy one entire floor in an office building at 1700 Pacific Avenue, Dallas, Texas, under a lease that expires at the end of October 2008. We also maintain small regional offices located on leased premises in Shreveport, Louisiana; Tulsa, Oklahoma; and Midland and San Antonio, Texas. We lease the San Antonio office space from BlackBrush Energy, Inc., a related party. While we may require additional office space as our business expands, we believe that our existing facilities are adequate to meet our needs for the immediate future, and that additional facilities will be available on commercially reasonable terms as needed. For additional information regarding our properties, please read “Item 1 — Business”.

Item 3.   Legal Proceedings

The operations of our operating partnership, Regency Gas Services LP or RGS, and its subsidiaries are subject to a variety of risks and disputes normally incident to our business. As a result, we may, at any given time, be a defendant in various legal proceedings and litigation arising in the ordinary course of business. Neither the Partnership nor any of its subsidiaries, including RGS, is, however, currently a party to any pending or, to our knowledge, threatened material legal or governmental proceedings, including proceedings under any of the various environmental protection statutes to which it is subject. See, however, the discussion of the TCEQ NOE and the ODEQ NOV under “Item 1 — Business — Environmental Matters — TCEQ Notice of Enforcement” and “Item 1 — Business — Environmental Matters — ODEQ Notice of Violation.”

We maintain insurance policies with insurers in amounts and with coverage and deductibles that we, with the advice of our insurance advisors and brokers, believe are reasonable and prudent. We cannot, however, assure you that this insurance will be adequate to protect us from all material expenses related to potential future claims for personal and property damage or that these levels of insurance will be available in the future at economical prices.

Item 4.   Submission of Matters to a Vote of Security Holders

None.

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Part II

Item 5.   Market for the Registrant’s Common Equity, Related Unitholder Matters and Issuer Purchases of Equity Securities

Market Price of and Distributions on the Common Units and Related Unitholder Matters

Our common units were first offered and sold to the public on February 3, 2006. Our common units are listed on The Nasdaq Stock Market, LLC under the symbol “RGNC”. As of March 22, 2007, the number of holders of record of common units was 50, including Cede & Co., as nominee for Depository Trust Company, which held of record 15,099,963 common units. Additionally, there were 17 unitholders of record of our subordinated units. There is no established public trading market for our subordinated units. Following the announcement by The Nasdaq Stock Market LLC of different market tiers in February 2006, our common units were listed on the Nasdaq Global Market until March 2007 at which time The Nasdaq Stock Market LLC authorized an intermarket transfer of our common units to the Nasdaq Global Select Market. For more information on the status of our listing on the Nasdaq, see “Item 10. Directors, Executive Officers and Corporate Governance — Audit Committee.” The following table sets forth, for the periods indicated, the high and low quarterly sales prices per common unit, as reported on The Nasdaq Stock Market, LLC, and the cash distributions declared per common unit.

					Cash Distributions
	Price Range				Declared
Period	High		Low		(per unit)
2006
First Quarter(1)	$	22.10	$	19.47	$	—
Second Quarter		23.00		21.30		0.2217
Third Quarter(2)		24.52		22.21		0.3500
Fourth Quarter(2)		27.20		24.75		0.3700
2007
First Quarter (through March 22, 2007)		28.40		26.70		0.3700

(1)

The distribution for the quarter ended March 31, 2006 reflects a pro rata portion of our $0.35 per unit minimum quarterly distribution, covering the period from the February 3, 2006 closing of our initial public offering through March 31, 2006.

(2)

Represents the minimum quarterly distribution per common unit plus $0.02 per unit excluding the Class B and Class C common units which were not entitled to any distributions until after they were converted into common units. The Class B Units and the Class C Units converted into common units on a one-for-one basis on February 15, 2007 and February 8, 2007, respectively, and as such, will be entitled to future cash distributions.

Cash Distribution Policy

We distribute to our unitholders, on a quarterly basis, all of our available cash in the manner described below. During the subordination period (as defined in our partnership agreement), the common units will have the right to receive distributions of available cash from operating surplus in an amount equal to the minimum quarterly distribution, or MQD, of $0.35 per quarter, plus any arrearages in the payment of the MQD on the common units from prior quarters, before any distributions of available cash may be made on the subordinated units. If we do not have sufficient cash to pay our distributions as well as satisfy our other operational and financial obligations, our General Partner has the ability to reduce or eliminate the distribution paid on our common units and subordinated units so that we may satisfy such obligations, including payments on our debt instruments.

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Available cash generally means, for any quarter ending prior to liquidation, all cash on hand at the end of that quarter less the amount of cash reserves that are necessary or appropriate in the reasonable discretion of the General Partner to:

•  provide for the proper conduct of our business;

•  comply with applicable law or any partnership debt instrument or other agreement; or

•  provide funds for distributions to unitholders and the general partner in respect of any one or more of the next four quarters.

In addition to distributions on its 2 percent General Partner interest, our General Partner is entitled to receive incentive distributions if the amount we distribute with respect to any quarter exceeds levels specified in the following table.

		Marginal Percentage
	Total Quarterly	Interest in Distributions
	Distribution Target				General
	Amount	Unitholders			Partner
Minimum Quarterly Distribution	$0.3500		98	%		2	%
First Target Distribution	up to $0.4025		98	%		2	%
Second Target Distribution	above $0.4025 up to $0.4375		85	%		15	%
Third Target Distribution	above $0.4375 up to $0.5250		75	%		25	%
Thereafter	above $0.5250		50	%		50	%

Under the terms of the agreements governing our debt, we are prohibited from declaring or paying any distribution to unitholders if a default or event of default (as defined in such agreements) exists. See “Item 7 — Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — Fourth Amended and Restated Credit Agreement and — Senior Notes.”

Recent Sales of Unregistered Securities

On September 8, 2005, in connection with our formation we issued (i) to our general partner, Regency GP LP, its 2 percent general partner interest in us for $20 and (ii) to Regency Acquisition LLC its 98 percent limited partner interest in us for $980. As an integral part of the reorganization of RGS in connection with our initial public offering, we issued (i) 5,353,896 common units and 19,103,896 subordinated units to Regency Acquisition LP, successor to Regency Acquisition LLC, in exchange for certain equity interests in RGS and its general partner and (ii) incentive distribution rights (which represent the right to receive increasing percentages of quarterly distributions in excess of specified amounts) to our general partner in exchange for certain member interests. On March 8, 2006, we closed the sale of an additional 1,400,000 common units at a price of $20 per unit as the underwriters exercised their over allotment option in part. The net proceeds from the sale were used by us to redeem an equivalent number of common units held by Regency Acquisition LP for the benefit of the HM Capital Investors. The common and subordinated units were distributed by Regency Acquisition LP to its parent partnership which then further distributed an aggregate of 457,871 common units and 2,212,279 subordinated units to two directors and seven officers of the Managing GP upon their exchange of certain equity interests in that partnership. The registrant claims exemption from the registration provisions of the Securities Act of 1933 under section 4(2) thereof for these issuances.

On August 15, 2006, in connection with the TexStar Acquisition, we issued 5,173,189 of Class B common units to HMTF Gas Partners II, LP (“HMTF Gas Partners”) as partial consideration for the TexStar acquisition. The Class B common units have the same terms and conditions as our common units, except that the Class B common units are not entitled to participate in distributions by the Partnership. The Class B common units were converted into common units without the payment of further consideration on a one-for-one basis on February 15, 2007. The registrant claims exemption from the registration provisions of the Securities Act of 1933 under section 4(2) thereof for these issuances.

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On September 21, 2006, we entered into a Class C Unit Purchase Agreement with certain purchasers, pursuant to which the purchasers purchased from us 2,857,143 Class C common units representing limited partner interests in the Partnership at a price of $21 per unit. The Class C common units have the same terms and conditions as the Partnership’s common units, except that the Class C common units are not entitled to participate in distributions by the Partnership. The Class C common units were converted into common units without the payment of further consideration on a one-for-one basis on February 8, 2007. The registrant claims exemption from the registration provisions of the Securities Act of 1933 under section 4(2) thereof for these issuances.

There have been no other sales of unregistered equity securities during the last three years.

Use of Proceeds

In connection with the offering and sale by us of 13,750,000 common units on February 3, 2006 pursuant to our initial public offering of securities, we received net proceeds of $257,000,000, after deducting underwriting discounts, fees and commissions but before paying estimated offering expenses. We used the aggregate net proceeds of this offering:

•  To replenish $48,000,000 of the working capital, or 18 percent of the net proceeds, $37,000,000 of which was used to repay working capital borrowings under the revolving portion of our second amended and restated credit facility, that was distributed to the HM Capital Investors by RGS, immediately prior to consummation of the offering and the related formation transactions;

•  to distribute $195,757,000, or 76 percent of net proceeds, to the HM Capital Investors for reimbursement of capital expenditures comprising most of the initial investment by the HM Capital Investors in Regency Gas Services LLC;

•  to pay $9,000,000, or 4 percent of net proceeds, to an affiliate of HM Capital as consideration for the termination of ten-year financial advisory and monitoring and oversight agreements between the affiliate of HM Capital and us; and

•  to pay $4,500,000, or 2 percent of net proceeds, of expenses associated with the offering and related formation transactions.

The HM Capital Investors realized $243,500,000 as a result of distributions made by us in connection with the offering, including the $48,000,000 of working capital distributed to them immediately prior to the consummation of the offering. This represented approximately 94.7 percent of the net proceeds from the offering. In addition, an affiliate of HM Capital received $9,000,000 in connection with the termination of the financial advisory and monitoring and oversight agreements with us.

Borrowings under the revolving portion of our second amended and restated credit facility were incurred temporarily to finance working capital. Those borrowings under the revolving portion of our second amended and restated credit facility bore interest at the annual rate of 8.5 percent and would otherwise have matured on June 1, 2010. Affiliates of UBS Securities LLC, Wachovia Capital Markets, LLC and KeyBanc Capital Markets, a Division of McDonald Investments Inc., are lenders under our second amended and restated credit facility.

In early March, the underwriters of our initial public offering exercised in part their option to purchase additional common units pursuant to the underwriting agreement by purchasing 1,400,000 common units for $28,000,000 ($26,200,000 net to the Partnership). On March 8, 2006, we closed the sale of the additional 1,400,000 common units at a price of $20 per unit as the underwriters exercised their over allotment option in part. The net proceeds from the sale were used by us to redeem an equivalent number of common units held by Regency Acquisition LP for the benefit of the HM Capital Investors.

In connection with the TexStar acquisition on August 15, 2006, we issued 5,173,189 of Class B common units to HTMF Gas Partners, an affiliate of HM Capital. In addition, we made a cash payment of $62,074,000 and assumed $167,652,000 of TexStar’s outstanding bank debt, subject to working capital adjustments.

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In connection with the sale of 2,857,143 Class C common units on September 21, 2006, we received net proceeds of $59,942,000, after deducting issuance costs. We used the net proceeds to reduce amounts outstanding under our credit facility.

Item 6.   Selected Financial Data

The historical financial information presented below for the Partnership and our predecessors, Regency LLC Predecessor and Regency Gas Services LP (formerly Regency Gas Services LLC), was derived from our audited consolidated financial statements as of December 31, 2006, 2005 and 2004 and for the years ended December 31, 2006 and 2005, the one-month period ended December 31, 2004, the eleven-month period ended November 30, 2004, and the period from inception (April 2, 2003) to December 31, 2003. The consolidated financial statements and notes have been adjusted to reflect the results of operations, financial position and cash flows of the Partnership combined with TexStar Field Services, L.P., and TexStar GP, LLC (together “TexStar”) for all periods subsequent to December 1, 2004.

The Partnership’s and our predecessors’, Regency LLC Predecessor and Regency Gas Services LP, historical results of operations are presented below. See “Item 7 — Management’s Discussions and Analysis of Financial Condition and Results of Operations — Items Affecting Comparability of Our Financial Results” for a discussion of why our results may not be comparable, either from period to period or going forward.

We refer to Regency Gas Services LLC as “Regency LLC Predecessor” for periods prior to its acquisition by the HM Capital Investors.

The following table includes the non-GAAP financial measures of EBITDA and total segment margin. We define EBITDA as net income plus interest expense, provision for income taxes and depreciation and amortization expense. We define total segment margin as total revenue, including service fees, less cost of gas and liquids. For a reconciliation of EBITDA and total segment margin to their most directly comparable financial measures calculated and presented in accordance with GAAP (accounting principles generally accepted in the United States), please read “— Non-GAAP Financial Measures.”

	Regency Energy Partners LP									Regency LLC Predecessor
							Period from						Period from
							Acquisition			Period from			Inception
	Year Ended			Year Ended			(December 1, 2004)			January 1, 2004			(April 2, 2003)
	December 31,			December 31,			to December 31,			to November 30,			to December 31,
	2006			2005			2004			2004			2003
	(In thousands except per unit data)
Statement of Operations Data:
Total revenue	$	896,865		$	709,401		$	47,857		$	432,321		$	186,533
Total operating expense		857,005			695,366			45,112			404,251			178,172
Operating income		39,860			14,035			2,745			28,070			8,361
Other income and deductions
Interest expense, net		(37,182	)		(17,880	)		(1,335	)		(5,097	)		(2,392	)
Loss on debt refinancing		(10,761	)		(8,480	)		—			(3,022	)		—
Equity income		532			312			56			—			—
Other income and deductions, net		307			421			8			186			205
Total other income and deductions		(47,104	)		(25,627	)		(1,271	)		(7,933	)		(2,187	)
Net income (loss) from continuing operations		(7,244	)		(11,592	)		1,474			20,137			6,174
Discontinued operations		—			732			—			(121	)		—
Net income (loss)	$	(7,244	)	$	(10,860	)	$	1,474		$	20,016		$	6,174
Less:
Net income through January 31, 2006		1,564
Net income (loss) for partners	$	(8,808	)
General partner interest	$	(176	)

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	Regency Energy Partners LP									Regency LLC Predecessor
							Period from						Period from
							Acquisition			Period from			Inception
	Year Ended			Year Ended			(December 1, 2004)			January 1, 2004			(April 2, 2003)
	December 31,			December 31,			to December 31,			to November 30,			to December 31,
	2006			2005			2004			2004			2003
	(In thousands except per unit data)
Limited partner interest	$	(8,632	)
Basic and diluted net loss per common and subordinated unit	$	(0.21	)
Cash distributions declared per common and subordinated unit		0.94
Basic and diluted net loss per Class B common unit		(0.12	)
Cash distributions declared per Class B common unit		—
Basic and diluted net loss per Class C common unit		—
Cash distributions declared per Class C common unit		—
Balance Sheet Data (at period end):
Property, plant and equipment, net	$	734,034		$	609,157		$	328,784					$	118,986
Total assets		1,013,085			806,740			492,170						164,330
Long-term debt (long-term portion only)		664,700			428,250			248,000						55,387
Net equity		212,657			230,962			181,936						59,856
Cash Flow Data:
Net cash flows provided by (used in):
Operating activities	$	44,156		$	37,340		$	(4,311	)	$	32,401		$	6,494
Investing activities		(223,650	)		(279,963	)		(130,478	)		(84,721	)		(123,165	)
Financing activities		184,947			242,949			132,515			56,380			118,245
Other Financial Data:
Total segment margin	$	158,049		$	77,059		$	6,870		$	69,559		$	23,072
EBITDA		69,592			30,191			4,470			35,242			12,890
Maintenance capital expenditures		16,433			9,158			358			5,548			1,633
Segment Financial and Operating Data:
Gathering and Processing Segment:
Financial data:
Segment margin	$	113,002		$	61,387		$	6,262		$	61,347		$	18,805
Operation and maintenance		35,008			22,362			1,655			16,230			6,131
Operating data:
Natural gas through-put (MMbtu/d)		529,467			345,398			314,812			303,345			211,474
NGL gross production (Bbls/d)		18,587			14,883			16,321			14,487			9,434
Transportation Segment:
Financial data:
Segment margin	$	45,047		$	15,672		$	608		$	8,212		$	4,267
Operation and maintenance		4,488			1,929			164			1,556			881
Operating data:
Through-put (MMbtu/d)		587,098			258,194			161,584			192,236			211,569

Non-GAAP Financial Measures

We include the following non-GAAP financial measures: EBITDA and total segment margin. We provide reconciliations of these non-GAAP financial measures to their most directly comparable financial measures as calculated and presented in accordance with GAAP.

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We define EBITDA as net income plus interest expense, provision for income taxes and depreciation and amortization expense. EBITDA is used as a supplemental measure by our management and by external users of our financial statements such as investors, commercial banks, research analysts and others, to assess:

•  financial performance of our assets without regard to financing methods, capital structure or historical cost basis;

•  the ability of our assets to generate cash sufficient to pay interest costs, support our indebtedness and make cash distributions to our unitholders and General Partner;

•  our operating performance and return on capital as compared to those of other companies in the midstream energy sector, without regard to financing methods or capital structure; and

•  the viability of acquisitions and capital expenditure projects and the overall rates of return on alternative investment opportunities.

EBITDA should not be considered an alternative to net income, operating income, cash flows from operating activities or any other measure of financial performance presented in accordance with GAAP.

EBITDA does not include interest expense, income taxes or depreciation and amortization expense. Because we have borrowed money to finance our operations, interest expense is a necessary element of our costs and our ability to generate cash available for distribution. Because we use capital assets, depreciation and amortization are also necessary elements of our costs. Therefore, any measures that exclude these elements have material limitations. To compensate for these limitations, we believe that it is important to consider both net earnings determined under GAAP, as well as EBITDA, to evaluate our performance.

We define total segment margin as total revenues, including service fees, less cost of gas and liquids. Total segment margin is included as a supplemental disclosure because it is a primary performance measure used by our management as it represents the results of product sales, service fee revenues and product purchases, a key component of our operations. We believe total segment margin is an important measure because it is directly related to our volumes and commodity price changes. Operation and maintenance is a separate measure used by management to evaluate operating performance of field operations. Direct labor, insurance, property taxes, repair and maintenance, utilities and contract services comprise the most significant portion of our operation and maintenance. These expenses are largely independent of the volumes we transport or process and fluctuate depending on the activities performed during a specific period. We do not deduct operation and maintenance from total revenues in calculating total segment margin because we separately evaluate commodity volume and price changes in total segment margin. As an indicator of our operating performance, total segment margin should not be considered an alternative to, or more meaningful than, net income as determined in accordance with GAAP. Our total segment margin may not be comparable to a similarly titled measure of another company because other entities may not calculate total segment margin in the same manner.

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	Regency Energy Partners LP									Regency LLC Predecessor
							Period from						Period from
							Acquisition Date			Period from			Inception
	Year Ended			Year Ended			(December 1, 2004)			January 1, 2004			(April 2, 2003)
	December 31,			December 31,			to December 31,			to November 30,			to December 31,
	2006			2005			2004			2004			2003
	(In thousands)
Reconciliation of “EBITDA” to net cash flows provided by (used in) operating activities and to net (loss) income
Net cash flows provided by (used in) operating activities	$	44,156		$	37,340		$	(4,311	)	$	32,401		$	6,494
Add (deduct):
Depreciation and amortization		(39,287	)		(24,286	)		(1,793	)		(10,461	)		(4,658	)
Equity income		532			312			56			—			—
Loss on debt refinancing		(10,761	)		(8,480	)		—			(3,022	)		—
Risk management portfolio value changes		2,262			(11,191	)		322			—			—
Unit based compensation expenses		(2,906	)		—			—			—			—
Gain on the sale of Regency Gas Treating LP assets		—			626			—			—			—
Gain on the sale of NGL line pack		—			628			—			—			—
Accounts receivable		5,506			43,012			(2,568	)		19,832			31,966
Other current assets		(104	)		2,644			2,456			1,169			1,070
Accounts payable and accrued liabilities		1,359			(52,651	)		(548	)		(18,122	)		(26,880	)
Accrued taxes payable		(492	)		(806	)		921			(1,475	)		(906	)
Other current liabilities		(3,148	)		(1,269	)		242			(502	)		(917	)
Proceeds from early termination of interest rate swap		(4,940	)		—			—			—			—
Amount of swap termination proceeds reclassified into earnings		3,862			—			—			—			—
Other assets		(3,014	)		3,261			6,697			196			5
Other liabilities		(269	)
Net (loss) income	$	(7,244	)	$	(10,860	)	$	1,474		$	20,016		$	6,174
Add:
Interest expense, net		37,182			17,880			1,335			5,097			2,392
Depreciation and amortization		39,654			23,171			1,661			10,129			4,324
EBITDA	$	69,592		$	30,191		$	4,470		$	35,242		$	12,890
Reconciliation of “total segment margin” to net (loss) income
Net (loss) income	$	(7,244	)	$	(10,860	)	$	1,474		$	20,016		$	6,174
Add (deduct):
Operation and maintenance		39,496			24,291			1,819			17,786			7,012
General and administrative		22,826			15,039			645			6,571			2,651
Related party expenses		1,630			523			—			—			—
Management services termination fee		12,542			—			—			—			—
Transaction expenses		2,041			—			—			7,003			724
Depreciation and amortization		39,654			23,171			1,661			10,129			4,324
Interest expense, net		37,182			17,880			1,335			5,097			2,392
Equity income		(532	)		(312	)		(56	)		—			—
Loss on debt refinancing		10,761			8,480			—			3,022			—
Other income and deductions, net		(307	)		(421	)		(8	)		(186	)		(205	)
Discontinued operations		—			(732	)		—			121			—
Total segment margin	$	158,049		$	77,059		$	6,870		$	69,559		$	23,072

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Item 7.   Management’s Discussion and Analysis of Financial Conditions and Results of Operations

The following discussion analyzes our financial condition and results of operations. You should read the following discussion of our financial condition and results of operations in conjunction with our historical consolidated financial statements and notes included elsewhere in this document.

OVERVIEW

We are a Delaware limited partnership formed to capitalize on opportunities in the midstream sector of the natural gas industry. We own and operate significant natural gas gathering and processing assets in north Louisiana, east Texas, south Texas, west Texas and the mid-continent region of the United States, which includes Kansas, Oklahoma, Colorado, and the Texas Panhandle. We are engaged in gathering, processing, marketing and transporting natural gas and natural gas liquids, or NGLs. We connect natural gas wells of producers to our gathering systems through which we transport the natural gas to processing plants operated by us or by third parties. The processing plants separate NGLs from the natural gas. We then sell and deliver the natural gas and NGLs to a variety of markets.

In February 2006, we consummated the initial public offering of our common units. See “— Formation, Acquisition and Financial Statement Presentation” for additional information on our initial public offering.

In August 2006, we acquired all the outstanding equity of TexStar Field Services, L.P. and its general partner, TexStar GP, LLC (the “TexStar acquisition”), from HMTF Gas Partners II, L.P. (“HMTF Gas Partners”), an affiliate of HM Capital Partners. Hicks Muse Equity Fund V, L.P. (“Fund V”) and its affiliates, through HM Capital Partners, control our general partner. Fund V also indirectly owns a majority of, and, through HM Capital Partners, controls HMTF Gas Partners. Because our acquisition of TexStar was a transaction between commonly controlled entities, we have accounted for the transaction in a manner similar to a pooling of interests, and we have updated our historical financial statements to include the financial condition and results of operations of TexStar for periods in which common control exists (December 1, 2004 forward).

HOW WE EVALUATE OUR OPERATIONS

Our management uses a variety of financial and operational measurements to analyze our performance. We view these measures as important factors affecting our profitability and review these measurements on a monthly basis for consistency and trend analysis. These measures include volumes, segment margin and operating and maintenance expenses on a segment basis and EBITDA on a company-wide basis.

Volumes.  We must continually obtain new supplies of natural gas to maintain or increase through-put volumes on our gathering and processing systems. Our ability to maintain existing supplies of natural gas and obtain new supplies is affected by (1) the level of workovers or recompletions of existing connected wells and successful drilling activity in areas currently dedicated to our pipelines, (2) our ability to compete for volumes from successful new wells in other areas and (3) our ability to obtain natural gas that has been released from other commitments. We routinely monitor producer activity in the areas served by our gathering and processing systems to pursue new supply opportunities.

To increase through-put volumes on our intrastate pipeline we must contract with shippers, including producers and marketers, for supplies of natural gas. We routinely monitor producer and marketing activities in the areas served by our transportation system in search of new supply opportunities.

Segment Margin.  We calculate our Gathering and Processing segment margin as our revenue generated from our gathering and processing operations minus the cost of natural gas and NGLs purchased and other cost of sales, which also includes third-party transportation and processing fees. Revenue includes revenue from the sale of natural gas and NGLs resulting from these activities and fixed fees associated with the gathering and processing natural gas. Our contract portfolio affects our segment margin. See “— Our Operations” for a discussion of our contract portfolio.

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We calculate our Transportation segment margin as revenue generated by fee income as well as, in those instances in which we purchase and sell gas for our account, gas sales revenue minus the cost of natural gas that we purchase and transport. Revenue primarily includes fees for the transportation of pipeline-quality natural gas and sales of natural gas transported for our account. Most of our segment margin is fee-based with little or no commodity price risk. We generally purchase pipeline-quality natural gas at a pipeline inlet price adjusted to reflect our transportation fee and we sell that gas at the pipeline outlet. We regard the difference between the purchase price and the sale price as the economic equivalent of our transportation fee.

Total Segment Margin.  Segment margin from Gathering and Processing, together with segment margin from Transportation comprise total segment margin. We use total segment margin as a measure of performance. See “Item 6 Selected Financial Data — Non-GAAP Financial Measures” for a reconciliation of this non-GAAP financial measure, total segment margin, to its most directly comparable GAAP measure, net income or loss.

Operation and Maintenance.  Operation and maintenance is a separate measure that we use to evaluate operating performance of field operations. Direct labor, insurance, property taxes, repair and maintenance, utilities and contract services comprise the most significant portion of our operating and maintenance expenses. These expenses are largely independent of the volumes through our systems but fluctuate depending on the activities performed during a specific period. We do not deduct operation and maintenance from total revenues in calculating segment margin because we separately evaluate commodity volume and price changes in segment margin.

EBITDA.  We define EBITDA as net income plus interest expense, provision for income taxes and depreciation and amortization expense. EBITDA is used as a supplemental measure by our management and by external users of our financial statements such as investors, commercial banks, research analysts and others, to assess:

•  financial performance of our assets without regard to financing methods, capital structure or historical cost basis;

•  the ability of our assets to generate cash sufficient to pay interest costs, support our indebtedness and make cash distributions to our unitholders and general partners;

•  our operating performance and return on capital as compared to those of other companies in the midstream energy sector, without regard to financing or capital structure; and

•  the viability of acquisitions and capital expenditure projects and the overall rates of return on alternative investment opportunities.

EBITDA should not be considered as an alternative to net income, operating income, cash flows from operating activities or any other measure of financial performance presented in accordance with GAAP. EBITDA is the starting point in determining cash available for distribution, which is an important non-GAAP financial measure for a publicly traded master limited partnership. See “Item 6 — Selected Financial Data” for a reconciliation of EBITDA to net cash flows provided by (used in) operating activities and to net income (loss).

OUR OPERATIONS

We manage our business and analyze and report our results of operations through two business segments:

•  Gathering and Processing, in which we provide “wellhead to market” services to producers of natural gas, including the transport of raw natural gas from the wellhead through gathering systems, processing raw natural gas to separate the NGLs and selling or delivering the pipeline-quality natural gas and NGLs to various markets and pipeline systems; and

•  Transportation, in which we deliver natural gas from north Louisiana to northeast Louisiana through our 320-mile Regency Intrastate Pipeline system, which has been significantly expanded and extended

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through our Regency Intrastate Enhancement Project. Our Transportation segment includes certain marketing activities related to our transportation pipelines that are conducted by a separate subsidiary.

Gathering and processing segment

Results of operations from our Gathering and Processing segment are determined primarily by the volumes of natural gas that we gather and process, our current contract portfolio, and natural gas and NGL prices. We measure the performance of this segment primarily by the segment margin it generates. We gather and process natural gas pursuant to a variety of arrangements generally categorized as “fee-based” arrangements, “percent-of-proceeds” arrangements and “keep-whole” arrangements. Under fee-based arrangements, we earn fixed cash fees for the services that we render. Under the latter two types of arrangements, we generally purchase raw natural gas and sell processed natural gas and NGLs. We regard the segment margin generated by our sales of natural gas and NGLs under percent-of-proceeds and keep-whole arrangements as comparable to the revenues generated by fixed fee arrangements.

Percent-of-proceeds and keep-whole arrangements involve commodity price risk to us because our segment margin is based in part on natural gas and NGL prices. We seek to minimize our exposure to fluctuations in commodity prices in several ways, including managing our contract portfolio. In managing our contract portfolio, we classify our gathering and processing contracts according to the nature of commodity risk implicit in the settlement structure of those contracts.

•  Fee-Based Arrangements.  Under these arrangements, we generally are paid a fixed cash fee for performing the gathering and processing service. This fee is directly related to the volume of natural gas that flows through our systems and is not directly dependent on commodity prices. A sustained decline in commodity prices, however, could result in a decline in volumes and, thus, a decrease in our fee revenues. These arrangements provide stable cash flows, but minimal, if any, upside in higher commodity price environments.

•  Percent-of-Proceeds Arrangements.  Under these arrangements, we generally gather raw natural gas from producers at the wellhead, transport it through our gathering system, process it and sell the processed gas and NGLs at prices based on published index prices. In this type of arrangement, we retain the sales proceeds less amounts remitted to producers and the retained sales proceeds constitute our margin. These arrangements provide upside in high commodity price environments, but result in lower margins in low commodity price environments. Under these arrangements, our margins typically cannot be negative. We regard the margin from this type of arrangement as an important analytical measure of these arrangements. The price paid to producers is based on an agreed percentage of one of the following: (1) the actual sale proceeds; (2) the proceeds based on an index price; or (3) the proceeds from the sale of processed gas or NGLs or both. Under this type of arrangement, our margin correlates directly with the prices of natural gas and NGLs (although there is often a fee-based component to these contracts in addition to the commodity sensitive component).

•  Keep-Whole Arrangements.  Under these arrangements, we process raw natural gas to extract NGLs and pay to the producer the full thermal equivalent volume of raw natural gas received from the producer in processed gas or its cash equivalent. We are generally entitled to retain the processed NGLs and to sell them for our account. Accordingly, our margin is a function of the difference between the value of the NGLs produced and the cost of the processed gas used to replace the thermal equivalent value of those NGLs. The profitability of these arrangements is subject not only to the commodity price risk of natural gas and NGLs, but also to the price of natural gas relative to NGL prices. These arrangements can provide large profit margins in favorable commodity price environments, but also can be subject to losses if the cost of natural gas exceeds the value of its thermal equivalent of NGLs. Many of our keep-whole contracts include provisions that reduce our commodity price exposure, including (1) provisions that require the keep-whole contract to convert to a fee-based arrangement if the NGLs have a lower value than their thermal equivalent in natural gas, (2) embedded discounts to the applicable natural gas index price under which we may reimburse the producer an amount in cash for the thermal equivalent volume of raw natural gas acquired from the producer, (3) fixed cash fees for

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ancillary services, such as gathering, treating, and compression, or (4) the ability to bypass in unfavorable price environments.

An important aspect of our contract portfolio management strategy is to decrease our keep-whole contract risk exposure. Immediately following the acquisition of our mid-continent assets in 2003, we terminated our month-to-month keep-whole arrangements and replaced them with fee-based or percentage-of-proceeds agreements or variations thereof. In addition, we seek to replace our longer term keep-whole arrangements as they expire or whenever the opportunity presents itself. For the year ended December 31, 2006, 12 percent of our gathering and processing volumes were subject to keep-whole arrangements.

In our Gathering and Processing segment, we are a seller of NGLs and are exposed to commodity price risk. NGLs, condensate and natural gas prices have experienced volatility in recent years in response to changes in supply and demand and market uncertainty. In response to this volatility, we have, since the acquisition of Regency Gas Services LLC by the HM Capital Investors, executed swap contracts settled against ethane, propane, butane and natural gasoline, crude oil and natural gas market prices, supplemented with crude oil put options (historically, changes in the prices of heavy NGLs, such as natural gasoline, have generally correlated with changes in the price of crude oil). The Partnership has executed swap contracts settled against ethane, propane, butane, natural gasoline, crude oil and natural gas market prices. As of March 29, 2007, we have hedged approximately 71 percent of our expected exposure to NGL in 2007 and 2008 and approximately 28 percent in 2009. We have hedged approximately 66 percent of our expected exposure to condensate prices in 2007 and approximately 64 percent in 2008 and 2009. We have hedged approximately 60 percent of our expected exposure to natural gas prices in 2007. We continually monitor our hedging and contract portfolio and expect to continue to adjust our hedge position as conditions warrant.

We sell natural gas on intrastate and interstate pipelines to marketing affiliates of natural gas pipelines, marketing affiliates of integrated oil companies and utilities. We typically sell natural gas under pricing terms related to a market index. To the extent possible, we match the pricing and timing of our supply portfolio to our sales portfolio in order to lock in our margin and reduce our overall commodity price exposure. To the extent our natural gas position is not balanced, we will be exposed to the commodity price risk associated with the price of natural gas.

Transportation segment

Results of operations from our Transportation segment are determined primarily by the volumes of natural gas transported on our Regency Intrastate Pipeline system and the level of fees charged to our customers or the margins received from purchases and sales of natural gas. We generate revenues and segment margins for our Transportation segment principally under fee-based transportation contracts or through the purchase of natural gas at one of the inlets to the pipeline and the sale of natural gas at an outlet. In the latter case, we generally purchase pipeline-quality natural gas at a pipeline inlet price adjusted to reflect our transportation fee and we sell that natural gas at a pipeline outlet. The differential in the purchase price and the sale price contributes to our segment margin. The margin we earn from our transportation activities is directly related to the volume of natural gas that flows through our system and is not directly dependent on commodity prices. If a sustained decline in commodity prices should result in a decline in volumes, our revenues from these arrangements would be reduced.

Generally, we provide to shippers two types of fee-based transportation services under our transportation contracts:

•  Firm Transportation.  When we agree to provide firm transportation service, we become obligated to transport natural gas nominated by the shipper up to the maximum daily quantity specified in the contract. In exchange for that obligation on our part, the shipper pays a specified reservation charge, whether or not it utilizes the capacity. In most cases, the shipper also pays a commodity charge with respect to quantities actually transported by us.

•  Interruptible Transportation.  When we agree to provide interruptible transportation service, we become obligated to transport natural gas nominated by the shipper only to the extent that we have

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available capacity. For this service the shipper pays no reservation charge but pays a commodity charge for quantities actually shipped.

We provide transportation services under the terms of our contracts and under an operating statement that we have filed and maintain with the FERC with respect to transportation authorized under section 311 of the NGPA.

In addition, we perform a limited merchant function on our Regency Intrastate Pipeline system. This merchant function is conducted by a separate subsidiary. We purchase natural gas from a producer or gas marketer at a receipt point on our system at a price adjusted to reflect our transportation fee and transport that gas to a delivery point on our system at which we sell the natural gas at market price. We regard the segment margin with respect to those purchases and sales as the economic equivalent of a fee for our transportation service. These contracts are frequently settled in terms of an index price for both purchases and sales. In order to minimize commodity price risk, we attempt to match sales with purchases at the index price on the date of settlement.

Our Regency Intrastate Pipeline enables us to provide transportation services from the three largest natural gas producing fields in Louisiana. Prior to the completion of the final phase of the project in December 2005, we were transporting approximately 265,000 MMBtu/d under existing contracts. On March 1, 2007, we had definitive agreements for 562,900 MMBtu/d of firm transportation on the Regency Intrastate Pipeline system, of which 500,679 MMBtu/d was utilized in February 2007. During the month of February 2007, we also provided 195,395 MMBtu/d of interruptible transportation. Additionally, we are currently engaged in discussions with other parties interested in utilizing the system’s remaining firm transportation capacity.

GENERAL TRENDS AND OUTLOOK

We expect our business to continue to be affected by the following key trends. Our expectations are based on assumptions made by us and information currently available to us. To the extent our underlying assumptions about or interpretations of available information prove incorrect, our actual results may vary materially from our expected results.

Natural Gas Supply, Demand and Outlook.  Natural gas remains a critical component of energy consumption in the United States. The industrial and electricity generation sectors currently account for the largest usage of natural gas in the United States.

We believe that current natural gas prices and the existing strong demand for natural gas will continue to result in relatively high levels of natural gas-related drilling in the United States as producers seek to increase their level of natural gas production. Although the natural gas reserves in the United States have increased overall in recent years, a corresponding increase in production has not been realized. We believe that this lack of increased production is attributable to insufficient pipeline infrastructure, the continued depletion of existing wells and a tight labor and equipment market. We believe that an increase in United States natural gas production and additional sources of supply such as liquidified natural gas and other imports of natural gas will be required for the natural gas industry to meet the expected increased demand for natural gas in the United States.

All of the areas in which we operate are experiencing significant drilling activity. Although we anticipate continued high levels of exploration and production activities in all of these areas, fluctuations in energy prices can affect production rates over time and levels of investment by third parties in exploration for and development of new natural gas reserves. We have no control over the level of natural gas exploration and development activity in the areas of our operations.

Gathering and Processing Segment Margins.  In keeping with our strategy of reducing commodity price exposure, we have adjusted our contract portfolio through renegotiation of certain keep-whole contracts, resulting in a shift of our overall natural gas position to a long position going forward, while retaining a long physical NGL position. We believe that this adjusted portfolio effectively hedges our overall exposure to volatility in fractionation spreads. Our profitability is now positively impacted if natural gas or NGLs prices

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increase and negatively impacted if natural gas or NGLs prices decrease. The prices of natural gas and NGLs are volatile and beyond our control.

Effect of Interest Rates and Inflation.  Interest rates on existing and future credit facilities and debt offerings could be higher than current levels, causing our financing costs to increase accordingly. Although increased financing costs could limit our ability to raise funds in the capital markets, we expect in this regard to remain competitive with respect to acquisitions and capital projects since our competitors would face similar circumstances.

Inflation in the United States has been relatively low in recent years and did not have a material effect on our results of operations in 2004, 2005 or 2006. It may in the future, however, increase the cost to acquire or replace property, plant and equipment and may increase the costs of labor and supplies. Our operating revenues and costs are influenced to a greater extent by price changes in natural gas and NGLs. To the extent permitted by competition, regulation and our existing agreements, we have and will continue to pass along increased costs to our customers in the form of higher fees.

FORMATION, ACQUISITION AND FINANCIAL STATEMENT PRESENTATION

Our Formation and Initial Public Offering

We are a Delaware limited partnership formed in September 2005 to own and operate Regency Gas Services LP. Prior to the completion of our initial public offering, Regency Gas Services LLC was owned by the HM Capital Investors.

Formation of Regency Gas Services LLC — Regency Gas Services LLC was organized on April 2, 2003 by a private equity fund for the purpose of acquiring, managing and operating natural gas gathering, processing and transportation assets. Regency Gas Services LLC had no operating history prior to the acquisition of the assets from affiliates of El Paso Energy Corporation and Duke Energy Field Services, L.P. discussed below.

Acquisition of El Paso Assets — In June 2003, Regency LLC Predecessor acquired certain natural gas gathering, processing and transportation assets from subsidiaries of El Paso Corporation for $119,541,000. The assets acquired consisted of gathering, processing and transportation assets located in north Louisiana and gathering and processing assets located in the mid-continent region of the United States.

Prior to our acquisition of these assets, these assets were operated as components of El Paso’s much larger midstream operations. Immediately following our acquisition of these assets, we changed the manner in which these assets were operated. In that regard, we initiated, and continue to implement, a strategy to reshape the revenue structure of the acquired assets to expand revenues, increase margins and decrease exposure to market volatility.

Acquisition of Duke Energy Field Services Assets — In March 2004, Regency LLC Predecessor acquired certain natural gas gathering and processing assets from Duke Energy Field Services, LP for $67,264,000, including transactional costs. The assets acquired consisted of gathering and processing assets located in west Texas and represent substantially all of our existing west Texas assets.

Prior to our acquisition of these assets, these assets were operated as components of Duke Energy Field Services’ much larger midstream operations. As with the assets acquired from El Paso, immediately following our acquisition of these assets, we implemented significant operational changes designed to expand revenues, increase margins and limit exposure to market volatility. We promptly changed the manner in which pipeline-quality natural gas was marketed from these assets.

Others — In April 2004, we completed the purchase of gas processing interests located in Louisiana and Texas from Cardinal Gas Services LLC (Cardinal) for $3,533,000 in cash. In May 2005, we sold all of the assets acquired from Cardinal, together with certain related assets, for $6,000,000. After the allocation of $977,000 of goodwill, the resulting gain was $626,000. We have treated these operations as a discontinued operation.

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The HM Capital Investors’ Acquisition of Regency Gas Services LLC — On December 1, 2004, the HM Capital Investors acquired all of the outstanding equity interests in our predecessor, Regency Gas Services LLC, from its previous owners. The HM Capital Investors accounted for this acquisition as a purchase, and purchase accounting adjustments, including goodwill and other intangible assets, have been “pushed down” and are reflected in the financial statements of Regency Gas Services LLC for the period subsequent to December 1, 2004. We refer to this transaction as the HM Capital Transaction. For periods prior to the HM Capital Transaction, we designated such periods as Regency LLC Predecessor.

Initial Public Offering — Prior to the closing of our initial public offering on February 3, 2006, Regency Gas Services LLC was converted into a limited partnership named Regency Gas Services LP, and was contributed to us by Regency Acquisition LP, a limited partnership indirectly owned by the HM Capital Investors, in exchange for 5,353,896 common units, 19,103,896 subordinated units, the incentive distribution rights, a continuation of its 2 percent general partner interest in us, and a right to receive $195,757,000 of cash proceeds from our initial public offering. The cash proceeds constituted a reimbursement of a corresponding amount of capital expenditures comprising most of the initial investment by the HM Capital Investors in Regency Gas Services LLC. In addition, approximately $48,000,000 in cash and accounts receivable were distributed by Regency Gas Services LLC to Regency Acquisition LP and then to the HM Capital Investors immediately prior to the contribution of Regency Gas Services LLC to us. These current assets were replenished with proceeds from the offering.

On March 8, 2006 we closed the sale of an additional 1,400,000 common units at a price of $20 per unit as the underwriters exercised, in part, their option to purchase additional units. The net proceeds from the sale were used by us to redeem an equivalent number of common units held by Regency Acquisition LP for the benefit of the HM Capital Investors.

We paid $9,000,000 of the proceeds from our initial public offering to terminate our ten-year financial advisory, monitoring and oversight agreements with HM Capital Partners. In the first quarter of 2006 we expensed these costs.

Acquisition of TexStar Field Services, L.P.

On August 15, 2006, we acquired all the outstanding equity of TexStar for $348,909,000, which consisted of $62,074,000 in cash, the issuance of 5,173,189 Class B common units valued at $119,183,000 to an affiliate of HM Capital, and the assumption of $167,652,000 of TexStar’s outstanding bank debt. Because the TexStar acquisition was a transaction between commonly controlled entities, we accounted for the TexStar acquisition in a manner similar to a pooling of interests. As a result, our historical financial statements and the historical financial statements of TexStar have been combined to reflect the historical operations, financial position and cash flows for periods in which common control existed, December 1, 2004 forward.

Enbridge Asset Acquisition

TexStar acquired two sulfur recovery plants, one NGL plant and 758 miles of pipelines in east and south Texas (the “Enbridge assets”) from subsidiaries of Enbridge for $108,282,000 inclusive of transaction expenses on December 7, 2005 (the “Enbridge acquisition”). The Enbridge acquisition was accounted for using the purchase method of accounting. The results of operations of the Enbridge assets are included in our statements of operations beginning December 1, 2005. The purchase price was allocated to gas plants and buildings ($42,361,000), gathering and transmission systems ($65,002,000) and other property, plant and equipment ($919,000) as of December 1, 2005. TexStar assumed no material liabilities in this acquisition.

ITEMS AFFECTING COMPARABILITY OF OUR FINANCIAL RESULTS

Our historical results of operations for the periods presented may not be comparable, either from period to period or going forward, for the reasons described below:

•  Regency LLC Predecessor commenced active operations in June 2003 with the acquisition of the El Paso assets. As a result, we do not have any material financial results for periods prior to June 2003

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and our results of operations for the period ended December 31, 2003 includes only seven months of financial results.

•  Regency LLC Predecessor acquired the Duke Energy Field Services assets in March 2004. As a result, our financial results for periods prior to March 2004 do not include the financial results of the Duke Energy Field Services assets.

•  In connection with the acquisition of Regency Gas Services LLC by the HM Capital Investors on December 1, 2004, the purchase price was “pushed-down” to the financial statements of Regency Gas Services LLC. As a result of this “push-down” accounting, the book basis of our assets was increased to reflect the purchase price, which had the effect of increasing our depreciation and amortization expense. Also, the increased level of debt incurred in connection with the acquisition increased our interest expense subsequent to December 1, 2004.

•  In December 2004 we undertook a hedging program. Effective July 1, 2005 we designated certain commodity and interest rate swap instruments for hedge accounting treatment in accordance with SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities.” For the periods from December 1, 2004 through June 30, 2005 unrealized and realized gains and losses on the commodity swaps were recorded in unrealized/realized gain (loss) from risk management activities in our statements of operations. For the six months ended June 30, 2005 unrealized gains and losses on the interest rate swap were recorded in interest expense, net. Effective July 1, 2005, to the extent the hedges were effective, any unrealized gains or losses on these instruments were recorded in other comprehensive income (loss) during the lives of the instruments, which we believe results in financial results that are not comparable for the affected periods.

•  TexStar acquired the Enbridge assets on December 7, 2005. As a result, our historical results for the periods prior to December 1, 2005 do not include the financial results from the operation of these assets.

•  We completed our Regency Intrastate Enhancement Project and the pipeline, as expanded and extended, began operations on December 28, 2005. In 2006, we have increased the capacity total through-put capacity to 910 MMcf/d by adding looping to parts of the Regency Intrastate Pipeline system.

•  The TexStar acquisition is a transaction between commonly controlled entities, and we accounted for this acquisition in a manner similar to a pooling of interests. As a result, the historical financial statements of the Partnership and TexStar have been combined to reflect the historical operations, financial position and cash flows during the periods in which common control existed from December 1, 2004 forward. Most of the TexStar significant operating activity commenced in December 2005. As a result, the TexStar historical operations, financial position and cash flows are not comparable to prior periods.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and notes. Although these estimates are based on management’s best available knowledge of current and expected future events, actual results could be different from those estimates. We believe that the following are the more critical judgment areas in the application of our accounting policies that currently affect our financial condition and results of operations.

Revenue and Cost of Sales Recognition.  We record revenue and cost of gas and liquids on the gross basis for those transactions where we act as the principal and take title to gas that we purchase for resale. When our customers pay us a fee for providing a service such as gathering or transportation we record the fees separately in revenues. In March 2006, we implemented a process for estimating certain revenue and expenses as actual amounts are not confirmed until after the financial closing process due to the standard settlement dates in the gas industry. We calculate estimated revenues using actual pricing and nominated volumes. In the subsequent production month, we reverse the accrual and record the actual results. Prior to the

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settlement date, we record actual operating data to the extent available, such as actual operating and maintenance and other expenses. We do not expect actual results to differ materially from our estimates.

Risk Management Activities.  In order to protect ourselves from commodity and interest rate risk, we pursue hedging activities to minimize those risks. These hedging activities rely upon forecasts of our expected operations and financial structure over the next three years. If our operations or financial structure are significantly different from these forecasts, we could be subject to adverse financial results as a result of these hedging activities. We mitigate this potential exposure by retaining an operational cushion between our forecasted transactions and the level of hedging activity executed. We monitor and review hedging positions regularly.

From the inception of our hedging program in December 2004 through June 30, 2005, we used mark-to-market accounting for our commodity and interest rate swaps. We recorded realized gains and losses on hedge instruments monthly based upon the cash settlements and the expiration of option premiums. The settlement amounts varied due to the volatility in the commodity market prices throughout each month.

Effective July 1, 2005, we elected hedge accounting under SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities”, as amended, and determined the then outstanding hedges, excluding crude oil put options, qualified for hedge accounting. Accordingly, we record the unrealized changes in fair value in other comprehensive income (loss) to the extent the hedge are effective. Prior to July 1, 2005, we had recorded unrealized losses and gains in the fair market value of commodity-related derivative contracts and unrealized gains on an interest rate swap into revenues and interest expense, net, respectively.

Purchase Method of Accounting.  We make various assumptions in determining the fair values of acquired assets and liabilities. In order to allocate the purchase price to the business units, we develop fair value models with the assistance of outside consultants. These fair value models apply discounted cash flow approaches to expected future operating results, considering expected growth rates, development opportunities, and future pricing assumptions. An economic value is determined for each business unit. We then determine the fair value of the fixed assets based on estimates of replacement costs. Intangible assets acquired consist primarily of licenses, permits and customer contracts. We make assumptions regarding the period of time it would take to replace these licenses and permits. We assign value using a lost profits model over that period of time necessary to replace the licenses and permits. We value the customer contracts using a discounted cash flow model. We determine liabilities assumed based on their expected future cash outflows. We record goodwill as the excess of the cost of each business unit over the sum of amounts assigned to the tangible assets and separately recognized intangible assets acquired less liabilities assumed of the business unit.

Depreciation Expense and Cost Capitalization.  Our assets consist primarily of natural gas gathering pipelines, processing plants, and transmission pipelines. We capitalize all construction-related direct labor and material costs, as well as indirect construction costs. Indirect construction costs include general engineering and the costs of funds used in construction. Capitalized interest represents the cost of funds used to finance the construction of new facilities and is expensed over the life of the constructed asset through the recording of depreciation expense. We capitalize the costs of renewals and betterments that extend the useful life, while we expense the costs of repairs, replacements and maintenance projects as incurred.

We generally compute depreciation using the straight-line method over the estimated useful life of the assets. Certain assets such as land, NGL line pack and natural gas line pack are non-depreciable. The computation of depreciation expense requires judgment regarding the estimated useful lives and salvage value of assets. As circumstances warrant, we review depreciation estimates to determine if any changes are needed. Such changes could involve an increase or decrease in estimated useful lives or salvage values, which would impact future depreciation expense.

Equity Based Compensation.  On December 12, 2005, the compensation committee of the board of directors of Regency GP LLC approved a long-term incentive plan (“LTIP”) for our employees, directors and consultants covering an aggregate of 2,865,584 common units. Awards under the LTIP have been made since the completion of our initial public offering. LTIP awards generally vest over a three year period on the basis of one-third of the award each year. The options have a maximum contractual term, expiring ten years after

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the grant date. Options granted were valued using the Black-Scholes Option Pricing Model, assuming 15 percent volatility in the unit price, a ten year term, a strike price equal to the grant-date price per unit, a distribution per unit of $1.40 per year for the majority of the grants made during the year ended December 31, 2006, a risk-free rate of 4.25 percent, and an average exercise of the options of four years after vesting is complete. We have based the assumption that option exercises, on average, will be four years from the vesting date on the average of the mid-points from vesting to expiration of the options.

We make the same distributions to the holders of unvested restricted common units as those paid to common unit holders. Restricted common units vest over a period of three years. Upon the vesting, we intend to settle these obligations with common units. Accordingly, we expect to recognize an aggregate of $11,469,000 of compensation expense related to the grants under LTIP, or $3,823,000 for each of the three years of the vesting period for such grants as of December 31, 2006. This expected compensation expense assumes forfeitures of five percent for which compensation expense will not be recognized. We will record an adjustment to compensation expense to the extent our actual forfeiture rate is different for the expected rate in the first quarter of the fiscal year. We adopted SFAS 123(R) “Share-Based Payment” in the first quarter of 2006, which had no impact on our consolidated financial position, results of operations or cash flows as no LTIP awards were outstanding during 2005.

In March 2007, the board of directors of Regency GP LLC approved and granted 191,000 LTIP awards of the Partnerships’ restricted common units that generally vest on a basis of one-third each year. The grant date fair value of these awards is $5,291,000.

RESULTS OF OPERATIONS

Year Ended December 31, 2006 vs. Year Ended December 31, 2005

The table below contains key company-wide performance indicators related to our discussion of the results of operations.

	Year Ended December 31,
	2006			2005			Change			Percent
	(In thousands)
Total revenues	$	896,865		$	709,401		$	187,464			26	%
Cost of gas and liquids		738,816			632,342			106,474			17
Total segment margin(1)		158,049			77,059			80,990			105
Operation and maintenance		39,496			24,291			15,205			63
General and administrative		22,826			15,039			7,787			52
Related party expenses		1,630			523			1,107			212
Management services termination fee		12,542			—			12,542			n/m
Transaction expenses		2,041			—			2,041			n/m
Depreciation and amortization		39,654			23,171			16,483			71
Operating income		39,860			14,035			25,825			184
Interest expense, net		(37,182	)		(17,880	)		19,302			108
Equity income		532			312			220			71
Loss on debt refinancing		(10,761	)		(8,480	)		2,281			27
Other income and deductions, net		307			421			(114	)		(27	)
Net loss from continuing operations		(7,244	)		(11,592	)		4,348			38
Discontinued operations		—			732			(732	)		n/m
Net loss	$	(7,244	)	$	(10,860	)	$	3,616			33	%
System inlet volumes (MMBtu/d)(2)		1,010,642			603,592			407,050			67	%

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(1)	For a reconciliation of total segment margin to its most directly comparable financial measure calculated and presented in accordance with GAAP, please read “Item 6 — Selected Financial Data”
(2)	System inlet volumes include total volumes taken into our gathering and processing and transportation systems. n/m = not meaningful The table below contains key segment performance indicators related to our discussion of our results of operations.

The table below contains key segment performance indicators related to our discussion of our results of operations.

	Year Ended December 31,
	2006		2005		Change		Percent
	(In thousands)
Gathering and Processing Segment
Financial data:
Segment margin(1)	$	113,002	$	61,387	$	51,615		84	%
Operation and maintenance		35,008		22,362		12,646		57
Operating data:
Through-put (MMBtu/d)		529,467		345,398		184,069		53
NGL gross production (Bbls/d)		18,587		14,883		3,704		25
Transportation Segment
Financial data:
Segment margin(1)	$	45,047	$	15,672	$	29,375		187	%
Operation and maintenance		4,488		1,929		2,559		133
Operating data:
Through-put (MMBtu/d)		587,098		258,194		328,904		127

(1) For reconciliation of segment margin to its most directly comparable financial measure calculated and presented in accordance with GAAP, please read “Item 6 — Selected Financial Data”.

Net loss.  Net loss for the year ended December 31, 2006 decreased $3,616,000 compared with the year ended December 31, 2005. The decrease in net loss was primarily attributable to an increase in total segment margin of $80,990,000 primarily due to increased contributions from the Transportation segment resulting from the completion on our Regency Intrastate Enhancement Project in December 2005, a full year of segment margin from our TexStar acquisition and increased performance from the remainder of the Gathering and Processing segment. The increase in total segment margin was offset by increases in the following expenses: (1) interest expense, net increased $19,302,000 primarily due to increased levels of borrowing to fund acquisitions and capital expenditures; (2) depreciation and amortization expense increased $16,483,000 primarily due to a full year of expense in 2006 versus a partial year’s expense in 2005 due to the timing of acquisitions and completion of capital projects; (3) operation and maintenance increased $15,205,000 primarily due to a full year of expense in 2006 for the TexStar; (4) management service termination fees of $12,542,000 in 2006, which were not present in 2005; (5) general and administrative expenses increased $7,787,000 primarily resulting from TexStar general and administrative expenses, the accrual of non-cash expense associated with our LTIP and higher employee-related expenses associated with the hiring of key personnel to assist in achieving our strategic objectives; (6) loss on debt refinancing increased $2,281,000 resulting from increased write-offs of capitalized debt issuance costs related to certain credit facilities that we refinanced in 2006; and (7) transaction expenses of $2,041,000 recorded in 2006 related to the TexStar acquisition.

Segment Margin.  Total segment margin for the year ended December 31, 2006 increased to $158,049,000 from $77,059,000 for the year ended December 31, 2005, representing a 105 percent increase.

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Gathering and Processing segment margin for the year ended December 31, 2006 increased to $113,002,000 from $61,387,000 for the year ended December 31, 2005, representing an 84 percent increase. The major elements driving this increase in segment margin are as follows:

•  $4,553,000 contributed by the Como assets that were acquired on July 25, 2006;

•  $23,513,000 attributable to the operations of the other TexStar assets for a full year in 2006 versus one month of operations in 2005;

•  $13,986,000 in non-cash losses due to changes to the value of risk management assets for which we applied to mark-to-market accounting in the first six months of 2005 prior to our election of hedge accounting;

•  $6,347,000 contributed by the Elm Grove and Dubberly refrigeration plants beginning in May 2006 (Elm Grove) and December 2006 (Dubberly); and

•  $3,216,000 of other changes.

Transportation segment margin for the year ended December 31, 2006 increased to $45,047,000 from $15,672,000 for the year ended December 31, 2005, a 187 percent increase. This increase was attributable to the expansion and extension of the line completed in late 2005, as well as additional improvements in 2006. The major drivers of this growth are as follows:

•  $15,931,000 attributable to increased volume through-put;

•  $9,443,000 attributable to increased average fees for service; and

•  $4,001,000 of marketing activity generated by our merchant function.

Operation and Maintenance.  Operation and maintenance expenses for the year ended December 31, 2006 increased to $39,496,000 from $24,291,000 for the year ended December 31, 2005, representing a 63 percent increase. This increase resulted primarily from $13,248,000 higher expenses associated with TexStar. Also contributing to the increase from the transportation segment were higher employee-related expenses of $421,000 primarily for overtime associated with maintenance events and increased non-income taxes of $1,665,000, primarily property taxes related to our Regency Intrastate Enhancement Project.

General and Administrative.  General and administrative expenses for the year ended December 31, 2006 increased to $22,826,000 from $15,039,000 for the corresponding period in 2005. The increase was attributable in part to higher employee-related expenses of $3,300,000, including higher salary expense associated with hiring key personnel to assist in achieving our strategic objectives. Also contributing to the increase was the accrual of non-cash expense of $2,906,000 associated with our long-term incentive plan. TexStar contributed $1,519,000 to the increase in general and administrative expense.

Management Services Termination Fee.  In the three months ended March 31, 2006 we recorded a one-time charge of $9,000,000 for the termination of two long-term management services contracts in connection with our initial public offering, paid with proceeds from the initial public offering. In the three months ended September 30, 2006 we recorded a one-time charge of $3,542,000 for the termination of a management services contract associated with our TexStar acquisition.

Transaction Expenses.  We incurred transaction expenses of $2,041,000 in 2006 related to our TexStar acquisition. Since our TexStar acquisition involved entities under common control, we accounted for the transaction in a manner similar to a pooling of interests and we expensed the transaction costs.

Depreciation and Amortization.  Depreciation and amortization expense for the year ended December 31, 2006 increased to $39,654,000 from $23,171,000 for the year ended December 31, 2005, representing a 71 percent increase. Depreciation and amortization expense increased $7,261,000 primarily due to the higher depreciable basis in the transportation segment resulting from the completion of our Regency Intrastate Enhancement Project in December 2005. The new depreciable basis of assets from our TexStar acquisition in the Gathering and Processing segment contributed $6,898,000 to the increase. Depreciation and amortization

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expense in the remainder of the Gathering and Processing segment increased $1,977,000 due primarily to the completion of various capital projects.

Interest Expense, Net.  Interest expense, net for the year ended December 31, 2006 increased to $37,182,000 from $17,880,000 for the prior year period. Of the $19,302,000 increase, $19,226,000 was attributable to increased borrowings, $3,166,000 was attributable to increased interest rates, and $771,000 was attributable to reduced unrealized gains on mark-to-market accounting for interest rate swaps, offset by $3,862,000 of proceeds from the early termination of three interest rate swap contracts reclassified into earnings from accumulated other comprehensive income.

Loss on Debt Refinancing.  For the year ended December 31, 2006 we expensed $10,761,000 of debt issuance costs to amend and restate our credit facility, of which $5,135,000 was associated with repaying TexStar’s credit facility as part of our TexStar acquisition. For the year ended December 31, 2005, as required, we wrote off $8,480,000 of debt issuance costs to amend our credit facility.

Year Ended December 31, 2005 vs. Combined Year Ended December 31, 2004

The table below contains key company-wide performance indicators related to our discussion of the results of operations.

				Regency LLC
	Regency Energy			Predecessor
	Partners LP			(Combined)
	Year Ended December 31,
	2005			2004(3)			Change			Percent
	(In thousands)
Total revenues	$	709,401		$	480,178		$	229,223			48	%
Cost of gas and liquids		632,342			403,749			228,593			57
Total segment margin(1)		77,059			76,429			630			1
Operation and maintenance		24,291			19,605			4,686			24
General and administrative		15,039			7,216			7,823			108
Related party expenses		523			—			523			n/m
Transaction expenses		—			7,003			(7,003	)		n/m
Depreciation and amortization		23,171			11,790			11,381			97
Operating income		14,035			30,815			(16,780	)		(54	)
Interest expense, net		(17,880	)		(6,432	)		11,448			178
Equity income		312			56			256			457
Loss on debt refinancing		(8,480	)		(3,022	)		5,458			181
Other income and deductions, net		421			194			227			117
Net (loss) income from continuing operations		(11,592	)		21,611			(33,203	)		(154	)
Discontinued operations		732			(121	)		853			705
Net (loss) income	$	(10,860	)	$	21,490		$	(32,350	)		(151	)%
System inlet volumes (MMBtu/d)(2)		603,592			494,816			108,776			22	%

(1)	For a reconciliation of total segment margin to its most directly comparable financial measure calculated and presented in accordance with GAAP, please read “Item 6 — Non-GAAP Financial Measures.”
(2)	System inlet volumes include total volumes taken into our gathering and processing and transportation systems.
(3)	We combined the results of operations for the period from acquisition (December 1, 2004) of the Predecessor and the period from January 1, 2004 to November 30, 2004 of the Regency LLC Predecessor to provide an annual reporting period for a more meaningful comparison versus the year ended

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December 31, 2005. To the extent operations for the 2005 period are not comparable to the combined 2004 period; we have disclosed such differences in the discussion of results of operations. See the separate discussion of the one month ended December 31, 2004.

n/m = not meaningful

The table below contains key segment performance indicators related to our discussion of the results of operations.

			Regency LLC
	Regency Energy		Predecessor
	Partners LP		(Combined)
	Year Ended December 31,
	2005		2004(1)		Change			Percent
	(In thousands)
Gathering and Processing Segment
Financial data:
Segment margin(2)	$	61,387	$	67,609	$	(6,222	)		(9	)%
Operation and maintenance		22,362		17,885		4,477			25
Operating data:
Through-put (MMBtu/d)		345,398		305,176		40,222			13
NGL gross production (Bbls/d)		14,883		15,129		(246	)		(2	)
Transportation Segment
Financial data:
Segment margin(2)	$	15,672	$	8,820	$	6,852			78	%
Operation and maintenance		1,929		1,720		209			12
Operating data:
Through-put (MMBtu/d)		258,194		189,640		68,554			36

(1)

We combined the results of operations for the period from acquisition (December 1, 2004) of the Predecessor and the period from January 1, 2004 to November 30, 2004 of the Regency LLC Predecessor to provide an annual reporting period for a more meaningful comparison versus the year ended December 31, 2005. To the extent operations for the 2005 period are not comparable to the combined 2004 period; we have disclosed such differences in the discussion of results of operations. See the separate discussion of the one month ended December 31, 2004.

(2)

For reconciliation of segment margin to its most directly comparable financial measure calculated and presented in accordance with GAAP, please read “Item 6 — Selected Financial Data”.

Net Income.  Net income for the year ended December 31, 2005 decreased $32,350,000 compared with the combined year ended December 31, 2004. The primary reasons for this decrease are: (1) interest expense, net increased $11,448,000 primarily due to higher net interest expense related to debt incurred to fund the HM Capital Transaction and (on a pooled accounting basis) the TexStar acquisition; (2) depreciation and amortization expense increased $11,381,000 primarily due to our higher depreciable basis following the fair value adjustments recorded to property, plant and equipment in the application of the purchase method of accounting for the HM Capital Transaction; (3) the increase in debt issuance costs of $5,458,000 for the ended December 31, 2005 due to amending our credit facilities; (4) general and administrative expense increased $7,823,000 primarily as a result of higher employee-related expenses and professional and consulting expenses; (5) operation and maintenance expenses increased $4,686,000 primarily due to TexStar, our west Texas facilities operating twelve months in 2005 versus ten months in 2004, and higher taxes, other than income; and (6) a decrease of $7,003,000 in transaction expenses incurred in 2004 not incurred in 2005.

Total Segment Margin.  Total segment margin for the year ended December 31, 2005 increased to $77,059,000 from $76,429,000 for the combined year ended December 31, 2004, representing a 1 percent increase. This increase was attributable in part to increased pipeline through-put volumes in the Transportation segment, which produced additional margin of $7,200,000. In December 2005, operations from TexStar in the

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Gathering and Processing segment contributed approximately $5,200,000 in total segment margin. In the remainder of the Gathering and Processing segment, pricing effects were negligible, as $10,757,000 of increased total segment margin attributable to commodity prices was offset by $10,757,000 in hedge settlements, demonstrating the effectiveness of our hedging program. Non-cash losses caused by the net change in the fair value of derivative contracts during such time as the contracts were not designated as hedges in 2005, together with the expiration of certain crude oil put options reduced total segment margin by $11,486,000.

Segment margin for the Gathering and Processing segment for the year ended December 31, 2005 decreased to $61,387,000 from $67,609,000 for the combined year ended December 31, 2004, representing a 9 percent decline. The elements driving this reduction in segment margin are as follows:

•  In December 2005, operations from TexStar contributed $5,200,000 in segment margin;

•  Other than the TexStar margin, $300,000 of increased segment margin was attributable to increased through-put volumes;

•  Other than the TexStar margin, pricing effects in 2005 were negligible, as $10,757,000 of increased segment margin attributable to higher commodity prices was offset by $10,757,000 in cash hedge settlements;

•  $11,486,000 of decreased segment margin attributable to non-cash losses reflecting the net change in the fair value of derivatives contracts during the first six months of 2005 and the expiration of certain crude oil put option in 2005, and

•  Segment margin in 2004 was increased by $322,000 of non-cash gains reflecting the net change in the fair value of derivative contracts for the period.

Segment margin for the Transportation segment for the year ended December 31, 2005 increased to $15,672,000 from $8,820,000 for the comparable combined period in 2004, a 78 percent increase. The increase was attributable to increased through-put volumes across the system in 2005.

Operation and Maintenance.  Operation and maintenance for the year ended December 31, 2005 increased to $24,291,000 from $19,605,000 for the combined year ended December 31, 2004, representing a 24 percent increase. This increase was attributable in part to operation and maintenance of $2,479,000 incurred in December 2005 associated with TexStar in the Gathering and Processing segment. Also contributing to the increase were higher operation and maintenance of $969,000 associated with our west Texas assets in the Gathering and Processing segment for the full year ended December 31, 2005 as compared to ten months in 2004. Higher property taxes in the mid-continent region within the Gathering and Processing segment resulted in an increase of $848,000. Also contributing to the increase in operating and maintenance expenses were higher materials and parts expense of $713,000 in the Transportation segment. These increases were partially offset by lower employee costs and rental expense of $285,000 in the mid-continent region of the Gathering and Processing Segment related to our previously planned shut down of our Lakin gas processing plant.

General and Administrative.  General and administrative expense increased to $15,039,000 in the year ended December 31, 2005 from $7,216,000 for the combined year ended December 31, 2004. This increase was primarily attributable to higher employee-related expenses of $3,061,000 for higher salary expense associated with increased headcount and bonus accruals. Also contributing to the increase were increased professional and consulting expenses of $2,931,000, consisting primarily of legal fees for regulatory and contract related matters, business development expenses and consulting fees for Sarbanes-Oxley compliance support. Further contributing to the increase were higher management fees of $694,000, resulting from our relationship with HM Capital Partners.

Transaction Expenses.  Regency LLC Predecessor incurred non-recurring expenses related to the HM Capital Transaction in the amount of $7,003,000 in 2004. These expenses consisted of compensation, legal and other expenses and were paid prior to the HM Capital Transaction.

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Depreciation and Amortization.  Depreciation and amortization increased to $23,171,000 in the year ended December 31, 2005 from $11,790,000 for the combined year ended December 31, 2004, representing a 97 percent increase. Depreciation expense increased $9,602,000 primarily due to the acquisition of Regency Gas Services LLC by the HM Capital Investors in December 2004, which increased the book basis of our depreciable assets to their fair market value. Also contributing to the increase was the amortization of identifiable intangible assets of $1,681,000 in the 2005 period related to definite lived intangible assets that were recorded as part of the HM Capital Transaction.

Interest Expense, Net.  Interest expense, net increased $11,448,000, or 178 percent, in the year ended December 31, 2005 compared to the combined year ended December 31, 2004 due to higher net interest expense of $10,611,000, primarily related to debt incurred to fund the HM Capital Transaction and to a lesser extent the TexStar acquisition, and increased amortization of debt issuance costs of $832,000.

Loss on Debt Refinancing.  In the years ended December 31, 2005 and 2004, we expensed $8,480,000 and $3,022,000, respectively, of debt refinancing costs as a result of amendments to our credit facilities. The $8,480,000 write-off consisted of (i) $5,800,000 of unamortized debt issuance costs, (ii) $1,924,000 of costs incurred in July 2005 and (iii) $756,000 of costs incurred in November 2005 in connection with amendments to our credit facilities. The write-off for the combined year ended December 31, 2004 consisted of unamortized debt issuance costs.

Federal Income Tax.  As a pass-through entity, we are not subject to federal income taxes. The liability for federal income taxes associated with income produced by our business is passed through to and recognized by entities that are investors in our indirect parent.

Discontinued Operations.  On April 1, 2004, we completed the purchase of natural gas processing and treating interests located in Louisiana and Texas from Cardinal for $3,533,000. On May 2, 2005, we sold all of the assets acquired from Cardinal, together with certain related assets, for $6,000,000. The results of these operations are presented as discontinued operations, and we recorded a gain on the sale of $626,000 during the year ended December 31, 2005.

The Month of December 2004

The HM Capital Investors purchased Regency Gas Services LLC effective December 1, 2004. As a result of accounting for the acquisition as a purchase and using push-down accounting, we incurred additional depreciation and amortization expense. Depreciation and amortization expense for this one month increased over the preceding monthly amount by $669,000 or 67 percent, resulting primarily from the “step-up” in basis of tangible assets as well as the recording of new identifiable intangible assets from the purchase price allocation. The additional interest expense resulted primarily from higher levels of borrowings associated with the acquisition. These levels of borrowings increased to $250,000,000 at December 1, 2004 from $66,599,000 at December 31, 2003.

OTHER MATTERS

Legal.  The Partnership is involved in various claims and lawsuits incidental to its business. In the opinion of management, these claims and lawsuits in the aggregate will not have a material adverse effect on our business, financial condition, results of operations or cash flows.

Environmental Matters.  For information regarding environmental matters, please read “Item 1 Business — Regulation — Environmental Matters.”

LIQUIDITY AND CAPITAL RESOURCES

We expect our sources of liquidity to include:

•  cash generated from operations;

•  borrowings under our credit facility;

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•  debt offerings; and

•  issuance of additional partnership units.

We believe that the cash generated from these sources will be sufficient to meet our minimum quarterly cash distributions and our requirements for short-term working capital and growth capital expenditures for the next twelve months.

Cash Flows and Capital Expenditures

See “Item 7 — Management’s Discussions and Analysis of Financial Condition and Results of Operations — Items Impacting Comparability of Our Financial Results” for a discussion of why our cash flows and capital expenditures may not be comparable, either from period to period or going forward.

Working Capital Surplus (Deficit).  Working capital is the amount by which current assets exceed current liabilities and is a measure of our ability to pay our liabilities as they become due. During periods of growth capital expenditures, we experience working capital deficits when we fund construction expenditures out of working capital until they are permanently financed. Our working capital is also influenced by current risk management assets and liabilities due to fair market value changes in our derivative positions being reflected on our balance sheet. These represent our expectations for the settlement of risk management rights and obligations over the next twelve months, and so must be viewed differently from trade receivables and payables which settle over a much shorter span of time. Risk management assets and liabilities affect working capital. When our derivative positions are settled, we expect an offsetting physical transaction, and, as a result, we do not expect these assets and liabilities to affect our ability to pay bills as they come due.

Our working capital deficit decreased by $18,333,000 from December 31, 2005 to December 31, 2006 primarily due to the following:

•  a $7,665,000 decrease in current liabilities resulting from a reduction in the valuation of our risk management contracts due to lower index NGL prices offset by increases in interest rates;

•  a $5,025,000 increase in current assets resulting from an increase in accounts receivable due to the timing of cash receipts;

•  a $5,453,000 increase in current assets resulting from an increase in cash and cash equivalents primarily due to the termination of interest rate swaps;

•  a $3,100,000 decrease in related party payables due to the timing of payments; and partially offset by

•  an increase in other current liabilities of $3,147,000 primarily due to an increase in interest payable, as we now pay interest semi-annually on all senior notes.

Cash Flows from Operating Activities.  Net cash flows provided by operating activities increased $6,816,000, or 18 percent, for the year ended December 31, 2006 compared to the corresponding period in 2005. The primary reason for the increased cash flow was increased margin contributions from the completion of our Regency Intrastate Enhancement Project, the installation of additional capacity on our gathering and processing systems and our acquisition of TexStar. The remaining improvement was attributable to the termination of interest rate swaps in June and December 2006. We terminated the interest rate swap because in the fourth quarter of 2006 we refinanced the majority of our variable interest rate debt with fixed rate, 8.375 percent senior notes due in 2013. These increases in cash flows from operations were partially offset by higher interest costs primarily due to increased borrowings, the payment of management services contract termination fees, the payment of transaction fees related to our TexStar acquisition and losses on the refinancing of credit agreements.

Net cash provided by operating activities increased to $37,340,000 for the year ended December 31, 2005 compared with $28,090,000 for the combined year ended December 31, 2004. The increase was due in part to increased through-put volumes from the Transportation segment and north Louisiana region of the Gathering and Processing segment. The increased price levels for NGLs increased our cash flows from operations, but these increases were matched by cash outflows from our risk management activities, designed to stabilize our

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cash flows. Also contributing to the increase was the inclusion of operations from TexStar in the Gathering and Processing segment in December 2005. The increase in cash flows from operations was partially offset by an increase in cash interest paid of $10,531,000, as the amount of our debt financing significantly increased following our acquisition of TexStar, the HM Capital Transaction and our Regency Intrastate Enhancement Project.

For all periods, we used our cash flows from operating activities together with borrowings under our revolving credit facility for our working capital requirements, which include operation and maintenance expenses, maintenance capital expenditures and repayment of working capital borrowings. From time to time during each period, the timing of receipts and disbursements required us to borrow under our revolving credit facility. The maximum amounts of revolving line of credit borrowings outstanding during the years ended December 31, 2006 and 2005 were $112,600,000 and $50,000,000, respectively.

Cash Flows from Investing Activities.  Net cash flows used in investing activities decreased $56,313,000, or 20 percent, for the year ended December 31, 2006 compared to the year ended December 31, 2005. The decrease was primarily due to lower levels of spending on asset purchases and growth and maintenance capital expenditures, discussed in “— Capital Requirements.”

Our cash flows used in investing activities increased $64,764,000 for the year ended December 31, 2005 as compared to the combined year ended December 31, 2004 primarily due to capital expenditures for our Regency Intrastate Enhancement Project and maintenance capital expenditures.

Cash Flows from Financing Activities.  Net cash flows provided by financing activities decreased $58,002,000, or 24 percent, for the year ended December 31, 2006 compared to the corresponding period in 2005 primarily due to (1) $42,975,000 net borrowings under our credit facility to finance our TexStar acquisition, organic growth projects, working capital requirements and to amend and restate our credit facility, (2) $37,144,000 of partner distributions made in 2006 not made in 2005; and (3) a decrease in member interest contributions of $68,214,000 as HM Capital Investors infused $72,000,000 into us and TexStar in 2005 for growth capital projects.

Net cash flows from financing activities increased from the combined year ended December 31, 2004 to December 31, 2005 by $54,054,000 primarily due to increased member interest contributions of $57,500,000 as HM Capital Investors infused $72,000,000 into us and TexStar in 2005 for growth capital projects.

CAPITAL REQUIREMENTS

We categorize our capital expenditures as either:

•  Growth capital expenditures, which are made to acquire additional assets to increase our business, to expand and upgrade existing systems and facilities or to construct or acquire similar systems or facilities; or

•  Maintenance capital expenditures, which are made to replace partially or fully depreciated assets, to maintain the existing operating capacity of our assets and to extend their useful lives or to maintain existing system volumes and related cash flows.

Growth Capital Expenditures.  In the year ended December 31, 2006, we incurred $121,825,000 of growth capital expenditures. Growth capital expenditures for the year ended December 31, 2006 primarily relate to the completion of our Regency Intrastate Enhancement Project, projects completed by TexStar both before and after we acquired it, two new 200 MMcf/d dewpoint control facilities, additional gas compressors, a scheduled loop of a western segment of our intrastate pipeline, expansion of north Louisiana gathering and processing system and 6 miles of 12-inch pipeline in Lincoln Parish, Louisiana.

Our 2007 growth budget includes approximately $55,000,000 of currently identified organic growth capital expenditures. These growth capital expenditures are for more than 25 projects, of which the most significant are the following:

•  Re-build and activate existing nitrogen rejection unit at our Eustace Processing Plant;

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•  Constructing 31 miles of 12 inch diameter pipeline in south Texas;

•  Electrification and adding an acid gas injection well at our Tilden Processing Plant; and

•  Adding an acid gas injection well at our Waha Processing Plant to provide flexibility to the level of sulfur that can be processed.

We expect to fund these growth capital expenditures out of borrowings under our existing credit agreement. We continually review opportunities for both organic growth projects and acquisitions that will enhance our financial performance. Since we distribute our available cash to our unitholders, we depend on borrowings under our credit facility and the incurrence of debt and equity securities to finance any future growth capital expenditures or acquisitions.

Maintenance Capital Expenditures.  In the year ended December 31, 2006, we incurred $16,433,000 of maintenance capital expenditures, approximately $8,200,000 of which was spent by TexStar to refurbish the Eustace Plant prior to our acquisition. Maintenance capital expenditures primarily consist of compressor and plant overhauls, as well as new well connects to our gathering systems, which replace volumes from naturally occurring depletion of wells already connected. Our 2007 budget for maintenance capital expenditures is $10,200,000.

Fourth Amended and Restated Credit Agreement

In connection with our acquisition of TexStar, RGS, amended and restated its $470,000,000 credit agreement, increasing the facility to $850,000,000 consisting of $600,000,000 in term loans and $250,000,000 in a revolving credit facility. The availability for letters of credit was increased to $100,000,000. RGS has the option to increase the commitments under the revolving credit facility or the term loan facility, or both, by an amount up to $200,000,000 in the aggregate, provided that no event of default has occurred or would result due to such increase, and all other additional conditions for the increase of the commitments set forth in the fourth amended and restated credit agreement, or the credit facility, have been met.

RGS’ obligations under the credit facility are secured by substantially all of the assets of RGS and its subsidiaries and are guaranteed by the Partnership and each such subsidiary. The revolving loans under the facility will mature in five years, and the term loans thereunder will mature in seven years.

Interest on term loan borrowings under the credit facility will be calculated, at the option of RGS, at either: (a) a base rate plus an applicable margin of 1.50 percent per annum or (b) an adjusted LIBOR rate plus an applicable margin of 2.50 percent per annum. Interest on revolving loans thereunder will be calculated, at the option of RGS, at either: (a) a base rate plus an applicable margin of 1.00 percent per annum or (b) an adjusted LIBOR rate plus an applicable margin of 2.00 percent per annum. RGS must pay (i) a commitment fee equal to 0.50 percent per annum of the unused portion of the revolving loan commitments, (ii) a participation fee for each revolving lender participating in letters of credit equal to 2.25 percent per annum of the average daily amount of such lender’s letter of credit exposure, and (iii) a fronting fee to the issuing bank of letters of credit equal to 0.125 percent per annum of the average daily amount of the letter of credit exposure.

The credit facility contains financial covenants requiring RGS and its subsidiaries to maintain debt to consolidated EBITDA and consolidated EBITDA to interest expense within certain threshold ratios. At December 31, 2006, RGS and its subsidiaries were in compliance with these covenants.

The credit facility restricts the ability of RGS to pay dividends and distributions other than reimbursements of us for expenses and payment of dividends to us to the extent of our determination of available cash under the partnership agreement (so long as no default or event of default has occurred or is continuing). The credit facility also contains various other covenants.

The outstanding balances of term debt and revolver debt under the credit facility bear interest at either LIBOR plus margin or at Alternative Base Rate (equivalent to the US prime lending rate) plus margin, or a combination of both. The weighted average interest rates for the revolving and term loan facilities, including

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interest rate swap settlements, commitment fees, and amortization of debt issuance costs were 7.70 percent for the year ended December 31, 2006.

Senior Notes

On December 12, 2006, the Partnership and Regency Energy Finance Corp., a wholly owned subsidiary of RGS, issued $550,000,000 in the principal amount of senior notes that mature on December 15, 2013 in a private placement (“senior notes”). The senior notes bear interest at 8.375 percent and interest is payable semi-annually in arrears on each June 15 and December 15, commencing on June 15, 2007, and are guaranteed by all of our subsidiaries.

The senior notes and the guarantees will be unsecured and will rank equally with all of our and the guarantors’ existing and future unsubordinated obligations. The senior notes and the guarantees will be senior in right of payment to any of our and the guarantors’ future obligations that are, by their terms, expressly subordinated in right of payment to the notes and the guarantees. The senior notes and the guarantees will be effectively subordinated to our and the guarantors’ secured obligations, including our credit facility, to the extent of the value of the assets securing such obligations.

The notes are initially guaranteed by each of the Partnership’s current subsidiaries (the “Guarantors”), except Finance Corp. These note guarantees are the joint and several obligations of the Guarantors. A Guarantor may not sell or otherwise dispose of all or substantially all of its properties or assets if such sale would cause a default under the terms of the senior notes. Events of default include nonpayment of principal or interest when due; failure to make a change of control offer (explained below); failure to comply with reporting requirements according to SEC rules and regulations; and defaults on the payment of obligations under other mortgages or indentures.

We may redeem the senior notes, in whole or in part, at any time on or after December 15, 2010, at a redemption price equal to 100 percent of the principal amount thereof, plus a premium declining ratably to par and accrued and unpaid interest and liquidated damages, if any, to the redemption date. At any time before December 15, 2010, we may redeem some or all of the notes at a redemption price equal to 100 percent of the principal amount plus a make-whole premium, plus accrued and unpaid interest and liquidated damages, if any, to the redemption date. At any time before December 15, 2009, we may redeem up to 35 percent of the aggregate principal amount of the notes issued under the indenture with the net cash proceeds of one or more qualified equity offerings at a redemption price equal to 108.375 percent of the principal amount of the notes to be redeemed, plus accrued and unpaid interest and liquidated damages, if any, to the redemption date; provided that: (i) at least 65 percent of the aggregate principal amount of the notes remains outstanding immediately after the occurrence of such redemption; and (ii) such redemption occurs within 90 days of the date of the closing of any such qualified equity offering.

Upon a change of control, each holder of notes will be entitled to require us to purchase all or a portion of its notes at a purchase price equal to 101 percent of the principal amount thereof, plus accrued and unpaid interest and liquidated damages, if any, to the date of purchase. Our ability to purchase the notes upon a change of control will be limited by the terms of our debt agreements, including our credit facility.

The senior notes contain covenants that, among other things, limit our ability and the ability of certain of our subsidiaries to: (i) incur additional indebtedness; (ii) pay distributions on, or repurchase or redeem equity interests; (iii) make certain investments; (iv) incur liens; (v) enter into certain types of transactions with our affiliates; and (vi) sell assets or consolidate or merge with or into other companies. If the senior notes achieve investment grade ratings by both Moody’s and S&P and no default or event of default has occurred and is continuing, we will no longer be subject to many of the foregoing covenants.

The senior notes include registration rights whereby we agreed to:

•  file a registration statement within 150 days of the issue date, enabling holders to exchange the privately placed notes for publicly registered exchange notes with substantially the same terms;

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•  use our commercially reasonable efforts to cause the registration statement to become effective within 310 days of the issue date;

•  use our commercially reasonable efforts to issue the exchange notes within 30 business days after the registration statement has become effective, unless prohibited by law or SEC policy; and

•  file a shelf registration statement for the resale of the senior notes if we cannot consummate the exchange offer within the time period listed above and in certain other circumstances.

We have agreed to pay liquidated damages in the form of additional interest payments to holders of the senior notes under certain circumstances if we do not comply with our obligations under the registration rights agreement.

Letters of Credit.  At December 31, 2006, we had outstanding letters of credit totaling $5,183,000. The total fees for letters of credit accrue at an annual rate of 2.125 percent, which is applied to the daily amount of letters of credit exposure.

Off-Balance Sheet Transactions and Guarantees.  We have no off-balance sheet transactions or obligations.

Total Contractual Cash Obligations.  The following table summarizes our total contractual cash obligations as of December 31, 2006.

	Payments Due by Period
Contractual Obligations	Total		2007		2008-2009		2010-2011		Thereafter
	(In thousands)
Long-term debt (including interest)(1)	$	1,025,387	$	55,644	$	111,288	$	216,330	$	642,125
Operating leases		1,570		653		759		158		—
Purchase obligations		38,669		38,669		—		—		—
Total(2)	$	1,065,626	$	94,966	$	112,047	$	216,488	$	642,125

(1)	Assumes a constant current LIBOR interest rate of 5.3279 percent plus the applicable margin on our $50,000,000 term note and revolver. Our senior notes of $550,000,000 bear a fixed interest rate of 8.375 percent.
(2)	Excludes physical and financial purchases of natural gas, NGLs, and other energy commodities due to the nature of both the price and volume components of such purchases, which vary on a daily or monthly basis. Additionally, we do not have contractual commitments for fixed price and/or fixed quantities of any material amount.

RECENT ACCOUNTING PRONOUNCEMENTS

In July 2006, the FASB issued FIN No. 48 “Accounting for Uncertainty in Income Taxes — An Interpretation of FASB Statement 109”, which clarifies the accounting for uncertainty in income taxes recognized in financial statements in accordance with FASB Statement No. 109, “Accounting for Income Taxes” and is effective for fiscal years beginning after December 15, 2006. FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. The adoption of FIN 48 is not expected to have a material impact on our consolidated results of operations, cash flows or financial position.

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements”, which provides guidance for using fair value to measure assets and liabilities. SFAS 157 applies whenever another standard requires (or permits) assets or liabilities to be measured at fair value. This standard does not expand the use of fair value to any new circumstances. SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. We are currently evaluating

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the potential impacts on our financial position, results of operations or cash flows of the adoption of this standard.

In September 2006, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements,” (“SAB 108”) to address diversity in practice in quantifying financial statement misstatements. SAB 108 requires entities to quantify misstatements based on their impact on each of their financial statements and related disclosures. SAB 108, effective as of December 31, 2006, allows for a one-time transitional cumulative effect adjustment to retained earnings as of January 1, 2006 for errors that were not previously deemed material, but are material under the guidance in SAB 108. The adoption of this standard did not have a material impact on the Partnership’s consolidated results of operations, cash flows or financial position.

In January 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities, Including an Amendment of FASB Statement No. 115” (“SFAS 159”), which permits entities to measure many financial instruments and certain other assets and liabilities at fair value on an instrument-by-instrument basis. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007. We are currently evaluating the potential impacts on our financial position, results of operations or cash flows of the adoption of this standard.

Item 7A.   Quantitative and Qualitative Disclosure about Market Risk

Risk and Accounting Policies

We are exposed to market risks associated with commodity prices, counterparty credit and interest rates. Our management has established comprehensive risk management policies and procedures to monitor and manage these market risks. Our Managing General Partner is responsible for delegation of transaction authority levels, and the Risk Management Committee of our Managing General Partner is responsible for the overall management of credit risk and commodity price risk, including monitoring exposure limits. See “— Critical Accounting Policies and Estimates — Risk Management Activities” for further discussion of the accounting for derivative contracts. The Risk Management Committee receives regular briefings on positions and exposures, credit exposures and overall risk management in the context of market activities.

Commodity Price Risk

We are exposed to the impact of market fluctuations in the prices of natural gas, NGLs and other commodities as a result of our gathering, processing and marketing activities, which in the aggregate produce a naturally long position in both natural gas and NGLs. We attempt to mitigate commodity price risk exposure by matching pricing terms between our purchases and sales of commodities. To the extent that we market commodities in which pricing terms cannot be matched and there is a substantial risk of price exposure, we attempt to use financial hedges to mitigate the risk. It is our policy not to take any speculative marketing positions. In some cases, we may not be able to match pricing terms or to cover our risk to price exposure with financial hedges, and we may be exposed to commodity price risk.

Both our profitability and our cash flow are affected by volatility in prevailing natural gas and NGL prices. Natural gas and NGL prices are impacted by changes in the supply and demand for NGLs and natural gas, as well as market uncertainty. Historically, changes in the prices of heavy NGLs, such as natural gasoline, have generally correlated with changes in the price of crude oil. Adverse effects on our cash flow from reductions in natural gas and NGL product prices could adversely affect our ability to make distributions to unitholders. We manage this commodity price exposure through an integrated strategy that includes management of our contract portfolio, matching sales prices of commodities with purchases, optimization of our portfolio by monitoring basis and other price differentials in our areas of operations, and the use of derivative contracts.

We are a net seller of NGLs, condensate and natural gas, and as such our financial results are exposed to fluctuations in NGL pricing. We have executed swap contracts settled against crude oil, ethane, propane,

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butane and natural gasoline market prices, supplemented with crude oil put options. The Partnership has executed swap contracts settled against ethane, propane, butane, natural gasoline, crude oil and natural gas market prices. As of March 29, 2007, we have hedged approximately 71 percent of our expected exposure to NGL in 2007 and 2008 and approximately 28 percent in 2009. We have hedged approximately 66 percent of our expected exposure to condensate prices in 2007 and approximately 64 percent in 2008 and 2009. We have hedged approximately 60 percent of our expected exposure to natural gas prices in 2007. We continually monitor our hedging and contract portfolio and expect to continue to adjust our hedge position as conditions warrant.

The following table sets forth certain information regarding our non-trading NGL swaps outstanding at December 31, 2006. The relevant index price that we pay is the monthly average of the daily closing price for deliveries of commodities into Mont Belvieu, Texas, as reported by the Oil Price Information Service (OPIS).

		Notional Volume		We		We Receive
Period	Commodity	(MBbls)		Pay		($/gallon)	Fair Value
							(In thousands)
January 2007 — December 2008	Ethane		959		Index	$0.55-$0.6725	$	(792	)
January 2007 — December 2008	Propane		680		Index	$0.825-$1.0975		(562	)
January 2007 — December 2009	Butane		630		Index	$1.025-$1.27		638
January 2007 — December 2008	Natural Gasoline		209		Index	$1.22-$1.565		153
January 2007 — December 2009	West Texas Intermediate Crude		712		Index	$65.60-$68.38		563
Total Fair Value							$	—

Credit Risk

Our purchase and resale of natural gas exposes us to credit risk, as the margin on any sale is generally a very small percentage of the total sale price. Therefore a credit loss can be very large relative to our overall profitability. We attempt to ensure that we issue credit only to credit-worthy counterparties and that in appropriate circumstances any such extension of credit is backed by adequate collateral such as a letter of credit or parental guarantees.

In January 2005, one of our customers filed for Chapter 11 reorganization under U.S. bankruptcy law. The customer operates a merchant power plant, for which we provide firm transportation of natural gas. Under the contract with the customer, the customer is obligated to make fixed payments in the amount of approximately $3,200,000 per year. The contract, which expires in mid-2012, was originally secured by a $10,000,000 letter of credit. In December 2005, in connection with other contract negotiations, the letter of credit was reduced to $3,300,000 and we accepted a parent guarantee in the amount of $6,700,000. The customer has accepted the firm transportation contract in bankruptcy. The customer’s plan of reorganization has been confirmed by the bankruptcy court and the customer has since emerged from bankruptcy protection. At December 31, 2006, the customer was current in its payment obligations.

Interest Rate Risk

In June and December 2006, we early terminated our interest rate swaps with notional amounts of $200,000,000 that converted amounts outstanding under our credit agreement from a floating rate of interest to the fixed rate of interest from January 1, 2007 until March 31, 2009. As a result, we are exposed to variable interest rate risk as a result of borrowings under our existing credit facility. As of December 31, 2006, we had $114,700,000 of outstanding long-term balances exposed to variable interest rate risk. An increase of 100 basis points in the LIBOR rate would increase our annual payment by approximately $1,100,000

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Item 8.   Financial Statements and Supplementary Data.

The financial statements set forth starting on page F-1 of this report are incorporated by reference.

Item 9.   Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

None.

Item 9A.   Controls and Procedures.

We maintain controls and procedures designed to ensure that information required to be disclosed in the reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC. An evaluation was performed under the supervision and with the participation of our management, including the Chief Executive Officer and Chief Financial Officer of our Managing General Partner, of the effectiveness of the design and operation of our disclosure controls and procedures (as such terms are defined in Rule 13a-15(e) and 15d-15(e) of the Exchange Act). Based on that evaluation, management, including the Chief Executive Officer and Chief Financial Officer of our Managing General Partner, concluded that our disclosure controls and procedures were effective as of December 31, 2006 to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms.

Our management does not expect that our disclosure controls and procedures will prevent all errors. The design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all of our disclosure control issues have been detected. These inherent limitations include the realties that judgments in decision-making can be faulty and that breakdowns can occur because of simple errors or mistakes. The design of any system of controls also is based in part on certain assumptions about the likelihood of future events. Therefore, a control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Our disclosure controls and procedures are designed to provide such reasonable assurances of achieving our desired control objectives and the Chief Executive Officer and the Chief Financial Officer of our general partner have concluded, as of December 31, 2006, that our disclosure controls and procedures are effective in achieving that level of reasonable assurance.

Management has acknowledged that it is responsible for establishing and maintaining a system of disclosure controls and procedures for us. We have designed those disclosure controls and procedures to ensure that material information relating to us, including our consolidated subsidiaries, is made known to management by others within those entities. We have evaluated the effectiveness of our disclosure controls and procedures, as of the end of fiscal year 2006, and concluded that they are effective.

We are not yet subject to Section 404 of the Sarbanes-Oxley Act which, when applicable, will require us to include Management’s Annual Report on Internal Control Over Financial Reporting and an Attestation Report of Independent Registered Public Accounting Firms in its Annual Report on Form 10-K. Under the applicable rules of the SEC, Section 404 will not apply to the Partnership until the due date of our annual report for the year ending December 31, 2007.

In anticipation of becoming subject to the provisions of Section 404 of the Sarbanes-Oxley Act of 2002, we initiated in early 2005 a program of documentation, implementation and testing of internal control over financial reporting. This program will continue through this year, culminating with our initial Section 404 certification and attestation in early 2008. While our independent registered public accounting firm has not attested to or reported on our internal control over financial reporting as of the end of fiscal 2006, we have evaluated the effectiveness of our system of internal control over financial reporting, as well as changes therein, in compliance with Rule 13a-15 of the SEC’s rules under the Securities Exchange Act and have filed the certifications with this annual report required by Rule 13a-14.

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In the course of that evaluation, we found no fraud, whether or not material, that involved management or other employees who have a significant role in our internal control over financial reporting and no material weaknesses. To the extent that we discovered any matter in the design or operation of our system of internal control over financial reporting that might be considered to be a significant deficiency or a material weakness, whether or not considered reasonably likely to adversely affect our ability to record, process, summarize and report financial information, we reported that matter to our independent registered public accounting firm and to the audit committee of our board of directors.

Item 9B.   Other Information.

None.

Part III

Item 10.   Directors, Executive Officers and Corporate Governance

Management

Regency GP LP is our General Partner. Our General Partner manages and directs all of our activities. The activities of the General Partner are managed and directed by its general partner, Regency GP LLC, or the Managing General Partner. Our officers and directors are officers and directors of the Managing General Partner. The owners of the Managing General Partner may appoint up to ten persons to serve on the Board of Directors of the Managing General Partner. Although there is no requirement that he do so, the President and Chief Executive Officer of the Managing General Partner is currently a director of the Managing General Partner and serves as Chairman of the Board of Directors.

Our Board of Directors was, until the resignation of Robert W. Shower in February 2007 for reasons of health, comprised of its Chairman (the President and Chief Executive Officer of the Managing General Partner), three persons who qualify as “independent” under The NASDAQ Stock Market, Inc., or NASDAQ, standards for audit committee members and six persons who were either appointed by the sole member of the Managing General Partner or elected by the other members of the Board of Directors. As a result of Mr. Shower’s resignation, there are currently only two directors who qualify as “independent.”

Following our notice to The Nasdaq Stock Market of Mr. Shower’s resignation, we received a Nasdaq Staff Deficiency Letter on February 15, 2007 indicating that we now fail to comply with Marketplace rule 4350 relating to the composition of our Audit Committee. Compliance is required for continued listing on The Nasdaq Stock Market, but, in accordance with Marketplace rule 4350(d)(4), the Market has provided a cure period of one year within which to reestablish compliance. We are currently in the process of identifying a suitable nominee.

Corporate Governance

The Board has adopted Corporate Governance Guidelines to assist it in the exercise of its responsibilities to provide effective governance over our affairs for the benefit of our unitholders. In addition, we have adopted a Code of Business Conduct, which sets forth legal and ethical standards of conduct for all our officers, directors and employees. Specific provisions are applicable to the principal executive officer, principal financial officer, principal accounting officer and controller, or those persons performing similar functions, of our Managing General Partner. The Corporate Governance Guidelines, the Code of Business Conduct and the charters of our audit, compensation, nominating and executive committees are available on our website at www.regencygas.com. Amendments to, or waivers from, the Code of Business Conduct will also be available on our website and reported as may be required under SEC rules; however, any technical, administrative or other non-substantive amendments to the Code of Business Conduct may not be posted. Please note that the preceding Internet address is for information purposes only and is not intended to be a hyperlink. Accordingly, no information found or provided at that Internet addresses or at our website in general is intended or deemed to be incorporated by reference herein.

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Conflicts Committee.  The Board of Directors appoints members of the Board to serve on the Conflicts Committee with the authority to review specific matters for which the Board of Directors believes there may be a conflict of interest in order to determine if the resolution of such conflict proposed by the Managing General Partner is fair and reasonable to us and our common unitholders. Any matters approved by the Conflicts Committee will be conclusively deemed to be fair and reasonable to us, approved by all of our partners and not a breach by the General Partner, the Managing General Partner or its Board of Directors of any duties they may owe us or the common unitholders. The current members of the Conflicts Committee are,with Mr. Shower’s resignation as a director, A. Dean Fuller (Chairman) and J. Otis Winters. The Conflicts Committee met 12 times in considering and approving the TexStar acquisition.

Audit Committee.  The Board of Directors has established an Audit Committee in accordance with the Exchange Act. The Board of Directors initially appointed five directors as members of the Audit Committee, including three individuals who are independent under the NASDAQ’s standards for audit committee members to serve on its Audit Committee. In addition, the Board had determined that at least one member of the Audit Committee (Robert W. Shower) had such accounting or related financial management expertise sufficient to qualify such person as the audit committee financial expert in accordance with Item 401 of Regulation S-K. (While no formal determination has been made, management believes that Mr. Otis Winters is similarly qualified.) In February 2007, the two members that did not qualify as “independent” directors resigned from the Audit Committee in compliance with applicable rules of the SEC and the NASDAQ Marketplace Rules.

The Audit Committee meets on a regularly scheduled basis with our independent accountants at least four times each year and is available to meet at their request. The Audit Committee has the authority and responsibility to review our external financial reporting, to review our procedures for internal auditing and the adequacy of our internal accounting controls, to consider the qualifications and independence of our independent accountants, to engage and resolve disputes with our independent accountants, including the letter of engagement and statement of fees relating to the scope of the annual audit work and special audit work which may be recommended or required by the independent accountants, and to engage the services of any other advisors and accountants as the Audit Committee deems advisable. The Audit Committee reviews and discusses the audited financial statements with management, discusses with our independent auditors matters required to be discussed by SAS 61 (Communications with Audit Committees), and makes recommendations to the Board of Directors relating to our audited financial statements.

The Audit Committee is authorized to recommend periodically to the Board of Directors any changes or modifications to its charter that the Audit Committee believes may be required.

Compensation and Nominating Committees.  Although we are not required under NASDAQ Marketplace rules to appoint a Compensation Committee or a Nominating/Corporate Governance Committee because we are a limited partnership, the Board of Directors of the Managing General Partner has established a Compensation Committee to establish standards and make recommendations concerning the compensation of our officers and directors. In addition, the Compensation Committee determines and establishes the standards for any awards to our employees and officers, including the performance standards or other restrictions pertaining to the vesting of any such awards, under our existing Long Term Incentive Plan, as well as any other equity compensation plans adopted by our common unitholders. The Compensation Committee is composed of Jason H. Downie (Chairman), Joe Colonnetta and J. Otis Winters, none of whom is an officer or employee of us or the Managing General Partner. For further information, please read “Item 11 — Executive Compensation.”

The Board of Directors has also appointed a Nominating Committee to assist the Board and the member of our Managing General Partner by identifying and recommending to the Board of Directors individuals qualified to become Board members, to recommend to the Board director nominees for each committee of the Board and to advise the Board about and recommend to the Board appropriate corporate governance practices. The Nominating Committee is composed of Joe Colonnetta (Chairman), Jason H. Downie and J. Edward Herring. Matters relating to the election of Directors or to Corporate Governance are addressed to and determined by the full Board of Directors.

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Meetings of Non-Management Directors and Communication with Directors

As a limited partnership, our Managing General Partner is required to maintain a sufficient number of independent directors (as defined by the NASDAQ Marketplace rules) for it to satisfy those rules regarding membership of independent directors on the audit committee of its board of directors. Our independent directors are required by those rules to meet in executive session at least twice each year. In practice, they meet in executive session at most regularly scheduled meetings of the board. The position of the presiding director at these meetings is rotated among the independent directors. A. Dean Fuller is the presiding director for the meetings of the independent directors to be held prior to the 2008 Annual Meeting of the Board. Interested parties may make their concerns known to the independent directors directly and anonymously by writing to the Chairman of the Audit Committee, Regency GP LLC, 1700 Pacific Avenue, Suite 2900, Dallas, Texas 75201.

Directors and Executive Officers

The following table shows information regarding the current directors and executive officers of Regency GP LLC. Directors are elected for one-year terms.

Name	Age		Position with Regency GP LLC
James W. Hunt(1)(4)(5)		63	Chairman of the Board, President and Chief Executive Officer
Michael L. Williams		47	Executive Vice President and Chief Operating Officer
Stephen L. Arata		41	Executive Vice President and Chief Financial Officer
William E. Joor III		67	Executive Vice President, Chief Legal and Administrative Officer and Secretary
Charles M. Davis, Jr.(7)		45	Senior Vice President-Corporate Development
Richard D. Moncrief		48	Senior Vice President, Gas Supply and Business Development
Lawrence B. Connors		56	Vice President, Finance and Chief Accounting Officer
Alvin Suggs		54	Senior Vice President and General Counsel
Houston C. Ross III(8)		37	Vice President, Financial Analysis and Planning
Christofer Rozzell(8)		31	Vice President, Corporate Development
Ramon Suarez, Jr.(8)		44	Vice President, Treasurer
Joe Colonnetta(1)(4)(6)		45	Director
Jason H. Downie(1)(4)(5)(6)		36	Director
A. Dean Fuller(2)(3)		59	Director
Jack D. Furst		48	Director
J. Edward Herring(6)		37	Director
Robert D. Kincaid		46	Director
Gary W. Luce(5)		46	Director
J. Otis Winters(2)(3)(4)		74	Director

(1)	Member of the Executive Committee. Mr. Colonnetta is chairman of this committee.
(2)	Member of the Audit Committee.
(3)	Member of Conflicts Committee. Mr. Fuller is chairman of this committee.
(4)	Member of Compensation Committee. Mr. Downie is chairman of this committee. Mr. Hunt is an exofficio member.

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(5)	Member of Risk Management Committee. Mr. Luce is chairman of this committee. Mr. Hunt is an exofficio member.
(6)	Member of Nominating Committee. Mr. Colonnetta is chairman of this committee.
(7)	Mr. Davis was elected an officer on March 21, 2006 and commenced employment in March 2006.
(8)	Elected March 22, 2007.

Our operating partnership, Regency Gas Services LP, is operated by its general partner, Regency OLP GP LLC. The following are the officers of the latter:

James W. Hunt	President
Michael L. Williams	Vice President
Stephen L. Arata	Vice President
William E. Joor III	Vice President and Secretary
Richard D. Moncrief	Vice President
Lawrence B. Connors	Vice President
Alvin Suggs	Vice President
Durell J. Johnson	Vice President
James A. Scott	Vice President
Martin Anthony	Vice President
Jacque L. Wolf	Vice President
Ramon Suarez, Jr.	Treasurer

James W. Hunt was elected Chairman of the Board of Directors of Regency GP LLC and Regency Gas Services in November 2005. Mr. Hunt has served as President and Chief Executive Officer of Regency GP LLC from September 2005 to present. Mr. Hunt has, since his election effective December 1, 2004, served as President, Chief Executive Officer and Director of Regency Gas Services LLC. From 1978 until January 1981, Mr. Hunt served as President and Chief Executive Officer of Diamond M Company, a major offshore drilling company and the predecessor of Diamond Offshore Company. From 1981 through 1987, he served as Chairman and Chief Executive Officer of Cenergy Corporation, a NYSE listed oil and gas exploration, production and pipeline company. During the period from 1987 to 1989, Mr. Hunt was an independent financial consultant. From 1989 until December 2004, Mr. Hunt was engaged in energy investment banking, three years as head of the Houston office of Lehman Brothers Incorporated and most recently as head of the U.S. Energy Group of UBS Securities LLC. Mr. Hunt is an attorney and member of the State Bar of Texas.

Michael L. Williams, P.E., was elected Executive Vice President and Chief Operating Officer of Regency GP LLC in September 2005. From December 2004 to the present, Mr. Williams served as Executive Vice President and Chief Operating Officer of Regency Gas Services LLC. Mr. Williams served as Vice President of Engineering and Operations from October 2002 through September 2004 heading up operations and engineering at Energy Transfer Partners, L.P. Mr. Williams also served as Vice President of Engineering and Operations for Aquila Inc. from 2000 through September 2002 where he was responsible for the Operation and Engineering of Aquila’s gas gathering, processing, fractionation, and storage assets.

Stephen L. Arata was elected Executive Vice President and Chief Financial Officer of Regency GP LLC in September 2005. From June 2005 to the present, Mr. Arata served as Executive Vice President and Chief Financial Officer of Regency Gas Services LLC. From September 1996 to June 2005, Mr. Arata worked for UBS Investment Bank, covering the power and pipeline sectors; he was Executive Director from 2000 through June 2005. Prior to UBS, Mr. Arata worked for Deloitte Consulting, focusing on the energy sector.

William E. Joor III was elected Executive Vice President, Chief Legal and Administrative Officer and Secretary of Regency GP LLC in September 2005. Mr. Joor has, since his election effective January 1, 2005, served as Executive Vice President, Chief Legal and Administrative Officer and Secretary of Regency Gas Services LLC. From May 1966 through December 1973, Mr. Joor was associated with, and from then until

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December 31, 2004 was a partner of, Vinson & Elkins LLP. Mr. Joor’s area of specialization was the law of corporate finance and mergers and acquisitions with particular emphasis in the energy sector.

Charles M. Davis, Jr. was elected Senior Vice President — Corporate Development for Regency GP LLC in March 2006. From September 2004 to February 2005, Mr. Davis was Managing Director and Head of Mergers and Acquisitions for Challenger Capital Group Ltd. From July 2002 until September 2004, Mr. Davis was a Managing Director in the Energy and Power Group of UBS Investment Bank. From March 1992 until August 2002, Mr. Davis was a Managing Director in the Global Energy and Power Group of Merrill Lynch. Prior to Merrill, Mr. Davis worked in the Energy Groups of The First Boston Corporation and McKinsey & Co. Mr. Davis has over 20 years experience with mergers and acquisitions as well as financing in the pipeline industry.

Richard D. Moncrief was elected Senior Vice President of Gas Supply and Business Development in April 2006. Mr. Moncrief was most recently associated with Sid Richardson Energy Services, of Fort Worth, Texas, where-until that company’s recent sale-he was Vice President, Business Development, and more recently Vice President, Engineering & Business Development. As such, his responsibilities included all business development activities (acquisitions, divestitures, major system expansions and asset optimization projects) for the company’s 4,000 miles of gathering system in the Permian Basin area of west Texas and southeast New Mexico. He previously held management positions at Koch Midstream Services Company and at Delhi Gas Pipeline Corporation. After graduation with a B.S. in Petroleum Engineering at Texas A&M in 1981, he worked at Getty Oil Company and TXO Production Company before joining Delhi.

Lawrence B. Connors was elected Vice President of Finance and Chief Accounting Officer of Regency GP LLC in September 2005. From December 2004 to the present, Mr. Connors served as Vice President, Finance and Chief Accounting Officer of Regency Gas Services LLC. From June 2003 through November 2004, Mr. Connors served as Controller of Regency Gas Services LLC. From August 2000 through November 2001, Mr. Connors was an independent accounting and financial consultant. From 2001 through May 2003 Mr. Connors was a Registered Representative with Foster Financial Group. From 1996 through July 2000, Mr. Connors was the Controller and Chief Accounting Officer of Central and South West Corporation, or CSW; he had managerial responsibilities at three CSW operating companies and CSW Services. Prior to his employment at CSW, he was with Arthur Andersen working with energy and health care audit clients. Mr. Connors is a Certified Public Accountant.

Alvin Suggs was elected Senior Vice President and General Counsel of Regency GP LLC in March 2007. From June 2005 to March 2007, Mr. Suggs served as Vice President and General Counsel of Regency Gas Services LLC. From June 2003 to June 2005, Mr. Suggs engaged in the private practice of law representing clients in the energy sector, first as a sole practitioner and, after June 2004, with Thompson & Knight, LLP. Mr. Suggs served as Vice President and Associate General Counsel with El Paso Energy Corporation and General Counsel of El Paso Field Services, L.P. from September 1999 through June 2003. Mr. Suggs served as Senior Counsel to El Paso Field Services, L.P. and El Paso Energy Marketing, L.P. from September 1997 to September 1999, and from 1987 to 1999 he served Texas Oil & Gas Corp., American Oil and Gas Corporation and KN Energy, Inc. in various capacities from Counsel to Assistant General Counsel. Prior to that service, Mr. Suggs was in private practice of law for five years, and also served as Assistant District Attorney for the Fifth Circuit Court District in Mississippi in 1978.

Houston C. Ross III was elected Vice President of Financial Analysis and Planning of Regency GP LLC in March 2007. From February 2004 until the present, Mr. Ross served as Director of Financial Analysis and Planning for Regency Gas Services LLC. From February 2003 until February 2004, Mr. Ross worked for Energy, Economic, and Environmental Consultants, Inc., as a Senior Economic Analyst specializing in natural gas royalty litigation support. From May 2002 until February 2003, Mr. Ross was an independent consultant. From May 1998 until May 2002, Mr. Ross worked for Engage Energy US LP and its corporate successor, El Paso Merchant Energy, trading electricity in the US markets from May 1999 until May 2002. Mr. Ross graduated from Rice University in 1998 with a BS in Mechanical Engineering.

Christofer D. Rozzell was elected Vice President of Corporate Development of Regency GP LLC in March 2007. From June 2005 to the present, Mr. Rozzell served in various roles at Regency GP LLC, most

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recently as Director of Corporate Development. From May 2001 to May 2005, Mr. Rozzell held managerial positions in the strategic planning and enterprise risk groups of TXU Corp. Prior to TXU Corp., Mr. Rozzell worked in the investment Banking Division of Bear, Stearns & Co. Inc., focusing on mergers and acquisitions advisory and financings across multiple industries.

Ramon Suarez, Jr. was elected Vice President, Treasurer of Regency GP LLC in March 2007. From February 2006 to the present, Mr. Suarez was Director of Treasury for Regency GP LLC. Mr. Suarez worked for CompUSA as Director of Corporate Finance from March 1999 to December 2005. Prior to March 1999, Mr. Suarez worked for Raytheon as a Director of Finance and was involved with the acquisition and merger of four defense contracting companies. Mr. Suarez has over 21 years of financial experience.

Joe Colonnetta was elected to the Board of Directors of Regency GP LLC in September 2005 and served as Chairman of the Board of Directors until November 2005. From December 2004 to the present, Mr. Colonnetta has served as a director of Regency Gas Services LLC, including service as Chairman of the Board until November 2005. Mr. Colonnetta is a partner at HM Capital. Mr. Colonnetta joined HM Capital in 1998. Prior to joining HM Capital, Mr. Colonnetta was a partner with Metropoulos and Co., an affiliate of HM Capital. Mr. Colonnetta is also Chairman of the Board of Directors of BlackBrush Oil & Gas, and he serves on the Board of Directors of Swift & Company.

Jason H. Downie was elected to the Board of Directors of Regency GP LLC in September 2005. From December 2004 to the present, Mr. Downie has served as a director of Regency Gas Services LLC. Mr. Downie is a partner of HM Capital and has been with the firm since September 2000. From June 1999 to August 2000, Mr. Downie was an associate at Rice Sangalis Toole & Wilson, a mezzanine private equity firm based in Houston, Texas, and from June 1992 through June 1997, Mr. Downie served in various capacities with Donaldson, Lufkin & Jenrette in New York, lastly as an Associate Position Trader in their Capital Markets Group. From June 1997 to June 1999, Mr. Downie attended the McCombs School of Business at the University of Texas. Mr. Downie also serves on the Board of Directors of BlackBrush Oil & Gas.

A. Dean Fuller was elected to the Board of Directors of Regency GP LLC on November 14, 2005. Having sold in 1993 a company he co-founded, Mr. Fuller become President and Chief Executive Officer of Transok, Inc., the natural gas pipeline subsidiary of Central and South West Corporation, until its sale in 1996. Mr. Fuller continued to manage the fuels and gas marketing function of CSW until late 2000 at which time he became Senior Vice President of the midstream business of Aquila, Inc. At the time of the acquisition of Aquila’s midstream business by Energy Transfer, Mr. Fuller continued to manage those assets as Senior Vice President, and served as President of Oasis Pipeline Company after its acquisition by Energy Transfer. Mr. Fuller resigned his positions with Energy Transfer in August 2004.

Jack D. Furst was elected to the Board of Directors of Regency GP LLC on December 8, 2005. Mr. Furst is a partner with HM Capital and has been with the firm since its formation in 1989. From 1987 to 1989, Mr. Furst served as a vice president and subsequently a partner of Hicks & Haas. From 1984 to 1986, Mr. Furst was a merger and acquisitions/corporate finance specialist for The First Boston Corporation in New York. Before joining First Boston, Mr. Furst was a financial consultant at Price Waterhouse. Mr. Furst received his MBA from the Graduate School of Business at the University of Texas. Mr. Furst also serves on the Board of Directors of various privately held companies.

J. Edward Herring was elected to the Board of Directors of Regency GP LLC in September 2005. From December 2004 to the present, Mr. Herring has served as a director of Regency Gas Services LLC. Mr. Herring is a partner at HM Capital and has been with the firm since 1998. From 1996 to 1998, Mr. Herring attended Harvard Business School. From 1993 to 1996, Mr. Herring was an investment banker with Goldman, Sachs & Co. Mr. Herring also serves on the Board of Directors of Swift & Company, BlackBrush Oil & Gas, Swett & Crawford and Via Systems.

Robert D. Kincaid was elected to the Board of Directors of Regency GP LLC in September 2005. From January 2005 to the present, Mr. Kincaid has served as a director of Regency Gas Services LLC. Mr. Kincaid is a co-founder, with Mr. Luce, and Managing Director of K-L Energy Partners, LLC, a private equity management firm formed in April 2004 to focus on investments in the midstream and downstream energy and

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power sectors. From October 1998 until December 2003, Mr. Kincaid was a principal of Haddington Ventures, LLC, another private equity management firm focused on energy-related investing. From December 2003 until March 2004, Mr. Kincaid served as a consultant to Haddington Ventures. Mr. Kincaid served as Treasurer of TPC Corporation, a firm engaged in the natural gas marketing, pipeline and storage sectors, from 1992 until its sale to PacifiCorp in April 1997. Mr. Kincaid began his career in investment banking and mezzanine fund management in Houston, Texas.

Gary W. Luce was elected to the Board of Directors of Regency GP LLC in September 2005. From January 2005 to the present, Mr. Luce has served as a director of Regency Gas Services LLC. Mr. Luce is a cofounder, with Mr. Kincaid, and has been Managing Director of K-L Energy Partners, LLC since its inception in April 2004. During the period from November 2002 until April 2004, Mr. Luce, in order to comply with the non-competition provisions of his employment agreement with Reliant Resources, Inc., acted as an independent financial consultant. Mr. Luce served as a member of the senior management team for two public energy-related companies, EOTT Energy Partners, LP from April 1994 to December 1998 and Reliant Resources, Inc. from October 1999 to November 2002. Mr. Luce also served in various capacities with McKinsey & Company, Inc., the international management-consulting firm, most recently as a downstream energy practice principal.

J. Otis Winters was elected to the Board of Directors of Regency GP LLC on November 14, 2005. The following are exemplary of Mr. Winters’ extensive business experience: Vice President of Warren American Oil Company from 1964 to 1965; President and a director of Educational Development Corporation from 1966 to 1973; Executive Vice President and a director of The Williams Companies, Inc. from 1973 to 1977; Executive Vice President and a director of First National Bank of Tulsa from 1978 to 1979; President and a director of Avanti Energy Corporation from 1980 to 1987; Managing Director of Mason Best Company from 1988 to 1989; Chairman, director and co-founder of The PWS Group from 1990 to 2000 and from 2001 to date Chairman and Chief Executive Officer of Oriole Oil Company. Mr. Winters has served on the board of directors of 20 publicly owned corporations, including Alton Box Board Company, AMFM, Inc., AMX Corporation, Dynegy, Inc., Liberty Bancorp., Inc., Tidel Engineering, Inc., Trident NGL, Inc. and Walden Residential Properties, Inc.

Reimbursement of Expenses of Our General Partner

Our General Partner will not receive any management fee or other compensation for its management of our partnership. Our General Partner and its affiliates will, however, be reimbursed for all expenses incurred on our behalf. These expenses include the cost of employee, officer and director compensation and benefits properly allocable to us and all other expenses necessary or appropriate to the conduct of our business and allocable to us. The partnership agreement provides that our General Partner will determine the expenses that are allocable to us. There is no limit on the amount of expenses for which our General Partner and its affiliates may be reimbursed.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Exchange Act requires executive officers, directors and persons who beneficially own more than ten percent of a security registered under Section 12 of the Exchange Act to file initial reports of ownership and reports of changes of ownership of such security with the SEC. Copies of such reports are required to be furnished to the issuer. The common units of the Partnership were first registered under Section 12 of the Exchange Act on January 30, 2006. Based solely on a review of reports furnished to our General Partner, or written representations from reporting persons that all reportable transactions were reported, we believe that during the fiscal year ended December 31, 2006 our General Partner’s officers, directors and greater than 10 percent common unitholders filed all reports they were required to file under Section 16(a).

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Item 11.   Executive Compensation.

COMPENSATION DISCUSSION AND ANALYSIS

Background

The predecessor of the Partnership, Regency Gas Services, LLC, was acquired by HMTF Regency, L.P., a limited partnership owned by the HM Capital Investors, on December 1, 2004. In connection with the acquisition, two special classes of profits interests (the “Acquisition Equity Awards”) of HMTF Regency, L.P. were authorized for use in attracting a team to manage the new venture. The first of these, called Class B Units, was dedicated for use in attracting officers and key employees. The second, called Class D Units, was dedicated for use in attracting outside directors. The Acquisition Equity Awards represented economic interests in HMTF Regency, L.P. only after a prior class of investment units realized specified rates of return on investment when the assets of the partnership (the member interests in Regency Gas Services LLC) were liquidated at some future date. Based on its experience in making private equity investments, HM Capital believed that equity awards offering economic rewards for success in managing the investment were customary in order to attract a highly experienced management team.

That team of officers consisted initially of James W. Hunt, President and CEO, Michael L. Williams, Executive Vice President and COO, William E. Joor III, Executive Vice President, and one member of the previous management group, Lawrence B. Connors, Vice President, Accounting & Finance. In early 2005, Stephen L. Arata, Executive Vice President and CFO, Durell J. Johnson, then Vice President, Operations, and Alvin Suggs, Vice President and General Counsel, were added to our management team.

Each member of this team, together with a few other key employees, received Acquisition Equity Awards out of the limited number of Class B unit awards that was authorized, all such authorized awards having been made by early 2005. These Acquisition Equity Awards were made to these members of the management team in accordance with their expected ability to cause Regency Gas Services to succeed, financially and operationally.

Acquisition Equity Awards of Class D Units were also granted to two individuals attracted to serve as outside directors on the board of directors of Regency Gas Services LLC. These individuals were Gary W. Luce and Robert D. Kincaid, both of whom continue to serve on the board of directors of our Managing General Partner.

At the time of our initial public offering in February 2006, each holder of Acquisition Equity Awards entered into an exchange agreement pursuant to which each such holder exchanged his or her Acquisition Equity Award for common and subordinated units of the Partnership, Regency Energy Partners LP, as well as interests in the general partner of the Partnership. The following table sets forth the number of common units and subordinated units that the chief executive officer, the chief financial officer and the other officers named

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in the summary compensation table received in exchange for their Acquisition Equity Awards, together with the aggregate amount of distributions paid to each of them for 2006.

	Common		Subordinated
Name and Title	Units(1)		Units(1)		Distributions
Officers: (2)
James W. Hunt		173,993		840,678	$	979,036
Chairman, President and Chief Executive Officer
Stephen L. Arata		49,712		240,194		279,619
Executive Vice President and Chief Financial Officer
Michael L. Williams		99,425		480,387		557,769
Executive Vice President and Chief Operating Officer
William E. Joor III		74,569		360,290		419,062
Executive Vice President, Secretary and
Chief Legal and Administrative Officer
Alvin Suggs		14,914		72,058		84,107
Senior Vice President and General Counsel
Durell J. Johnson		14,914		72,058		84,107
Vice President — Operations, Regency Gas Services LP
Directors: (3)
Gary W. Luce		7,715		37,278		42,370
Director
Robert D. Kincaid		7,715		37,228		42,370
Director

(1)	In connection with the exchange of the Acquisition Equity Awards, each of these officers and directors also received indirect equity interests in Regency GP LP, the general partner of the Partnership, as follows: Mr. Hunt — 3.2 percent; Mr. Arata — 0.9 percent; Mr. Williams — 1.6 percent; Mr. Joor — 1.3 percent; Mr. Suggs — 0.3 percent; Mr. Johnson — 0.3 percent; Mr. Luce — 0.2 percent; and Mr. Kincaid — 0.2 percent. Please see “Item 12 Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.”
(2)	These Acquisition Equity Awards consisted of Class B Units of HMTF Regency, LP.
(3)	These Acquisition Equity Awards consisted of Class D Units of HMTF Regency, LP.

The compensation committee of the board of directors of the Managing General Partner does not consider the Acquisition Equity Awards to be continuing compensation to these officers or directors. Consequently, neither the values attributable to the units for which the awards were exchanged nor the distributions made with respect to those units are included in the summary compensation table. The compensation committee, however, recognizes the incentive provided by the equity inherent in the Acquisition Equity Awards and takes the value of the common and subordinated units received by these directors and officers in exchange for the Acquisition Equity Awards into account in making awards under our Long Term Incentive Plan.

Overview

Compensation Goals

The principal objective of our compensation program is to attract and retain, as officers and employees, individuals of demonstrated competence, experience and leadership in our industry and in those professions required by our business and operations and who share our company’s business aspirations, ethics and culture. A further objective is to provide incentives to, and to reward, our officers and key employees for positive contributions to our business and operations.

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In setting the compensation programs that we utilize to recruit and retain our executive officers and key employees, we consider the following compensation objectives:

•  To provide incentives and to reward performance that supports our core values, including competence, independent thought and ethical conduct;

•  to provide a significant percentage of total compensation that is “at-risk”, or variable;

•  to encourage significant equity holdings to align the interests of executive officers and key employees with those of unitholders; and

•  to set compensation and incentive levels that reflect competitive market practices.

We also strive to achieve a fair balance between the compensation rewards that we perceive as necessary to remain competitive in the marketplace and fundamental fairness to our unitholders, taking into account the return on their investment.

Reward Objectives

Our compensation program is designed to reward all employees, including our executive officers, for both performance of the Partnership during the year and for individual performance of responsibilities. In measuring the performance of the Partnership, the compensation committee of the board of directors of our Managing General Partner (the “compensation committee”) considers the success of the Partnership in achieving its business strategies.

Under our partnership agreement, we are required to distribute all of our available cash each quarter. In general terms, our strategy is to increase the amount of cash available for distribution to each outstanding unit. Our intention is to achieve this strategy by pursuing organic growth projects that yield attractive returns and by capitalizing on accretive acquisition opportunities. As set forth more fully under “Item 1 Business — Business Strategies” above, our specific strategies include:

•  Implementing cost-effective organic growth opportunities;

•  continuing to enhance profitability of our existing assets;

•  pursuing accretive acquisitions of complementary assets;

•  continuing to reduce our exposure to commodity price risk; and

•  improving our credit ratings.

In measuring the contributions of our executive officers to the performance of the Partnership, the compensation committee considers a variety of financial metrics, including the non-GAAP financial measures of adjusted EBITDA, cash available for distribution, adjusted segment margin, and adjusted total segment margin, all of which are used by management as key measures of the Partnership’s financial performance, including long-term unitholder value. The most important of these is adjusted EBITDA, which we define as net income (loss) plus net interest expense, depreciation and amortization expense, unrealized loss (gain) from risk management activities, non-cash commodity put option expirations and loss on debt refinancing. The compensation committee also considers total unitholder return, which includes both appreciation in market value of our common units and the amount of distributions paid with respect to all our outstanding units. In addition, the compensation committee takes into account the perceived achievement of the specific strategies enumerated above and individual performance.

Compensation Committee

The compensation committee is composed of three non-management members of our board of directors, two of whom are partners of HM Capital and one is an independent director. The compensation committee is directly responsible for our compensation programs, which include programs that are designed specifically for (1) our most senior executive officers, or senior officers, who include our principal executive officer (“CEO”),

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our chief financial officer (“CFO”) and our other executive officers named in the summary compensation table (the “named executive officers” or “NEOs”); (2) our other officers, and (3) all our other employees.

The compensation committee, as provided in its charter, is charged, among other things, with the responsibility of reviewing the Managing General Partner’s executive officer compensation policies and practices. These compensation programs for executive officers consist of base salary, annual incentive bonus, and long-term incentive compensation in the form of equity-based options and restricted units, as well as other customary employment benefits. Total compensation of executive officers of the Managing General Partner and the relative emphasis of the three main components of the annual compensation are reviewed and established on an annual basis by the committee.

All deferred compensation plans for both executive officers and non-executive employees also must be approved by the compensation committee.

Compensation Advisors

In November 2005, we retained Benefits Partners, Inc., or BP, as an independent consultant with respect to compensation of senior officers and general compensation programs. In 2005 and 2006, BP provided comparative market data on compensation practices and programs based on an analysis of a broad cross-section of similarly sized energy companies, as well as a more targeted group of midstream energy peers. It also provided guidance on industry best practices. BP provided information and advice to management and the compensation committee in connection with (1) the determination of base salaries for senior officers for 2006 and (2) setting individual goals and targeted award levels for senior officers for 2006. BP did not advise either the compensation committee or management regarding the determination of individual awards for 2006 under our Long-Term Incentive Plan, or LTIP, for the senior officers.

In 2007, we retained The Hay Group, or HG, as our independent consultant to advise us regarding the compensation of officers and general compensation programs. In that regard, HG provided information with respect to comparative market data and industry best practices to the compensation committee in connection with its decisions with respect to the 2007 awards set forth in the summary compensation table below.

Compensation Mix

The decisions of the compensation committee are the result of informed judgment rather than the application of precise measurement of matters such as salary scales of our competitors or the performance of our company. As a consequence, the compensation committee evaluates the performance of our company against the various metrics set forth under “— Reward Objectives,” is provided information regarding the salary scales of others in our industry and subjectively measures the individual performance of our officers and employees. Thus, the determinations regarding compensation made by our compensation committee are the result of the exercise of judgment based on all reasonably available information and, to that extent, are discretionary.

Each executive’s current and prior compensation is considered in setting future compensation. The amount of each executive’s current compensation is considered as a base against which the compensation committee makes determinations as to whether increases are necessary to retain the executive in light of competition or in order to provide continuing performance incentives. In this connection, we review the compensation practices of other companies. While we do not establish benchmarks based on compensation levels of our competitors, our compensation plan is, to this extent, influenced by the market and the companies with which we compete for leadership talent. The essential elements of our plan (e.g., base salary, bonus and equity ownership) are clearly similar to the elements used by many companies. Our compensation committee believes that, by limiting the base salary component of our overall compensation program but emphasizing performance bonuses and offering the opportunity to achieve large equity rewards, we are able to attract and retain executive officers from a specifically targeted group. These are individuals with proven leadership skills who are mature in their careers and thus have financial resources that allow them to accept the financial risks involved in such a compensation arrangement.

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Elements of Compensation

The elements of compensation of our officers and our employees generally consist of:

•  Base Salary

In determining base salary for each executive officer, the compensation committee considers the executive’s experience and position within the Managing General Partner. The compensation committee also utilizes industry compensation surveys provided by independent advisors. In addition, the compensation committee, in setting salaries for executive officers, takes into account the recommendations of the Chief Executive Officer (CEO), or, in the case of the CEO, the recommendation of the chairman of the compensation committee.

•  Annual Bonuses

At the beginning of each fiscal year, our board approves annual corporate objectives, including a budget, and these, along with personal performance objectives, are reviewed at the end of the year for the purpose of determining annual bonuses. Annual assessments of executive officers include an evaluation of other performance measures, including the promotion of teamwork, leadership, and the development of individuals responsible to the applicable officer.

Determinations of the CEO’s annual bonus are significantly influenced by the extent of the achievement of corporate objectives, and determinations of the annual bonuses of the other executive officers are significantly influenced by the extent of the achievement of corporate objectives and the achievement of individual objectives.

•  Equity-Based Awards

A portion of executive officer compensation (as well as compensation of senior managers) is also directly aligned with growth in unit value. In reviewing equity-based awards to executive officers, including options, restricted units, phantom units and distribution rights, the compensation committee gives consideration to the number of such awards already held by each individual and to the number of units previously acquired in exchange for the Acquisition Equity Awards discussed below. Equity-based awards may be awarded to executive officers at the commencement of their employment, annually on meeting corporate and individual objectives, and from time to time by the compensation committee based on regular assessments of the compensation levels of comparable companies. An executive officer may earn an annual equity-based award on a basis similar to that described above under “Annual Bonus,” with similar weightings applied to the achievement of corporate objectives and individual objectives.

•  Deferred Compensation

The only deferred compensation element of our compensation program is our 401(k) plan.

Why We Choose to Pay Each Element

Salaries and Bonuses

We choose to pay salaries and bonuses to recognize an employee’s role, responsibilities, skills, experience and performance. Until the initial public offering of the Partnership, the only compensation elements offered to management were salaries, bonuses and 401(k) deferred compensation. In recognition of our strategy to generate cash to make acquisitions and to pay debt, we initially set salaries in the lower range of competitiveness. Performance-based bonuses were emphasized. By the time of our initial public offering, the expansion of our business required that we recruit additional individuals to the management team and the compensation committee increased salaries to competitive levels. We continue to emphasize performance-based bonuses.

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LTIP Awards

The LTIP was adopted at the time of the initial public offering of the Partnership in 2006. In adopting the LTIP, our board of directors recognized that it needed a source of equity to attract new members to the management team, as well as to provide an equity incentive to all other employees. We believe the LTIP promotes a long-term focus on results and aligns employee and unitholder interests.

The only awards made under the LTIP have been unit options or restricted units. Unit options represent the right to purchase the underlying units at a price equal to the market value of the units at the date of grant subject to the vesting of that right. In general, options awarded under our LTIP vest as to one-third of the units subject to the option on each of the first three anniversaries of the date of the award.

Restricted units so awarded may not be sold until vested and unvested restricted units will be forfeited at the time the holder terminates employment. In general, restricted units awarded under our LTIP vest as to one third of the award on each of the first three anniversaries of the date of the award. Restricted units participate in distributions on the same basis as other common units.

Deferred Compensation

At the time of its acquisition, Regency Gas Services LLC had established a 401(k) plan for its employees. That plan has been revised and continued but does not constitute a major element of our compensation structure. The current plan is provided to assist our employees in saving some amount of their cash compensation for retirement in a tax efficient manner.

Perquisites

Perquisites are not a significant factor in our compensation structure.

Determinations as to Amounts of Compensatory Elements

General

Annual compensation of our executive officers consists of a base salary component and a bonus component. Executive officers are also recipients of awards of equity, either initially through the Acquisition Equity Awards or, after our initial public offering, as participants in the LTIP. It is the intention of the compensation committee that the combination of equity ownership, base salary and bonus should be set at levels designed to attract and retain a strongly motivated leadership team but not so high as to create a negative perception in our unitholders and other stakeholders.

At a meeting in December 2005, the compensation committee considered a report and recommendation by management (the 2006 management recommendation) with respect to salaries, target bonuses and LTIP awards for outside directors, executive officers and employees of the Managing General Partner for the year 2006. The 2006 management recommendation was based on advice and information provided by BP regarding salaries and target bonuses for our executive officers and employees. The information provided by BP included salary and bonus scale, but not LTIP, information for officers and employees of (i) a large group of companies of approximately our size engaged in the energy business generally and (ii) a small group of companies of approximately our size engaged in the midstream natural gas business, including Atlas Pipeline, Copano Energy, Crosstex Energy, Inc., Energy Transfer Partners, L.P., Holly Corporation, Midwest Energy Partners LP, Martin Midstream and TEPPCO Partners. The 2006 management recommendation also included management’s recommendations as to LTIP awards. While the committee took the 2006 management recommendation into consideration, its decisions were the results of the judgments of the committee members and frequently differed from the recommendation.

Salary

At its December 2005 meeting, the compensation committee considered the 2006 management recommendation with respect to salaries for our then executive officers for the year 2006. At that meeting, the

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compensation committee established a salary pool for 2006 and established salaries for the officers and key employees. While the compensation committee did not regard it as a “benchmark,” it took note of the 50 percentile or median of the salary scale of the large group of energy companies described above. The compensation committee raised the salaries of our CEO, CFO and named executive officers to the amounts set forth in the footnotes to the summary compensation table effective at the time of completion of our initial public offering (February 3, 2006). The compensation committee took these actions to bring these salaries more into alignment with the energy industry. Consistent with the committee’s views regarding preservation of cash, the increased salaries were, on average, approximately 19 percent lower than the recommendations of BP.

At its meeting on March 8, 2007, the compensation committee established a salary pool for 2007 and approved an increase of Mr. Suggs’ salary by $20,000 per year in connection with his promotion to Senior Vice President. All other named executive officers salaries remain unchanged.

Bonus

At the December 2005 meeting, the compensation committee, after considering the 2006 management recommendation, adopted target bonus levels for all the officers of the Managing General Partner under its 2006 bonus plan. The targets were based on achievement of our company’s performance goals for fiscal 2006 as established by our budget for that year and measured by the key performance metrics described under “ — Reward Objectives.” For our CEO, CFO and NEOs these targets were: Mr. Hunt — 100 percent of base salary ($400,000); Mr. Arata — 75 percent of base salary ($187,500); Mr. Williams — 100 percent of base salary ($300,000); Mr. Joor — 75 percent of base salary ($161,250); and Mr. Suggs — 75 percent of base salary ($135,000). These bonus targets, when combined with base salaries, represented target cash compensation levels that were on average approximately 1 percent more than those recommended by the independent consultant, reflecting the compensation committee’s emphasis on rewarding performance.

At a meeting of the compensation committee held January 23, 2007, the officers of the Managing General Partner offered to forgo all their bonuses under the 2006 bonus plan in excess of small Christmas bonuses previously received. This offer was initiated by the executive officers voluntarily and was predicated on the failure of the Partnership to achieve its announced prediction of EBITDA for 2006 because of delayed in-service dates on three organic growth projects. Accordingly the summary compensation table includes no bonuses for the named executive officers other than Christmas bonuses.

At its meeting on March 8, 2007, the compensation committee established target bonuses for the executive officers that, in the cases of the CEO, CFO, and NEOs, were the same as those for 2006.

LTIP

At the time of our initial public offering, our Managing General Partner adopted our LTIP for employees (including executive officers), consultants and directors of the Managing General Partner who perform services for us. At that meeting, the compensation committee recommended, and the board approved, awards, effective at the time of our initial public offering (February 3, 2006), of unit options and restricted units (with unit distribution rights) under the LTIP to the outside directors, our then executive officers and virtually all our then employees.

The 2006 management recommendation regarding LTIP awards was based on the expectation that the number of common units subject to the LTIP, a number that was determined by HM Capital prior to our initial public offering, would fund awards over approximately five years. The awards for 2006 were, in the aggregate, greater than would be anticipated in future years, totaling about 30% of the aggregate number of units subject to the plan.

In making its recommendation, management divided the potential recipients into groups: (i) outside directors; (ii) Acquisition Equity Award holders (who, at the time, included all our executive officers); and (iii) four tiers of employees based on levels of responsibility. Of the 2,865,584 common units subject to the LTIP, the compensation committee recommended, and the board of directors granted, unit option awards with respect to 599,300 common units and restricted unit awards with respect to 262,500 common units or an

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aggregate of 861,800 potential common units. The outside directors were awarded restricted units and unit options representing 4 percent of the units awarded and 5 percent of the value of all awards (valuing restricted units at $20 per unit, being the initial offering price, and options at $1.15 per unit, the value determined pursuant to FAS 123(R)). The holders of Acquisition Equity Awards received awards representing 39 percent of the units awarded and 16 percent of the value of the awards. These holders, with the exception of one key employee, all received unit options. All other employees (approximately 150 individuals) received awards representing 57 percent of the units awarded and 79 percent of the value of the awards.

For the balance of 2006, awards were made under the LTIP primarily (i) to attract and retain employees and (ii) to employees of TexStar Field Services, L.P. at the time of its acquisition (August 15, 2006). A very few retention awards were made to non-officer employees.

On March 8, 2007, pursuant to recommendations by management and after consultation with HG, the compensation committee made additional awards under the LTIP to 33 employees. In accordance with the views of the compensation committee that the units acquired by the CEO, CFO and NEOs in exchange for Acquisition Equity Awards provide sufficient performance incentive for the present, none of them was granted any additional award under the LTIP except Mr. Suggs who, in conjunction with his promotion to Senior Vice President, was awarded 4,000 restricted units.

401(k) Plan

The only deferred compensation plan offered by the Managing General Partner is a 401(k) Plan. Under that plan, participants may contribute up to 75 percent of their base salaries (subject to a maximum of $15,000 in 2006) and the Managing General Partner will contribute a matching amount equal to 50 percent of the employee’s contribution (subject to a maximum of three percent). All amounts contributed by the Managing General Partner to the accounts of the named executive officers are included in the summary compensation table.

Employment Agreements

We maintain employment agreements with our CEO and Chief Operating Officer to ensure they will perform their roles for an extended period of time. These agreements are described in more detail under “ — Employment Agreements.” These agreements provide for severance compensation to be paid if the employment of the executives is terminated under certain conditions, such as termination by him for “good reason” or by us for “cause,” each as defined in the agreements. If we terminate the employment of an executive officer without cause as defined in the applicable agreement, we are obligated to continue to pay him certain amounts as described in greater detail in “Potential Payments Upon Termination.” We believe these payments are appropriate because the terminated executive is bound by confidentiality, nonsolicitation and non-compete provisions covering two years after termination and because we and the executive have a mutually agreed to severance package that is in place prior to any termination event. This provides us with more flexibility to make a change in senior management if such a change is in the best interests of the Partnership and our unitholders.

Summary Compensation

The following table summarizes, with respect to our named executive officers, information relating to the compensation earned for services rendered in all capacities during fiscal year 2006.

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Summary Compensation for the Year Ended December 31, 2006

											Change in
											Pension
											Value and
											Nonqualified
											Non-Equity
									Option		Incentive		Deferred		All Other
			Salary		Bonus		Stock		Awards		Plan		Compensation		Compensation
Name and Principal Position	Year (1)		($)(2)		($)(3)		Awards ($)		($)(4)		Compensation ($)		Earnings ($)		($)(5)		Total ($)
James W. Hunt		2006		386,667		10,000		—		35,046		—		—		7,600		439,313
President, Chief Executive Officer
and Chairman of the Board
Stephen L. Arata		2006		245,833		6,250		—		12,266		—		—		6,250		270,599
Executive Vice President and Chief
Financial Officer
Michael L. Williams		2006		292,500		7,500		—		14,018		—		—		19,901		333,919
Executive Vice President and Chief
Operating Officer
William E. Joor III		2006		213,750		5,375		—		12,266		—		—		17,051		248,442
Executive Vice President and Chief
Legal and Administrative Officer and Secretary
Alvin Suggs		2006		180,000		4,500		—		5,257		—		—		4,500		194,257
Vice President and General Counsel
Durell J. Johnson		2006		176,250		4,500		—		5,257		—		—		17,782		203,789
Vice President Operations, Regency Gas Services LP

(1)	We became subject to the reporting requirements under Section 13(a) of the Exchange Act on February 3, 2006, and included executive compensation for 2005 in the registration statement under the Securities Act relating to our initial public offering.
(2)	Salary levels for each of the named executive officers for 2006 were as follows: Mr. Hunt — $400,000; Mr. Arata — $250,000; Mr. Williams — $300,000; Mr. Joor — $215,000; and Mr. Suggs — $180,000.
(3)	Represents Christmas bonus only. The officers voluntarily waived the remainders of their bonuses for 2006. Please read “ — Determinations as to Amounts of Compensatory Elements — Bonuses.”
(4)	The amounts included in the “Option Awards” column include the dollar amount of compensation expense we recognized for the fiscal year ended December 31, 2006 in accordance with FAS 123(R). Assumptions used in the calculation of these amounts are included in Note 16 to our audited financial statements for the fiscal year ended December 31, 2006. All the unit options were granted on February 3, 2006 at an exercise price equal to the initial public offering price of $20 per unit and were valued at the FAS 123(R) value of $1.15 per unit subject to the option.
(5)	Includes perquisites and other personal benefits of $12,626 for Mr. Williams, $11,713 for Mr. Joor and $12,495 for Mr. Johnson. These amounts represent reimbursements of travel expenses from their homes in other cities to and from the Dallas office. All other amounts represent employer matching contributions to 401(k) accounts.

Grants of Plan-Based Awards

The Partnership’s Long Term Incentive Plan, or LTIP, was adopted on its behalf by action of the board of directors of our Managing General Partner on December 12, 2005. While the LTIP was originally administered by the board, the board delegated its authority to administer the LTIP to the compensation committee in November 2006.

At the time of our initial public offering (which was consummated on February 3, 2006), our board, in conjunction with awards of unit options or restricted units to virtually all our employees, granted unit options to our CEO, CFO and the other NEOs at the initial public offering price of $20.00 per common unit. No

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further awards were made to any of those officers until March 8, 2007, at which time the compensation committee made only the award of 4,000 restricted units to Mr. Suggs, as set forth in the following table:

The following table provides information concerning each grant of an award made to our named executive officers in the last completed fiscal year under any plan, including awards that have been transferred.

Grants of Plan-Based Awards for the Year Ended December 31, 2006

																				All
																				Other Option
																	All Other			Awards:
											Estimated Future Payouts						Stock			Number
					Estimated Future						Under Equity						Awards:			of		Exercise
					Payouts Under Non-						Incentive						Number			Securities		or Base		Grant Date
					Equity Incentive Plan Awards						Plan Awards						of Shares			Under-		Price of		Fair Value
					Thresh-				Maxi-		Thresh-				Maxi-		of Stock			lying		Option		of Stock
	Grant		Approval		old		Target		mum		old		Target		mum		or Units			Options		Awards		and Option
Name(1)	Date		Date		($)		($)		($)		(#)		(#)		(#)		(#)			(#)		($/Sh)		Awards($)(2)
James W. Hunt		2/3/06		12/12/05		—		—		—		—		—		—		—			100,000	$	20.00		115,000
Stephen L. Arata		2/3/06		12/12/05		—		—		—		—		—		—		—			35,000	$	20.00		40,250
Michael L Williams		2/3/06		12/12/05		—		—		—		—		—		—		—			40,000	$	20.00		46,000
William E. Joor III		2/3/06		12/12/05		—		—		—		—		—		—		—			35,000	$	20.00		40,250
Alvin Suggs		2/3/06		12/12/05		—		—		—		—		—		—		—			15,000	$	20.00		17,250
		3/8/07		12/12/05		—		—		—		—		—		—		4,000	(3)		—	$	27.70		—
Durell J. Johnson		2/3/06		12/12/05		—		—		—		—		—		—		—			15,000	$	20.00		17,250

(1)	None of the CEO, CFO and NEOs has exercised any option awarded under the LTIP and, accordingly, their holdings at December 31, 2006 were as set forth in the table. Since that date, the only LTIP award made to any of them is the award of 4,000 restricted units on March 8, 2007 to Mr. Suggs (none of which has vested).
(2)	These amounts are based on the FAS 123(R) value of $1.15 per unit subject to the option. No value was allocated to the restricted unit award to Mr. Suggs because none of the restricted units has vested.
(3)	The closing price per common unit on The Nasdaq Global Select Market on March 8, 2007 was $27.70.

Narrative Disclosure to Summary Compensation and Grants of Plan-Based Awards Table

LTIP Policy

The awards made on February 3, 2006 as set forth in the table were the only awards made under the LTIP to any of the officers listed in the table that were outstanding at the end of our fiscal year 2006.

As indicated above, awards under our LTIP prior to 2007 were made only (i) at the time of our initial public offering, (ii) at the time of our acquisition of TexStar Field Services, LP, (iii) from time to time as necessary to attract and retain employees and (iv) to retain a few non-officer employees.

Commencing in 2007, we anticipate making awards on a more regular basis. At the start of the year, our board adopted a policy with respect to the granting of such awards. Pertinent portions of that policy are summarized below.

Grants to Existing Employees

Grants of restricted units and options to existing employees may be made only upon resolution, duly adopted by either the board or its compensation committee.

Grants to New Employees

Grants of restricted units or options to new employees may be made upon approval of the board or its compensation committee, or, within the limits provided, by action of the CEO. No commitment may be made

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by any officer or employee of the Managing General Partner with respect to the award of restricted units or options to a prospective new employee until the actions described above have been effected.

Option Exercise Prices

Options granted under the LTIP must be (i) dated (being the “date of grant”) as of the later of the date of grant of the option by the board, the compensation committee or the CEO and the date of fulfillment of any condition or conditions imposed in connection with the entitlement to such grant and (ii) priced as of the close of business on the date of grant. In the case of options granted by the CEO, the date of grant is the later of the date of the letter of the CEO referenced above and the date of fulfillment of any condition imposed thereby.

Documentation

Promptly after the award of any restricted unit or option as provided above, the CFO shall cause that restricted unit or option to be reflected in an award executed on behalf of the Partnership and provided to the recipient. A copy of such award, as well as a cumulative tally of all such awards, must be maintained at the direction of the CFO.

Acceleration of Vesting

The LTIP provides that, on termination of employment or another relationship between the Partnership and the holder of restricted units or an option (other than as a result of death), the holder’s rights to all unvested units are terminated. If that provision is altered with respect to any holder by the board of directors, the compensation committee or the CEO, that action shall be reflected in the minutes of actions by the board or the compensation committee or in a letter signed by the CEO.

The compensation committee has not delegated any authority regarding the granting of awards except that (i), during 2006, it authorized the CEO to make awards of up to 50,000 restricted units and options to purchase up to 150,000 common units in connection with the employment of employees (ii), in March 2007, it authorized the CEO to make awards of up to 200,000 restricted units in connection with the employment of employees and to retain existing employees (none of which has yet been granted) and (iii) it authorized the CEO, under appropriate circumstances, to accelerate the vesting of previously granted awards in connection with the termination of employment of an employee.

Option Exercises and Vesting

None of the CEO, CFO or other NEOs has exercised any option awarded under the LTIP and the only restricted unit award made under the LTIP to any of them has not vested.

Employment Agreements

At the time of their employment by Regency Gas Services LLC on December 1, 2004, both James W. Hunt, President and Chief Executive Officer, and Michael L. Williams, Executive Vice President and Chief Operating Officer, entered into employment agreements with Regency Gas Services LLC. Each agreement provides for a term of three years, a minimum base salary of $240,000 and $210,000 for Mr. Hunt and Mr. Williams, respectively, participation by the employee in the benefit plans adopted by the employer, and the Acquisition Equity Awards described above.

In each case, the agreement provides that the employee’s employment will terminate on the employee’s death and may terminate on his disability, In addition, the employer may terminate the agreement at any time for “cause” (as defined) and, at any time after the expiration of the first six months, without cause. The employee may terminate the agreement at any time for “good reason” (as defined) and, at any time after the first six months, without good reason. The employee may also terminate his employment without good reason during the 30 days following a “change of control” (as defined). In each case, if the employee’s employment is terminated by death or disability or by the employer without cause or by the employee for good reason, the

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employee or his estate will be entitled to the severance amount described below under “— Potential Payments Upon Termination.” If employee’s employment is terminated for any other reason, the employee is entitled only to his base salary through the date of termination and any vested amounts under employee benefit plans. The severance amount is, generally, twice the sum of employee’s annual base salary and the bonus received or due for the calendar year preceding the year in which the date of termination occurs. Each employee has agreed, for a period of at least two years following the date of termination of his employment, not to compete with the employer and not to solicit the employer’s customers, suppliers, employees or other of the employer’s business relations.

At the time of his employment by Regency Gas Services LLC, Mr. Joor entered into a severance agreement with the employer. The severance agreement generally provides that, if at any time during the three years commencing on the date of his employment, January 1, 2005, Mr. Joor’s employment is terminated because of death or disability or by the employer without “cause” (as defined) or by Mr. Joor for “good reason” (as defined), the employee or his estate will be entitled to a severance payment of $600,000 if the termination occurs during the first year, declining by $200,000 per year thereafter.

Potential Payments Upon Termination

We have entered into the two employment agreements and the severance agreement described above that will require us to provide compensation and/or benefits to our named executive officers in the event of a termination of employment under certain circumstances. The compensation and benefits described below assume that the employment of each of the executive officers named below was terminated by us for “cause” or by the employee for “good reason” effective as of December 31, 2006, and thus includes amounts earned through that date. The description set forth below provides estimates of the compensation and benefits that would be provided to the executives upon their termination of employment; however, in the event of an executive’s separation from the Company, any actual amounts will be determined based on the facts and circumstances in existence at that time.

	Termination
Name	Benefit ($)
James W. Hunt		1,600,000	(1)
Michael L. Williams		1,200,000	(1)
William E. Joor III		200,000

(1) Represents two times the sum of base salary and 100% of target bonus.

Certain Relationships and Related Party Transactions

On March 22, 2007, our board adopted a policy with respect to related party transactions. That policy works in conjunction with the provisions of our partnership agreement that govern such transactions.

Under our partnership agreement, a transaction involving conflicts of interest is permissible only if (1) it is approved by the conflicts committee of our board, (2) it is approved by our limited partners (unitholders), (3) it is on terms no less favorable to the Partnership than those generally being provided to or available from unrelated third parties or (4) it is fair and reasonable to the Partnership, taking into account the totality of the relationships between the parties involved (including other transactions that may be particularly favorable or advantageous to the Partnership).

Under the related party transaction policy, a transaction involving a conflict of interest believed to be encompassed by clause (3) or (4) above may be approved by our conflicts committee or a disinterested majority of our board. Such a transaction may also be approved by our CEO if it is in the ordinary and normal course of the business of the Partnership or any of its subsidiaries and our CEO determines that it meets the criteria set forth in clause (3) or (4). Related party transactions involving less than $120,000, subject to approval in accordance with our levels of authority policy, do not require special approval.

Our compensation committee monitors and reviews issues involving potential conflicts of interest and related party transactions. The only related party transactions involving the Partnership or any of its

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subsidiaries since our initial public offering were those that were disclosed in connection with that offering and those relating to our acquisition of TexStar Field Services, L.P. from an affiliate of HM Capital which were approved by the conflicts committee of our board. Of the latter, the only continuing transactions are those under gas purchase contracts executed in connection with the acquisition involving our purchase of natural gas for processing from an affiliate of HM Capital.

Our company is currently in discussion with an affiliate of HM Capital with respect to a sublease of office space in San Antonio, Texas. The annual rental of that space would be at the same rental rate as paid by the lessee and would be approximately $360,000. We will not enter into this transaction unless it is approved in accordance with our related party transaction policy.

Directors’ Compensation

The directors of the Managing General Partner who are not employees of the Managing General Partner or affiliated with the Managing General Partner’s controlling security holder received in 2006 an annual retainer of $25,000, a flat fee of $1,000 for each meeting of the board and $500 for each committee attended in person, a flat fee of $500 for each such meeting attended by telephone and fees at specified rates for consulting services. These amounts are determined on an annual basis by our board. In addition, those directors are eligible to participate in equity-based compensation plans of the Managing General Partner. Determinations as to any such participation are made by the non-participating directors.

The following table presents the cash, equity awards and other compensation earned, paid or awarded to each of our directors during the year ended December 31, 2006.

									Change in
									Pension Value
									and
									Nonqualified
							Non-Equity		Deferred
	Fees Earned or		Stock		Option		Incentive Plan		Compensation		All Other
Name	Paid in Cash ($)		Awards ($)(1)		Awards ($)(2)		Compensation ($)		Earnings ($)		Compensation ($)		Total ($)
Joe Colonnetta		31,000		—		—		—		—		—	$	31,000
Jason H. Downie		33,500		—		—		—		—		—		33,500
A. Dean Fuller		52,500		30,556		5,750		—		—		—		88,806
Jack D. Furst		28,500		—		—		—		—		—		28,500
J. Edward Herring		31,000		—		—		—		—		—		31,000
Robert D. Kincaid(3)		38,750		30,556		5,750		—		—		—		75,056
Gary W. Luce(3)		43,750		30,556		5,750		—		—		—		80,056
Robert W. Shower		47,500		30,556		5,750		—		—		—		83,806
J. Otis Winters		50,000		30,556		5,750		—		—		—		86,806

(1)

Each amount shown represents the vested portion (1,666 common units) of an award of 5,000 restricted units awarded to each of the outside directors at the time of our initial public offering valued at the initial public offering price of $20 per unit. The amounts included in the “Stock Awards” column include the dollar amount of compensation expense we recognized for eleven months of the fiscal year ended December 31, 2006 in accordance with the Statement of Financial Accounting Standards No. 123(R). Assumptions used in the calculation of these amounts are included in Note 16 to our audited financial statements for the fiscal year ended December 31, 2006 included in our annual report on Form 10-K. The grant date fair value of each director’s award as computed in accordance with FAS 123(R) is $20 per unit.

(2)

Each amount shown represent an option granted to each of the outside directors at the time of our initial public offering to purchase 5,000 common units at the initial public offering price of $20 per unit and valued at the FAS 123(R) value of $1.15 per common units subject to the option. The amounts included in the “Option Awards” column include the dollar amount of compensation expense we recognized for the fiscal year ended December 31, 2006 in accordance with FAS 123(R). Assumptions used in the calculation of these amounts are included in Note 16 to our audited financial statements for the fiscal year ended

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	December 31, 2006 included in our annual report on Form 10-K. The grant date fair value of each director’s award as computed in accordance with FAS 123(R) is $1.15 per unit.
(3)	The amounts shown for Messrs. Kincaid and Luce exclude the Acquisition Equity Awards received by them as described under “— Background.”

Messrs. Colonnetta, Downie, Furst, and Herring are officers of HM Capital, a related party. All fees paid to these directors are remitted directly to HM Capital.

Compensation Committee Report

We have reviewed and discussed with management certain Compensation Discussion and Analysis provisions to be included in the Partnership’s Annual Report on Form 10-K for the year ended December 31, 2006 to be filed pursuant to Section 13(a) of the Securities Exchange Act of 1934 (the “Annual Report”). Based on those reviews and discussions, we recommend to the board of directors of Regency GP LLC, the general partner of Regency GP LP, the general partner of the Partnership, that the Compensation Discussion and Analysis be included in the Annual Report.

Compensation Committee

Jason H. Downie, Chairman

Joe Colonnetta

J. Otis Winters

Item 12.   Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

The following table sets forth, as of March 1, 2007, the beneficial ownership of our units by:

•  each person who then owned beneficially 5 percent or more of our units;

•  each member of the board of directors of Regency GP LLC;

•  each named executive officer of Regency GP LLC; and

•  all directors and executive officers of Regency GP LLC, as a group.

Ownership information regarding the common units and subordinated units set forth in the following table is derived from:

•  the holdings thereof by HMTF Regency, L.P. and the resulting economic interest therein of the persons named in the table pursuant to their ownership of Class A Units of HMTF Regency, L.P.; or

•  the exchange of Class B Units and Class D Units of net profits interests in HMTF Regency, L.P. held by persons named in the table prior to the IPO for common and subordinated units.

The amounts and percentage of units beneficially owned are reported on the basis of regulations of the SEC governing the determination of beneficial ownership of securities. Under the rules of the SEC, a person is deemed to be a “beneficial owner” of a security if that person has or shares “voting power,” which includes the power to vote or to direct the voting of such security, or “investment power,” which includes the power to dispose of or to direct the disposition of such security. A person is also deemed to be a beneficial owner of any securities of which that person has a right to acquire beneficial ownership within 60 days. Under these rules, more than one person may be deemed a beneficial owner of the same securities and a person may be deemed a beneficial owner of securities as to which he has no economic interest.

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			Percentage of					Percentage of
			Outstanding					Outstanding			Percentage
	Common		Common			Subordinated		Subordinated			of Total
Name of Beneficial Owner	Units		Units(5)			Units		Units(5)			Units
HM5/GP LLC(1)		8,148,672		29.5	%		16,699,462		87.4	%		53.1	%
James W. Hunt(2)(3)		107,326		0.4			840,678		4.4			2.0
Michael L. Williams(2)(3)		112,758		0.4			480,387		2.5			1.2
Stephen L. Arata(2)(3)		61,378		0.2			240,194		1.3			0.6
William E. Joor III(2)(3)		86,235		0.3			360,290		1.9			0.9
Alvin Suggs(2)(3)		19,914		0.1			72,058		0.4			0.2
Joe Colonnetta(1)(2)		25,000		0.1			—		(4	)		0.1
Jason H. Downie(1)(2)		11,000		(4	)		—		(4	)		(4	)
A. Dean Fuller(2)(3)		14,166		(4	)		—		(4	)		(4	)
Jack D. Furst(1)(2)		12,500		(4	)		—		(4	)		(4	)
J. Edward Herring(1)(2)		10,000		(4	)		—		(4	)		(4	)
Robert D. Kincaid(2)(3)		14,381		(4	)		37,278		0.2			0.1
Gary W. Luce(2)(3)		14,381		(4	)		37,278		0.2			0.1
J. Otis Winters(2)(3)		11,666		(4	)		—		(4	)		(4	)
All directors and executive Officers as a group (20 persons)		8,797,543		31.8			18,911,741		99.0			59.3

(1)	According to Schedule 13D/ A (“Amendment No. 4”) dated March 30, 2007 (the “Schedule 13D”) filed jointly by Regency Acquisition LP, a Delaware limited partnership (“Acquisition”); Regency Holdings LLC, a Delaware limited liability company and the general partner of Acquisition (“Holdings”); HMTF Regency, L.P., a Delaware limited partnership which is the sole member of Holdings and owns all of the limited partnership interest in Acquisition (“HMTF Regency”); HMTF Regency, L.L.C., a Texas limited liability company and the general partner of HMTF Regency (“HMTF GP”); Hicks, Muse, Tate & Furst Equity Fund V, L.P., a Delaware limited partnership and the sole member of HMTF GP (“Fund V”); and HM5/ GP LLC, a Texas limited liability company, the general partner of Fund V (“HM5”); and, together with Acquisition, Holdings, HMTF Regency, HMTF GP, and Fund V and the “13D Parties”), (i) Acquisition is the record owner of 3,456,255 common units and 16,699,462 subordinated units; Fund V is the record owner of 4,592,464 common units; HMTF GP, L.L.C. (“HMTF Gas GP”), of which Fund V is the sole member, is the record owner of 3 common units; and two limited partnerships (the “Coinvest LPs”) of which HM5 is the general partner are the record owner of an aggregate of 99,950 common units; (ii) as a result of the relationship of HM5 to Fund V, Fund V to HMTF GP, HMTF GP to HMTF Regency, HMTF Regency to Holdings, and Holdings to Acquisition, each 13D Party may be deemed to have shared power to vote, or direct the disposition of, and to dispose, or direct the disposition of, the common units and subordinated units held of record by Acquisition. (iii) as a result of the relationship of Fund V to HMTF Gas GP, Fund V may be deemed the beneficial owner of the common units held by HMTF Gas GP; (iv) as a result of the relationship of HM5 to Fund V, HM5 may be deemed the beneficial owner of all of the common units held by Fund V; and (v) as a result of the relationship of HM5 to the Coinvest LPs, HM5 may be deemed the beneficial owner of the common units held by the Coinvest LPs.
(2)	The common units amounts include unit options which are currently exercisable in the following amounts of common units: Mr. Hunt — 33,333; Mr. Williams — 13,333; Mr. Arata — 11,666; Mr. Joor — 11,666; Mr. Suggs — 5,000; Mr. Fuller — 1,666; Mr. Kincaid — 1,666; Mr. Luce — 1,666 and Mr. Winters — 1,666.
(3)	Each of these executive officers disclaims beneficial ownership of any common and subordinated units held by HMTF Regency, L.P. resulting from his ownership of Class A Units of HMTF Regency, L.P. by each such person as he does not have voting or dispositive control of these units. These units include the following: Mr. Hunt — 18,817 common and 90,920 subordinated; Mr. Williams — 4,897 common and 23,659 subordinated; Mr. Arata — 4.897 common and 23,659 subordinated; Mr. Joor — 4,897 common

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	and 23,659 subordinated; and Mr. Suggs — 1,959 common and 9,464 subordinated. Each of these executive officers will be treated as regards his ownership of Class A Units, in the same manner as any other HM Capital Investor. The address of each of these individuals is 1700 Pacific, Suite 2900, Dallas, Texas 75201.
(4)	Ownership percentages are less than 0.1 percent.
(5)	The number of common units and subordinated units outstanding are 27,844,291 and 19,103,896, respectively.

Securities Authorized for Issuance under Equity Compensation Plans

The following table provides information concerning common units that may be issued under the Regency GP LLC Long-Term Incentive Plan (“LTIP”). In connection with our IPO, our Managing General Partner adopted the LTIP for employees, directors and consultants of our general partner. The LTIP consists of restricted units, phantom units and unit options. It currently permits the grant of awards covering an aggregate of 2,865,584 units. The LTIP is administered by the compensation committee of the board of directors of our Managing General Partner.

Our Managing General Partner’s board of directors, or its compensation committee, in its discretion may terminate, suspend or discontinue the LTIP at any time with respect to any award that has not yet been granted. Our Managing General Partner’s board of directors, or its compensation committee, also has the right to alter or amend the LTIP or any part of the plan from time to time, including increasing the number of units that may be granted subject to unitholder approval as required by the exchange upon which the common units are listed at that time. However, no change in any outstanding grant may be made that would materially impair the rights of the participant without the consent of the participant. For more information about this plan, please read the Notes to Consolidated Financial Statements.

					Number of Securities
					Remaining Available for
	Number of Securities				Future Issuance Under
	to be Issued Upon		Weighted- Average		Equity Compensation
	Exercise of Outstanding		Exercise Price of		Plans (Excluding
	Options, Warrants		Outstanding, Options,		Securities Reflected
Plan Category	and Rights		Warrants and Rights		in Column (a))
	(a)		(b)		(c)
Equity compensation plans approved by security holders		—		—		—
Equity compensation plans not approved by security holders		909,600	$	21.06		1,405,184
Total		909,600	$	21.06		1,405,184

Item 13.   Certain Relationships and Related Transactions, and Director Independence

Review, Approval and Ratification of Transactions with Related Persons

As of December 31, 2006, HM Capital Investors own 9,127,085 common units and 19,103,896 subordinated units representing a 60.2 percent limited partner interest in us.

Distributions and Payments to Our General Partner and its Affiliates

Under our partnership agreement, our General Partner and its affiliates will be entitled to reimbursement for all expenses it incurs on our behalf, including salaries and employee benefit costs for its employees who provide services to us, and all other necessary or appropriate expenses allocable to us or reasonably incurred by our general partner and its affiliates in connection with operating our business. The partnership agreement provides that our General Partner will determine the expenses that are allocable to us in good faith.

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In connection with our initial public offering we and other parties entered into the various documents and agreements pursuant to which we effected the initial public offering transactions, including the vesting of assets in, and the assumption of liabilities by, us and our subsidiaries, and the application of the proceeds of our initial public offering. These agreements were not the result of arm’s-length negotiations, and they, and any of the transactions that they provide for, may not have been effected on terms at least as favorable to the parties to these agreements as could have been obtained from unaffiliated third parties. All of the transaction expenses incurred in connection with these transactions, including the expenses associated with transferring assets into our subsidiaries, were paid from the proceeds of our initial public offering.

Omnibus Agreement

Upon the closing of our initial public offering, we entered into an omnibus agreement with Regency Acquisition LP pursuant to which Regency Acquisition LP agreed to indemnify us against certain environmental and related liabilities arising out of or associated with the operation of the assets before the consummation of our initial public offering. This indemnification obligation will terminate on February 3, 2009. There is an aggregate cap of $8,600,000 on the amount of indemnity coverage for environmental and related liabilities. In addition, we are not entitled to indemnification until the aggregate amount of all claims under the omnibus agreement exceed $250,000. Liabilities resulting from a change of law after our initial public offering are excluded from the environmental indemnity by Regency Acquisition LP for the unknown environmental liabilities. To date, no claims have been made against the omnibus agreement.

Regency Acquisition LP has also indemnified us for liabilities related to:

•  certain defects in the easement rights or fee ownership interests in and to the lands on which any assets contributed to us are located and failure to obtain certain consents and permits necessary to conduct our business that arise within two years after the closing of the initial public offering; and

•  certain income tax liabilities attributable to the operation for the assets contributed to us prior to the time they were contributed.

Amendments

The omnibus agreement may not be amended without the prior approval of the conflicts committee if the proposed amendment will, in the reasonable discretion of our General Partner, adversely affect holders of our common units.

Competition

Regency Acquisition LP is not restricted under the omnibus agreement from competing with us. Regency Acquisition LP may acquire, construct or dispose of additional midstream or other assets in the future without any obligation to offer us the opportunity to purchase or construct or dispose of those assets.

Related Party Transactions

Concurrently with the closing of our initial public offering, we paid $9,000,000 to an affiliate of HM Capital Partners to terminate a management services contract with a remaining tenor of 9 years.

BlackBrush Oil & Gas, LP (“BBOG”), an affiliate of the Partnership, is a shipper on the Partnership’s gas gathering and processing system. During the years ended December 31, 2006 and 2005, we generated revenues of $2,160,000 and $833,000 on transportation and compression of natural gas for BBOG. We also incurred related party expenses of $1,630,000 and $523,000 for the years ended December 31, 2006 and 2005.

TexStar entered into a management services contract with HMTF Gas Partners on July 30, 2004. We paid management fees in the amount of $361,000 to HM Capital during the year ended December 31, 2006. In connection with the acquisition of TexStar, we paid $3,542,000 to terminate TexStar’s management services contract.

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In connection with the TexStar acquisition, BBOG entered into five gas gathering agreements providing for the long term dedication to TexStar of the production from its leases. Under those agreements, we gather and process natural gas and receive payment for these services.

In February of 2005, TexStar issued a promissory note to HM Capital Partners in the amount of $600,000 bearing interest at a fixed rate of 8.5 percent per annum. Concurrent with the Partnership’s acquisition of TexStar in August 2006, the promissory note was repaid in full.

The employees that operate our assets and provide staff or support services are employees of Regency GP LLC, our Managing General Partner. Pursuant to our partnership agreement, our Managing General Partner receives a monthly reimbursement for all direct and indirect expenses that it incurs on our behalf. We recorded reimbursements of $16,789,000 during the year ended December 31, 2006 as operating and maintenance expenses or general and administrative expenses.

We made cash distributions of $20,139,000 during the year ended December 31, 2006 to HM Capital Partners and affiliates as a result of their ownership of a portion of the Partnerships’ common and subordinated units, and their ownership of the general partner interest.

TexStar paid a transaction fee in the amount of $1,200,000 to an affiliate of HM Capital upon completing its acquisition of the Como Assets. This amount was capitalized as a part of the purchase price.

On August 15, 2006, we completed the acquisition of all the outstanding equity of TexStar. The purchase price for the TexStar Acquisition was paid by (1) the issuance of 5,173,189 Class B common units of the Partnership to HMTF Gas Partners, (2) the payment of $62,074,000 in cash and (3) the assumption of $167,652,000 of TexStar’s outstanding bank debt.

Item 14.   Principal Accounting Fees and Services.

The following set forth fees billed by Deloitte & Touche LLP for the audit of our annual financial statements and other services rendered for the fiscal years ended December 31, 2006 and 2005:

	December 31,
	2006		2005
Audit fees(1)(2)	$	1,419,000	$	1,180,000
Audit related fees(3)		18,500		60,000
Tax fees(4)		45,000		53,000
All other fees(5)		—		—
Total	$	1,428,500	$	1,293,000

(1)	Includes fees for audits of annual financial statements of our companies, reviews of the related quarterly financial statements, and services that are normally provided by the independent accountants in connection with statutory and regulatory filings or engagements, including reviews of documents filed with the SEC. The year ended December 31, 2005 fees include an audit of our financial statements at June 30, 2005 in connection with our initial public offering.
(2)	The 2006 amounts includes fees for the June 30, 2006, December 31, 2005 and December 31, 2004 audits and quarterly reviews from January 1, 2005 to June 30, 2006 of TexStar.
(3)	Includes fees related to consultations concerning financial accounting and reporting standards and services related to the implementation of our internal controls over financial reporting.
(4)	Includes fees related to professional services for tax compliance, tax advice, and tax planning. These tax services were incurred on behalf of HMTF Regency, L.P. for the years ended December 31, 2006 and 2005.
(5)	Consists of fees for services other than services reported above.

Pursuant to the charter of the Audit Committee, the Audit Committee is responsible for the oversight of our accounting, reporting and financial practices. The Audit Committee has the responsibility to select,

96

appoint, engage, oversee, retain, evaluate and terminate our external auditors; pre-approve all audit and non-audit services to be provided, consistent with all applicable laws, to us by our external auditors; and to establish the fees and other compensation to be paid to our external auditors. The Audit Committee also oversees and directs our internal auditing program and reviews our internal controls.

The Audit Committee has adopted a policy for the pre-approval of audit and permitted non-audit services provided by our principal independent accountants. The policy requires that all services provided by Deloitte & Touche LLP, including audit services, audit-related services, tax services and other services, must be pre-approved by the Audit Committee.

The Audit Committee reviews the external auditors’ proposed scope and approach as well as the performance of the external auditors. It also has direct responsibility for and sole authority to resolve any disagreements between our management and our external auditors regarding financial reporting, regularly reviews with the external auditors any problems or difficulties the auditors encountered in the course of their audit work, and, at least annually, uses its reasonable efforts to obtain and review a report from the external auditors addressing the following (among other items):

•  the auditors’ internal quality-control procedures;

•  any material issues raised by the most recent internal quality-control review, or peer review, of the external auditors;

•  the independence of the external auditors;

•  the aggregate fees billed by our external auditors for each of the previous two fiscal years; and

•  the rotation of the lead partner.

Part IV

Item 15.   Exhibits and Financial Statement Schedules.

(a)1. Financial Statements

See Index to Financial Statements” set forth on page F-1

2. Financial Statement Schedules

Other schedules are omitted because they are not required or applicable, or the required information is included in the Consolidated Financial Statements or related notes.

3. Exhibits

See “Index to Exhibits”.

97

Signatures

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

REGENCY GP LLC, its general partners

By:	REGENCY ENERGY PARTNERS LP
By:	REGENCY GP LP, its general partner
By:	/s/  James W. Hunt

James W. Hunt

Chief Executive Officer and officer duly

authorized to sign on behalf of the registrant

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons in the capacities and on the dates indicated:

Signature	Title	Date
/s/  James W. Hunt James W. Hunt	Chairman, President, and Chief Executive Officer (Principal Executive Officer)	March 30, 2007
/s/  Stephen L. Arata Stephen L. Arata	Executive Vice President and Chief Financial Officer (Principal Financial Officer)	March 30, 2007
/s/  Lawrence B. Connors Lawrence B. Connors	Vice President, Finance and Accounting (Principal Accounting Officer)	March 30, 2007
/s/  Joe Colonnetta Joe Colonnetta	Director	March 30, 2007
/s/  Jason H. Downie Jason H. Downie	Director	March 30, 2007
/s/  A. Dean Fuller A. Dean Fuller	Director	March 30, 2007
Jack D. Furst	Director	March 30, 2007
/s/  J. Edward Herring J. Edward Herring	Director	March 30, 2007
/s/  Robert D. Kincaid Robert D. Kincaid	Director	March 30, 2007

98

Signature	Title	Date
/s/  Gary W. Luce Gary W. Luce	Director	March 30, 2007
/s/  J. Otis Winters J. Otis Winters	Director	March 30, 2007

99

Index To Exhibits

Exhibit
Number				Description
	2	.1**	—	Contribution Agreement by and among Regency Energy Partners LP, Regency Gas Services LP, as Buyer and HMTF Gas Partners II, L.P., as Seller dated July 12, 2006.
	3	.1*	—	Certificate of Limited Partnership of Regency Energy Partners LP
	3	.2*	—	Form of Amended and Restated Limited Partnership Agreement of Regency Energy Partners LP (included as Appendix A to the Prospectus and including specimen unit certificate for the common units)
	3	.2.1**	—	Amendment No. 1 to Amended and Restated Agreement of Limited Partnership of Regency Energy Partners LP
	3	.2.2***	—	Amendment No. 2 to Amended and Restated Agreement of Limited Partnership of Regency Energy Partners LP
	3	.3*	—	Certificate of Formation of Regency GP LLC
	3	.4*	—	Form of Amended and Restated Limited Liability Company Agreement of Regency GP LLC
	3	.5*	—	Certificate of Limited Partnership of Regency GP LP
	3	.6*	—	Form of Amended and Restated Limited Partnership Agreement of Regency GP LP
	4	.1*	—	Form of Common Unit Certificate
	4	.2	—	Indenture for 83/8% Senior Notes due 2013, together with the global notes
	10	.1*	—	Amended and Restated Credit Agreement of Regency Gas Services LLC
	10	.2*	—	Amended and Restated Second Lien Credit Agreement of Regency Gas Services LLC
	10	.3*	—	Second Amended and Restated Credit Agreement of Regency Gas Services LLC
	10	.4*	—	Regency GP LLC Long-Term Incentive Plan
	10	.5*	—	Form of Grant Agreement for the Regency GP LLC Long-Term Incentive Plan — Unit Option Grant
	10	.6*	—	Form of Grant Agreement for the Regency GP LLC Long-Term Incentive Plan — Restricted Unit Grant
	10	.7*	—	Form of Grant Agreement for the Regency GP LLC Long-Term Incentive Plan — Phantom Unit Grant (With DERS)
	10	.8*	—	Form of Grant Agreement for the Regency GP LLC Long-Term Incentive Plan — Phantom Unit Grant (Without DERS)
	10	.9*	—	Form of Contribution, Conveyance and Assumption Agreement
	10	.10*	—	Executive Employment Agreement dated December 1, 2004 between the Registrant and James W. Hunt
	10	.11*	—	Employment Agreement dated December 1, 2004 between the Registrant and Michael L. Williams
	10	.12*	—	Severance Agreement dated January 1, 2005 between the Registrant and William E. Joor, III
	10	.13*	—	Purchase Agreement by and among Regency Acquisition LLC, Regency Services, LLC, Regency Gas Services LLC, the Members of Regency Services, LLC and the Partners of CB Offshore Equity Fund V — Holdings, L.P. dated October 21, 2004
	10	.14*	—	Purchase and Sale Agreement between Duke Energy Field Services, LP and Regency Gas Services Waha, LP Dated January 29, 2004
	10	.15*	—	Pipeline Construction Contract between Regency Gas Services LLC and H.C. Price dated May 2, 2005 (relating to construction of 30‘ natural gas pipeline with facilities in Louisiana)
	10	.16*	—	Pipeline Construction Contract between Regency Intrastate Gas LLC and H.C. Price Co. dated May 2nd, 2005 (relating to the construction of 24” natural gas pipeline with facilities in Louisiana)
	10	.17*	—	Ground Lease Agreement (Lakin Plant)
	10	.18*	—	Ground Lease Agreement (Mocane Plant)
	10	.19*	—	Lisbon Lease Agreement
	10	.20*†	—	Firm Transportation Agreement dated June 8, 2005 between Regency Intrastate Gas LLC and Anadarko Energy Services Company

100

Exhibit
Number				Description
	10	.21*	—	Form of Third Amended and Restated Credit Agreement of Regency Gas Services LLC
	10	.22*	—	Form of Indemnification Agreement between Regency GP LLC and Indemnities
	10	.23*	—	Financial Advisory Agreement
	10	.24*	—	Monitoring and Oversight Agreement
	10	.25*	—	Form of Omnibus Agreement
	10	.26**	—	Form of Fourth Amended and Restated Credit Agreement of Regency Gas Services LP
	12	.1	—	Computation of Ratio of Earnings to Fixed Charges
	14	.1	—	Code of Business Conduct
	21	.1	—	List of Subsidiaries of Regency Energy Partners LP
	23	.1	—	Consent of Deloitte & Touche LLP
	24	.1††	—	Form by Power of Attorney
	31	.1	—	Certifications pursuant to Rule 13a-14(a).
	31	.2	—	Certifications pursuant to Rule 13a-14(a).
	32	.1	—	Certifications pursuant to Section 1350.
	32	.2	—	Certifications pursuant to Section 1350.
	99	.1	—	Balance Sheet of Regency GP LP, the general partner of the registrant

*	Incorporated by reference to the comparably numbered exhibit to the registrant’s registration statement on Form S-1 (File No. 333-128332).
**	Incorporated by reference to the registrant’s current report on Form 8-K dated August 14, 2006.
***	Incorporated by reference to the registrant’s current report on Form 8-K dated September 21, 2006.
†	Portions of this exhibit have been omitted pursuant to a request for confidential treatment.
††	Incorporated by reference to the signature page of this filing.

101

Index to Consolidated Financial Statements

Report of Independent Registered Public Accounting Firm	F-2
Consolidated Balance Sheets as of December 31, 2006 and 2005	F-3
Consolidated Statements of Operations for the years ended December 31, 2006 and 2005, the period from acquisition (December 1, 2004) to December 31, 2004, and the period from January 1, 2004 to November 30, 2004	F-4
Consolidated Statement of Member Interest and Partners’ Capital for the years ended December 31, 2006 and 2005, the period from acquisition (December 1, 2004) to December 31, 2004, and the period from January 1, 2004 to November 30, 2004	F-5
Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2006 and 2005, the period from acquisition (December 1, 2004) to December 31, 2004, and the period from January 1, 2004 to November 30, 2004	F-6
Consolidated Statements of Cash Flows for the years ended December 31, 2006 and 2005, the period from acquisition (December 1, 2004) to December 31, 2004, and the period from January 1, 2004 to November 30, 2004	F-7
Notes to the Consolidated Financial Statements	F-8

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors of Regency GP LLC and Unitholders of Regency Energy Partners LP:

We have audited the accompanying consolidated balance sheets of Regency Energy Partners LP and subsidiaries (the “Partnership”) as of December 31, 2006 and 2005, and the related consolidated statements of operations, member interest and partners’ capital, comprehensive income (loss) and cash flows, for the years ended December 31, 2006 and 2005, the period from acquisition date (December 1, 2004) to December 31, 2004, and Regency LLC Predecessor for the period from January 1, 2004 to November 30, 2004. These financial statements are the responsibility of the Partnership’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Partnership is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Partnership’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the Partnership as of December 31, 2006 and 2005, and the results of the Partnership’s operations and cash flows for the years ended December 31, 2006 and 2005, the period from acquisition date (December 1, 2004) to December 31, 2004 and the results of Regency LLC Predecessor’s operations and cash flows for the period from January 1, 2004 to November 30, 2004, in conformity with accounting principles generally accepted in the United States of America.

As discussed in Note 1, the Partnership accounted for its acquisition of TexStar Field Services, L.P. and its general partner, TexStar GP, LLC as acquisitions of entities under common control in a manner similar to a pooling of interests.

/s/  Deloitte & Touche LLP

Dallas, Texas

March 29, 2007

F-2

Regency Energy Partners LP

Consolidated Balance Sheets

	December 31,			December 31,
	2006			2005
	(In thousands except unit data)
ASSETS
Current Assets:
Cash and cash equivalents	$	9,139		$	3,686
Restricted cash		5,782			6,033
Accounts receivable, net of allowance of $181 in 2006 and $169 in 2005		96,993			91,968
Related party receivables		755			274
Assets from risk management activities		2,126			1,717
Other current assets		5,279			5,383
Total current assets		120,074			109,061
Property, plant and equipment:
Gas plants and buildings		103,490			89,431
Gathering and transmission systems		529,776			482,423
Other property, plant and equipment		73,861			42,418
Construction  — in  — progress		85,277			17,426
Total property, plant and equipment		792,404			631,698
Less accumulated depreciation		(58,370	)		(22,541	)
Property, plant and equipment, net		734,034			609,157
Other assets:
Intangible assets, net of amortization of $4,676 in 2006 and $2,029 in 2005		76,923			16,370
Long-term assets from risk management activities		1,674			1,333
Other, net of amortization on debt issuance costs of $946 in 2006 and $305 in 2005		17,212			7,275
Investments in unconsolidated subsidiaries		5,616			5,992
Goodwill		57,552			57,552
Total other assets		158,977			88,522
TOTAL ASSETS	$	1,013,085		$	806,740
LIABILITIES & PARTNERS’ CAPITAL OR MEMBER INTEREST
Current Liabilities:
Accounts payable and accrued liabilities	$	117,254		$	116,997
Related party payables		280			3,380
Current portion of long term debt		—			700
Escrow payable		5,783			5,533
Accrued taxes payable		2,758			2,266
Liabilities from risk management activities		3,647			11,312
Other current liabilities		5,592			2,445
Total current liabilities		135,314			142,633
Long-term liabilities from risk management activities		145			4,895
Other long-term liabilities		269			—
Long-term debt		664,700			428,250
Commitments and contingencies
Partners’ Capital or Member Interest:
Member interest		—			241,924
Common units (21,969,480 units authorized and 19,620,396 units issued and outstanding at December 31, 2006)		42,192			—
Class B common units (5,173,189 units authorized, issued and outstanding at December 31, 2006)		60,671			—
Class C common units (2,857,143 units authorized, issued and outstanding at December 31, 2006)		59,992			—
Subordinated units (19,103,896 units authorized, issued and outstanding at December 31, 2006)		43,240			—
General partner interest		5,543			—
Accumulated other comprehensive income (loss)		1,019			(10,962	)
Total partners’ capital or member interest		212,657			230,962
TOTAL LIABILITIES & PARTNERS’ CAPITAL OR MEMBER INTEREST	$	1,013,085		$	806,740

See accompanying notes to consolidated financial statements

F-3

Regency Energy Partners LP

Consolidated Statements of Operations

										Regency LLC
	Regency Energy Partners LP									Predecessor
							Period from
							Acquisition			Period from
	Year Ended			Year Ended			(December 1, 2004)			January 1, 2004 to
	December 31,			December 31,			to December 31,			November 30,
	2006			2005			2004			2004
	(In thousands except unit data and per unit data)
REVENUE
Gas sales	$	560,620		$	506,278		$	32,616		$	279,582
NGL sales		256,672			183,073			11,890			123,827
Gathering, transportation and other fees		60,911			26,735			1,943			19,016
Related party revenues		2,160			833			16			—
Net unrealized and realized gain/(loss) from risk management activities		(7,709	)		(22,243	)		322			—
Other		24,211			14,725			1,070			9,896
Total revenue		896,865			709,401			47,857			432,321
OPERATING COSTS AND EXPENSES
Cost of gas and liquids		738,816			632,342			40,987			362,762
Related party expenses		1,630			523			—			—
Operation and maintenance		39,496			24,291			1,819			17,786
General and administrative		22,826			15,039			645			6,571
Management services termination fee		12,542			—			—			—
Transaction expenses		2,041			—			—			7,003
Depreciation and amortization		39,654			23,171			1,661			10,129
Total operating costs and expenses		857,005			695,366			45,112			404,251
OPERATING INCOME		39,860			14,035			2,745			28,070
OTHER INCOME AND DEDUCTIONS
Interest expense, net		(37,182	)		(17,880	)		(1,335	)		(5,097	)
Equity income		532			312			56			—
Loss on debt refinancing		(10,761	)		(8,480	)		—			(3,022	)
Other income and deductions, net		307			421			8			186
Total other income and deductions		(47,104	)		(25,627	)		(1,271	)		(7,933	)
NET INCOME (LOSS) FROM CONTINUING OPERATIONS		(7,244	)		(11,592	)		1,474			20,137
DISCONTINUED OPERATIONS
Income (loss) from operations of Regency Gas Treating LP (including gain on disposal of $626)		—			732			—			(121	)
NET INCOME (LOSS )	$	(7,244	)	$	(10,860	)	$	1,474		$	20,016
Less:
Net income from January 1-31, 2006		1,564
Net loss for partners	$	(8,808	)
General partner’s interest		(176	)
Limited partners’ interest		(8,632	)
Basic and diluted earnings per unit:
Net loss allocated to common units	$	(4,003	)
Weighted average number of common units outstanding		19,103,896
Loss per common unit	$	(0.21	)
Distributions declared per unit	$	0.94
Net loss allocated to subordinated units	$	(4,003	)
Weighted average number of subordinated units outstanding		19,103,896
Loss per subordinated unit	$	(0.21	)
Distributions declared per unit	$	0.94
Net loss allocated to Class B common units	$	(626	)
Weighted average number of units outstanding		5,173,189
Loss per Class B common unit	$	(0.12	)
Distributions declared per unit	$	—
Net loss allocated to Class C common units	$	—
Weighted average number of units outstanding		871,817
Loss per Class C common unit	$	—
Distributions declared per unit	$	—

See accompanying notes to consolidated financial statements

F-4

Regency Energy Partners LP

Consolidated Statement of Member Interest and Partners’ Capital

	Units																											Accumulated
																									General			Other
								Subor-		Member			Common			Class B			Class C			Subordinated			Partner			Comprehensive
	Common			Class B		Class C		dinated		Interest			Unitholders			Unitholders			Unitholders			Unitholders			Interest			Income (Loss)			Total
	(In thousands except unit data)
Regency LLC Predecessor
Balance — December 31, 2003		—			—		—		—	$	59,856		$	—		$	—		$	—		$	—		$	—		$	—		$	59,856
Member interest contribution		—			—		—		—		10,000			—			—			—			—			—			—			10,000
Net income for the period from January 1, 2004 to November 30, 2004		—			—		—		—		20,016			—			—			—			—			—			—			20,016
Member interest distributions		—			—		—		—		(89,872	)		—			—			—			—			—			—			(89,872	)
Balance — December 1, 2004		—			—		—		—		—			—			—			—			—			—			—			—
Regency Energy Partners LP
Net consideration paid by HM Capital Investors		—			—		—		—		171,000			—			—			—			—			—			—			171,000
TexStar capital		—			—		—		—		4,962			—			—			—			—			—			—			4,962
Capital contributions		—			—		—		—		4,500			—			—			—			—			—			—			4,500
Net income for the one month ended December 31, 2004		—			—		—		—		1,474			—			—			—			—			—			—			1,474
Balance — December 31, 2004		—			—		—		—		181,936			—			—			—			—			—			—			181,936
Capital contributions		—			—		—		—		72,000			—			—			—			—			—			—			72,000
Acquisition of fixed assets between entities under common control in excess of historical cost		—			—		—		—		(1,152	)		—			—			—			—			—			—			(1,152	)
Net loss for the year ended December 31, 2005		—			—		—		—		(10,860	)		—			—			—			—			—			—			(10,860	)
Net change in fair value of cash flow hedges		—			—		—		—		—			—			—			—			—			—			(16,502	)		(16,502	)
Net hedging gain reclassifed to earnings		—			—		—		—		—			—			—			—			—			—			5,540			5,540
Balance — December 31, 2005		—			—		—		—		241,924			—			—			—			—			—			(10,962	)		230,962
Net income through January 31, 2006		—			—		—		—		1,564			—			—			—			—			—			—			1,564
Net change in fair value of cash flow hedges		—			—		—		—		—			—			—			—			—			—			2,581			2,581
Net hedging gain reclassified to earnings		—			—		—		—		—			—			—			—			—			—			616			616
Balance — January 31, 2006		—			—		—		—		243,488			—			—			—			—			—			(7,765	)		235,723
Contribution of net investment to unitholders		5,353,896			—		—		19,103,896		(182,320	)		89,337			—			—			89,337			3,646			—			—
Proceeds from IPO, net of issuance costs		13,750,000			—		—		—		—			125,907			—			—			125,907			5,139			—			256,953
Net proceeds from exercise of over allotment option		1,400,000			—		—		—		—			26,163			—			—			—			—			—			26,163
Over allotment option net proceeds to HM Capital Investors		(1,400,000	)		—		—		—		—			(26,163	)		—			—			—			—			—			(26,163	)
Capital reimbursement to HM Capital Partners		—			—		—		—		—			(119,441	)		—			—			(119,441	)		(4,876	)		—			(243,758	)
Offering costs		—			—		—		—		—			(2,056	)		—			—			(2,056	)		(83	)		—			(4,195	)
Issuance of Class B common units for TexStar member interest		—			5,173,189		—		—		(61,168	)		—			61,168			—			—			—			—			—
Payment to HM Capital for TexStar net of repayment of promissory note									—		—			(30,418	)								(29,744	)		(1,214	)					(61,376	)
Other		—			—		—		—		—			(64	)		(17	)		(9	)		(63	)		(2	)		—			(155	)
Issuance of Class C common units net of costs		—			—		2,857,143		—		—			—			—			59,942			—			—			—			59,942
Issuance of restricted common units		516,500			—		—		—		—			—			—			—			—			—			—			—
Unit based compensation expenses		—			—		—		—		—			1,339			146			59			1,304			58			—			2,906
General Partner contributions							—		—		—			—			—			—			—			3,786			—			3,786
Partner distributions		—			—		—		—		—			(18,409	)		—			—			(18,001	)		(735	)		—			(37,145	)
Net loss from February 1, 2006 through December 31, 2006		—			—		—		—		—			(4,003	)		(626	)		—			(4,003	)		(176	)		—			(8,808	)
Net change in fair value of cash flow hedges		—			—		—		—		—			—			—			—			—			—			7,585			7,585
Net hedging gain reclassified to earnings		—			—		—		—		—			—			—			—			—			—			1,199			1,199
Balance — December 31, 2006		19,620,396			5,173,189		2,857,143		19,103,896	$	—		$	42,192		$	60,671		$	59,992		$	43,240		$	5,543		$	1,019		$	212,657

See accompanying notes to consolidated financial statements

F-5

Regency Energy Partners LP

Consolidated Statements of Comprehensive Income (Loss)

	Regency Energy Partners LP								Predecessor
							Period from		Regency LLC
							Acquisition		Period from
	Year Ended						(December 1, 2004)		January 1, 2004 to
	December 31,						to December 31,		November 30,
	2006			2005			2004		2004
	(In thousands)
Net income (loss)	$	(7,244	)	$	(10,860	)	$	1,474	$	20,016
Hedging losses reclassified to earnings		1,815			5,540			—		—
Net change in fair value of cash flow hedges		10,166			(16,502	)		—		—
Comprehensive income (loss)	$	4,737		$	(21,822	)	$	1,474	$	20,016

See accompanying notes to consolidated financial statements

F-6

Regency Energy Partners LP

Consolidated Statements of Cash Flows

										Regency LLC
	Regency Energy Partners LP									Predecessor
							Period from			Period from
				Year			Acquisition			January 1,
	Year Ended			Ended			(December 1, 2004)			2004 to
	December 31,			December 31,			to December 31,			November 30,
	2006			2005			2004			2004
	(In thousands)
OPERATING ACTIVITIES
Net income (loss)	$	(7,244	)	$	(10,860	)	$	1,474		$	20,016
Adjustments to reconcile net income (loss) to net cash flows provided by (used in) operating activities:
Depreciation and amortization		39,287			24,286			1,793			10,461
Equity income		(532	)		(312	)		(56	)		—
Loss on debt refinancing		10,761			8,480			—			3,022
Risk management portfolio valuation changes		(2,262	)		11,191			(322	)		—
Gain on the sale of Regency Gas Treating LP assets		—			(626	)		—			—
Gain on the sale of NGL line pack		—			(628	)		—			—
Unit based compensation expenses		2,906			—			—			—
Cash flow changes in current assets and liabilities:
Accounts receivable		(5,506	)		(43,012	)		2,568			(19,832	)
Other current assets		104			(2,644	)		(2,456	)		(1,169	)
Accounts payable and accrued liabilities		(1,359	)		52,651			548			18,122
Accrued taxes payable		492			806			(921	)		1,475
Other current liabilities		3,148			1,269			(242	)		502
Proceeds from early termination of interest rate swap		4,940			—			—			—
Amount of swap termination proceeds reclassified into earnings		(3,862	)		—			—			—
Other assets		3,014			(3,261	)		(6,697	)		(196	)
Other liabilities		269
Net cash flows provided by (used in) operating activities		44,156			37,340			(4,311	)		32,401
INVESTING ACTIVITIES
Capital expenditures		(142,423	)		(172,567	)		(2,581	)		(15,092	)
Restricted cash		500			(500	)		—			—
Acquisition of Como assets		(81,695	)		—			—			—
Cash outflows for acquisition by HM Capital Investors		—			(5,808	)		(127,804	)		—
Purchase of Enbridge assets		—			(108,282	)		—			—
Sale of Regency Gas Treating LP assets		—			6,000			—			—
Sale of NGL line pack		—			1,099			—			—
Distributions from investments in unconsolidated subsidiaries		—			95			280			—
Investments in unconsolidated subsidiaries		(32	)		—			(373	)		—
El Paso escrow adjustment		—			—			—			1,168
Cardinal acquisition		—			—			—			(3,533	)
Purchase of Waha properties		—			—			—			(67,264	)
Net cash flows used in investing activities		(223,650	)		(279,963	)		(130,478	)		(84,721	)
FINANCING ACTIVITIES
Borrowing under new credit facility		599,650			60,000			250,000			—
Borrowing under original credit facility		—			—			—			45,363
Borrowing under TexStar loan agreement		85,000			70,000			—			—
Repayments under new credit facility		(858,600	)		(1,650	)		—			—
Repayments under original credit facility		—			—			(101,471	)		(10,492	)
Repayments under TexStar loan agreement		(155,000	)		—			—			—
Net borrowings under revolving credit facilities		14,700			50,000			(13,000	)		13,000
Debt issuance costs		(10,488	)		(6,201	)		(7,514	)		(1,491	)
Proceeds from issuance senior notes, net of debt issuance costs		536,175			—			—			—
Proceeds from promissory note from HM Capital Partners		—			600			—			—
Proceeds from IPO, net of issuance costs		252,758			—			—			—
Capital reimbursement to HM Capital Partners		(243,758	)		—			—			—
Proceeds from exercise of over allotment option		26,163			—			—			—
Over allotment option proceeds to HM Capital Partners		(26,163	)		—			—			—
Issuance of Class C common units, net of costs		59,942			—			—			—
Partner/member interest contributions		3,786			72,000			4,500			10,000
Partner/member interest distributions		(37,144	)		—			—			—
Acquisition of assets between entities under common control		(62,074	)		(1,800	)		—			—
Net cash flows provided by financing activities		184,947			242,949			132,515			56,380
Net increase (decrease) in cash and cash equivalents		5,453			326			(2,274	)		4,060
Cash and cash equivalents at beginning of period		3,686			3,360			5,634			1,574
Cash and cash equivalents at end of period	$	9,139		$	3,686		$	3,360		$	5,634
Supplemental cash flow information
Interest paid, net of amounts capitalized	$	33,347		$	16,731		$	1,763		$	4,437
Non-cash capital expenditures in accounts payable	$	23,822		$	21,360		$	(134	)	$	804

See accompanying notes to consolidated financial statements

F-7

Regency Energy Partners LP

Notes to Consolidated Financial Statements

1.   Organization and Business Operations

Organization — The consolidated financial statements presented herein contain the results of Regency Energy Partners LP, a Delaware limited partnership (“Partnership”), and its predecessor, Regency Gas Services LLC (“Predecessor” and its predecessor “Regency LLC Predecessor”). The Partnership was formed on September 8, 2005; on February 3, 2006, in conjunction with its initial public offering of securities (“IPO”), the Predecessor was converted to a limited partnership Regency Gas Services LP (“RGS”) and became a wholly owned subsidiary of the Partnership. The Partnership and its subsidiaries are engaged in the business of gathering, treating, processing, transporting, and marketing natural gas and natural gas liquids (NGLs). On August 15, 2006, the Partnership, through RGS, acquired all the outstanding equity of TexStar Field Services, L.P. and its general partner, TexStar GP, LLC (collectively “TexStar”), from HMTF Gas Partners II, L.P. (“HMTF Gas Partners”), an affiliate of HM Capital Partners LLC (“HM Capital Partners”) (“TexStar Acquisition”). Hicks Muse Equity Fund V, L.P. (“Fund V”) and its affiliates, through HM Capital Partners, control Regency GP LP, the general partner of the Partnership (the “General Partner”). Fund V also controls HMTF Gas Partners through HM Capital Partners. Because the TexStar Acquisition was a transaction between commonly controlled entities, the Partnership was required to account for the TexStar Acquisition in a manner similar to a pooling of interests. Information included in these financial statements are presented as if the Partnership and TexStar had been combined throughout the periods presented in which common control existed, December 1, 2004 forward.

Regency LLC Predecessor, a Delaware limited liability company, was formed April 2, 2003 and began active operations on June 2, 2003. Its operations include gathering, processing, marketing and transportation of natural gas and NGLs.

On December 1, 2004, Regency Acquisition LP (“Acquisition”) acquired 100 percent of the outstanding member interests of the Regency LLC Predecessor from Regency Services LLC (“Seller”), a 100 percent owner of the Predecessor, and became its single member owner. As the single member owner, Acquisition had the right to manage the business and affairs of the Predecessor and to determine, subject to limitations imposed by credit agreements, the amount of any distributions payable by the Predecessor to the member. Acquisition had no obligation to make any capital contribution to the Predecessor beyond its initial investment. An investment fund organized and controlled by HM Capital Partners is the principal equity owner of HMTF Regency LP (“Parent”). This acquisition is referred to as the “HM Capital Transaction”.

The Parent accounted for its acquisition of the Regency LLC Predecessor as a purchase, and purchase accounting adjustments, including goodwill and other intangible assets, have been “pushed down” and are reflected in the financial statements of the Predecessor and its subsidiaries for the periods subsequent to December 1, 2004. The comparability of the operating results for the periods prior to November 30, 2004 to those in subsequent periods is affected by the purchase accounting adjustments, including amortization of intangible assets.

The accompanying consolidated financial statements include the assets, liabilities, results of operations and cash flows of the Partnership and its wholly owned subsidiaries. The Partnership operates and manages its business as two reportable segments: a) gathering and processing, and b) transportation.

Basis of Presentation — The consolidated financial statements of the Partnership have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and include the accounts of all controlled subsidiaries after the elimination of all intercompany accounts and transactions.

2.   Summary of Significant Accounting Policies

Use of Estimates — These consolidated financial statements have been prepared in conformity with GAAP which necessarily include the use of estimates and assumptions by management that affect the reported

F-8

Regency Energy Partners LP

Notes to Consolidated Financial Statements — (Continued)

amounts of assets, liabilities, revenues, expenses and disclosure of contingent assets and liabilities that exist at the date of the financial statements. Although these estimates are based on management’s best available knowledge of current and expected future events, actual results could be different from those estimates.

Cash and Cash Equivalents — Cash and cash equivalents include temporary cash investments with original maturities of three months or less.

Restricted Cash — Restricted cash of $5,782,000 is held in escrow for environmental remediation projects pursuant to an escrow agreement. A third-party agent invests funds held in escrow in US Treasury securities. Interest earned on the investment is credited to the escrow account.

Property, Plant and Equipment — Property, plant and equipment is recorded at historical cost of construction or, upon acquisition, the fair value of the assets acquired. Sales or retirements of assets, along with the related accumulated depreciation, are included in operating income unless the disposition is treated as discontinued operations. Gas required to maintain pipeline minimum pressures is capitalized and classified as property, plant, and equipment. Financing costs associated with the construction of larger assets requiring ongoing efforts over a period of time are capitalized. For the year ended December 31, 2006 and 2005, the Partnership capitalized interest of $511,000 and $2,613,000, respectively. There was no capitalized interest in 2004. The costs of maintenance and repairs, which are not significant improvements, are expensed when incurred. Expenditures to extend the useful lives of the assets are capitalized.

The Partnership assesses long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability is assessed by comparing the carrying amount of an asset to undiscounted future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured as the amount by which the carrying amounts exceed the fair value of the assets.

The Partnership accounts for its asset retirement obligations in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 143 “Accounting for Asset Retirement Obligations” and FIN 47 “Accounting for Conditional Asset Retirement Obligations.” These accounting standards require the Partnership to recognize on its balance sheet the net present value of any legally binding obligation to remove or remediate the physical assets that it retires from service, as well as any similar obligations for which the timing and/or method of settlement are conditional on a future event that may or may not be within the control of the Partnership. While the Partnership is obligated under contractual agreements to remove certain facilities upon their retirement, management is unable to reasonably determine the fair value of such asset retirement obligations because the settlement dates, or ranges thereof, were indeterminable and could range up to 95 years, and the undiscounted amounts are immaterial. An asset retirement obligation will be recorded in the periods wherein management can reasonably determine the settlement dates.

Depreciation expense related to property, plant and equipment was $36,880,000 and $21,191,000 for the years ended December 31, 2006 and 2005, $10,129,000 for the eleven months ended November 30, 2004 and $1,460,000 for the one month ended December 31, 2004. Depreciation of plant and equipment is recorded on a straight-line basis over the following estimated useful lives.

Functional Class of Property	Useful Lives (Years)
Gathering and Transmission Systems		5 - 20
Gas Plants and Buildings		15 - 35
Other property, plant and equipment		3 - 10

Intangible Assets — Intangible assets consisting of (i) permits and licenses and (ii) customer contracts are amortized on a straight line basis over their estimated useful lives, which is the period over which the assets are expected to contribute directly or indirectly to the Partnership’s future cash flows. The value of the permits and licenses was determined by discounting the income associated with activities that would be lost over the

F-9

Regency Energy Partners LP

Notes to Consolidated Financial Statements — (Continued)

period required to replace these permits and their estimated useful life is fifteen years. The Partnership renegotiated a number of significant customer contracts and the value of customer contracts was determined by using a discounted cash flow model. The estimated useful lives range from three to thirty years.

The Partnership evaluates the carrying value of intangible assets whenever certain events or changes in circumstances indicate that the carrying amount of these assets may not be recoverable. In assessing the recoverability, the Partnership compares the carrying value to the undiscounted future cash flows the intangible assets are expected to generate. If the total of the undiscounted future cash flows is less than the carrying amount of the intangible assets, the intangibles are written down to their fair value. The Partnership did not record any impairment in 2006, 2005 or 2004.

Goodwill — Goodwill represents the excess of the purchase price over the fair value of net asset acquired in a business combination. Goodwill is allocated to two reportable segments, Gathering and Processing and Transportation. Goodwill is not amortized, but is tested for impairment annually based on the carrying values as of December 31, or more frequently if impairment indicators arise that suggest the carrying value of goodwill may not be recovered. Impairment occurs when the carrying amount of a reporting unit exceeds it fair value. At the time it is determined that an impairment has occurred, the carrying value of the goodwill is written down to its fair value. To estimate the fair value of the reporting units, the Partnership makes estimates and judgments about future cash flows, as well as to revenues, cost of sales, operating expenses, capital expenditures and net working capital based on assumptions that are consistent with the Partnership’s most recent forecast.

Investment in Unconsolidated Subsidiaries — Investments in entities for which the Partnership has significant influence over the investee’s operating and financial policies, but less than a controlling interest, are accounted for using the equity method. Under the equity method, the Partnership’s investment in an investee is included in the consolidated balance sheets under the caption investments in unconsolidated subsidiaries and the Partnership’s share of the investee’s earnings or loss is included in the consolidated statements of operations under the caption equity income. All of the Partnership’s investments are subject to periodic impairment review. The impairment analysis requires significant judgment to identify events or circumstances that would likely have significant adverse effect on the future use of the investment.

Other Assets, net — Other assets, net primarily consists of debt issuance costs, which are capitalized and amortized to interest expense, net over the life of the related debt.

Gas Imbalances — Quantities of natural gas or NGLs over-delivered or under-delivered related to imbalance agreements are recorded monthly as other current assets or other current liabilities using then current market prices or the weighted average prices of natural gas or NGLs at the plant or system pursuant to imbalance agreements for which settlement prices are not contractually established. Within certain volumetric limits determined at the sole discretion of the creditor, these imbalances are generally settled by deliveries of natural gas. Imbalance receivables and payables as of December 31, 2006 and 2005 were immaterial.

Revenue Recognition — The Partnership earns revenues from (i) domestic sales of natural gas, NGLs and condensate and (ii) natural gas gathering, processing and transportation. Revenues associated with sales of natural gas, NGLs and condensate are recognized when title passes to the customer, which is when the risk of ownership passes to the purchaser and physical delivery occurs. Revenues associated with transportation and processing fees are recognized when the service is provided. For gathering and processing services, the Partnership receives either fees or commodities from natural gas producers depending on the type of contract. Commodities received are in turn sold and recognized as revenue in accordance with the criteria outlined above. Under the percentage-of-proceeds contract type, the Partnership is paid for its services by keeping a percentage of the NGLs produced and a percentage of the residue gas resulting from processing the natural gas. Under the percentage-of-index contract type, the Partnership earns revenue by purchasing wellhead natural gas at a percentage of the index price and selling processed natural gas at a price approximating the

F-10

Regency Energy Partners LP

Notes to Consolidated Financial Statements — (Continued)

index price and NGLs to third parties. The Partnership generally reports revenues gross in the consolidated statements of operations, in accordance with EITF Issue No. 99-19, “Reporting Revenue Gross as a Principal versus Net as an Agent.” Except for fee-based agreements, the Partnership acts as the principal in these transactions, takes title to the product, and incurs the risks and rewards of ownership.

Risk Management Activities — Prior to July 1, 2005, derivative transactions were not designated for hedge accounting and the changes in fair value of these contracts were marked to market and unrealized gains and losses were recorded in revenue for the commodity contracts and in interest expense for the interest rate swap. Hedge accounting was not elected for the Partnership’s crude oil put options, which were used to reduce downside price exposure for other heavy natural gas liquids. At the time that these crude oil put options were purchased, there was no liquid market for contracts that would exactly match the forecasted transactions hedged by the crude oil puts. These contracts have been and will continue to be marked to market with unrealized and realized gains or losses on these contracts recorded as net unrealized and realized gain/(loss) from risk management activities.

The Partnership’s net income and cash flows are subject to volatility stemming from changes in market prices such as interest rates, natural gas prices, natural gas liquids prices and processing spreads. The Partnership uses ethane, propane, butane, natural gasoline and crude oil swaps and interest rate swaps to create offsetting positions to specific commodity or interest rate exposures. Under SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities”, as amended (“SFAS No. 133”) all derivative financial instruments are recorded in the balance sheet at their fair value. The Partnership records the fair value of derivative financial instruments in the balance sheet as current and long-term assets or liabilities on a net basis by settlement date. For those instruments that qualify for hedge accounting, the accounting treatment depends on each instrument’s intended use and how it is designated. For the Partnership’s derivative financial instruments related to commodities that were not designated for hedge accounting, the change in market value is recorded as a component of net unrealized and realized gain (loss) from risk management activities and interest expense, net, respectively, in the consolidated statements of operations.

The Partnership employs derivative financial instruments in connection with an underlying asset, liability and/or anticipated transaction and not for speculative purposes. Derivative financial instruments qualifying for hedge accounting treatment have been designated by the Partnership as cash flow hedges. The Partnership enters into cash flow hedges to hedge the variability in cash flows related to a forecasted transaction. The amounts reported in the Partnership’s consolidated financial statements change quarterly as these estimates are revised to reflect actual results, changes in market conditions or other factors, many of which are beyond its control.

At inception, the Partnership formally documents the relationship between the hedging instrument and the hedged item, the risk management objectives, and the methods used for assessing and testing correlation and hedge effectiveness. The Partnership also assesses, both at the inception of the hedge and on an on-going basis, whether the derivatives are highly effective in offsetting changes in cash flows of the hedged item. Furthermore, the Partnership regularly assesses the creditworthiness of counterparties to manage against the risk of default. If the Partnership determines that a derivative is no longer highly effective as a hedge, it discontinues hedge accounting prospectively by including changes in the fair value of the derivative in current earnings. For cash flow hedges, changes in the derivative fair values, to the extent that the hedges are effective, are recorded as a component of accumulated other comprehensive income until the hedged transactions occur and are recognized in earnings. Any ineffective portion of a cash flow hedge’s change in value is recognized immediately in earnings. In the statement of cash flows, the effects of settlements of derivative instruments are classified consistent with the related hedged transactions.

Benefits — From inception of the Regency LLC Predecessor through May 31, 2005, the Regency LLC Predecessor and the Predecessor contracted with an independent third party to provide payroll and advisory human resource services while remaining the co-employer of all employees. On June 1, 2005, the Predecessor

F-11

Regency Energy Partners LP

Notes to Consolidated Financial Statements — (Continued)

terminated that contract, becoming the sole employer of all its employees. Under both arrangements, payroll and payroll related expenses are included within operating and general and administrative expenses. The Partnership provides a portion of medical, dental, and other healthcare benefits to employees. Commencing on June 1, 2005, the Partnership provides a matching contribution for employee contributions to their 401(k) accounts, which vests immediately. The amount of matching contributions for the year ended December 31, 2006 and 2005 was $201,000 and $100,000 and is recorded in general and administrative expenses. The Partnership has no pension obligations or other post employment benefits.

Income Taxes — No provision is made in the accounts for Federal or state income taxes. The Partnership is not subject to these taxes because its income is taxed directly to the partners. In May 2006, the State of Texas passed legislation that imposes a “margin tax” on partnerships and master limited partnerships for years beginning January 1, 2007. The Partnership currently estimates that this legislation will not have a material effect on its business, financial condition, results of operations or cash flows. TGG Corp. reorganized and converted to a Delaware LP on July 28, 2005 and changed its name to TexStar Field Services, L.P. Immediately prior to the conversion, deferred income tax liabilities were $256,000, primarily representing book bases in excess of tax bases for the interest in one of the Partnership’s unconsolidated subsidiaries and other gathering system equipment, and deferred income tax assets were $191,000, primarily representing net operating loss carryovers and gain recognized on the liquidation of TGG. These deferred taxes were recorded in other income and deductions, net at the date of conversion. The provision for income taxes for the period ended December 31, 2004 was immaterial.

Equity-Based Compensation — In December 2004, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 123 (revised 2004), “Share-based Payment,” which is a revision of SFAS No. 123, “Accounting for Stock-Based Compensation.” The Partnership adopted SFAS 123(R) “Share-Based Payment” in the first quarter of 2006 upon the creation of the long-term incentive plan (“LTIP”). The adoption had no impact on the consolidated financial position, result of operations or cash flows as no LTIP awards were granted during 2005. Please read Note 16.

Earnings per unit — Earnings per unit information has not been presented for periods prior to the IPO. Basic net income per limited partner unit is computed in accordance with SFAS No. 128, “Earnings Per Share”, as interpreted by Emerging Issues Task Force (“EITF”) Issue No. 03-6 (“EITF 03-6”), “Participating Securities and the Two-Class method under FASB Statement No. 128.” After deducting the general partners’ interest in net income or loss which may consist of its 2 percent interest, make whole of any losses allocated in a prior year or incentive distribution rights, the limited partners’ interest in the remaining net income or loss is allocated to each class of equity units based on declared distributions and then divided by the weighted average number of units outstanding in each class of security. In periods when the Partnership’s aggregate net income exceeds the aggregate distributions, EITF 03-6 requires the Partnership to present earnings per unit as if all of the earnings for the periods were distributed. Diluted net income per limited partner unit is computed by dividing limited partners’ interest in net income, after deducting the general partner’s interest, by the weighted average number of common and subordinated units outstanding and the effect of nonvested restricted units and unit options computed using the treasury stock method.

Recently Issued Accounting Standards — In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS No. 157”), which provides guidance for using fair value to measure assets and liabilities. SFAS 157 applies whenever another standard requires (or permits) assets or liabilities to be measured at fair value. This standard does not expand the use of fair value to any new circumstances. SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. The Partnership is currently evaluating the potential impacts on its financial position, results of operations or cash flows of the adoption of this standard.

In September 2006, the SEC issued SAB No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements,” (“SAB 108”) to address diversity in

F-12

Regency Energy Partners LP

Notes to Consolidated Financial Statements — (Continued)

practice in quantifying financial statement misstatements. SAB 108 requires entities to quantify misstatements based on their impact on each of their financial statements and related disclosures. SAB 108, effective as of December 31, 2006 for the Partnership, allows for a one-time transitional cumulative effect adjustment to retained earnings as of January 1, 2006 for errors that were not previously deemed material, but are material under the guidance in SAB 108. The adoption of this standard did not have a material impact on the Partnership’s consolidated results of operations, cash flows or financial position.

In July 2006, the FASB issued FIN No. 48 “Accounting for Uncertainty in Income Taxes — An Interpretation of FASB Statement 109”, which clarifies the accounting for uncertainty in income taxes recognized in financial statements in accordance with FASB Statement No. 109, “Accounting for Income Taxes” and is effective for fiscal years beginning after December 15, 2006. FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. The adoption of FIN 48 is not expected to have a material impact on the Partnership’s consolidated results of operations, cash flows or financial position.

In January 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities, Including an Amendment of FASB Statement No. 115” (“SFAS 159”), which permits entities to measure many financial instruments and certain other assets and liabilities at fair value on an instrument-by-instrument basis. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007. The Partnership is currently evaluating the potential impacts on its financial position, results of operations or cash flows of the adoption of this standard.

3.   Comprehensive Income (Loss)

Comprehensive income (loss) is the total of (1) net income (loss) plus (2) all other changes in net assets arising from non-owner sources, which are referred to as other comprehensive income. The Partnership has presented a separate statement of other comprehensive income (loss).

4.   Partners’ Capital and Distributions

Initial Public Offering — On February 3, 2006, the Partnership offered and sold 13,750,000 common units, representing a 35.3 percent limited partner interest in the Partnership, in its IPO, at a price of $20.00 per unit. Total proceeds from the sale of the units were $275,000,000, before offering costs and underwriting commissions. The Partnership’s common units began trading on the NASDAQ National Market under the symbol “RGNC.”

Concurrently with the consummation of the IPO, all the member interests in the Predecessor were contributed to the Partnership by Acquisition, an affiliate of HM Capital Partners, in exchange for 19,103,896 subordinated units representing a 49 percent limited partner interest in the Partnership; 5,353,896 common units representing a 13.7 percent limited partner interest in the Partnership; a 2 percent general partner interest in the Partnership; incentive distribution rights; and the right to reimbursement of $195,757,000 of capital expenditures comprising most of the initial investment by Acquisition in the Predecessor.

The proceeds of the Partnership’s IPO were used: to distribute $195,757,000 to Acquisition in reimbursement of its capital investment in the Predecessor and to replenish $48,000,000 of working capital assets distributed to Acquisition immediately prior to the IPO; to pay $9,000,000 to an affiliate of Acquisition to terminate two management services contracts; and to pay $22,000,000 of underwriting commissions, structuring fees and other offering costs. In connection with the IPO, the Partnership incurred direct costs totaling $4,195,000 and has charged these costs against the gross proceeds from the Partnership’s IPO as a reduction to equity in the first quarter of 2006.

F-13

Regency Energy Partners LP

Notes to Consolidated Financial Statements — (Continued)

On March 8, 2006, the Partnership sold an additional 1,400,000 common units at a price of $20.00 per unit as the underwriters exercised a portion of their over allotment option. The net proceeds from the sale were used to redeem an equivalent number of common units held by Acquisition.

Class B Common Units — On August 15, 2006, in connection with the TexStar Acquisition, the Partnership issued 5,173,189 of Class B common units to HMTF Gas Partners as partial consideration for the TexStar Acquisition. The Class B common units have the same terms and conditions as the Partnership’s common units, except that the Class B common units are not entitled to participate in distributions by the Partnership. The Class B common units were converted into common units without the payment of further consideration on a one-for-one basis on February 15, 2007.

Class C Common Units — On September 21, 2006, the Partnership entered into a Class C Unit Purchase Agreement with certain purchasers, pursuant to which the purchasers purchased 2,857,143 Class C common units representing limited partner interests in the Partnership at a price of $21.00 per unit. The Class C common units have the same terms and conditions as the Partnership’s common units, except that the Class C common units are not entitled to participate in distributions by the Partnership. The Class C common units were converted into common units without the payment of further consideration on a one-for-one basis on February 8, 2007.

Distributions — Our partnership agreement requires that, within 45 days after the end of each quarter, we distribute all of the Partnership’s Available Cash (defined below) to unitholders of record on the applicable record date, as determined by the general partner.

Definition of Available Cash  — Available Cash, for any quarter, generally consists of all cash and cash equivalents on hand at the end of that quarter less the amount of cash reserves established by the general partner to: (i) provide for the proper conduct of the Partnership’s business; (ii) comply with applicable law, any debt instruments or other agreements; or (iii) provide funds for distributions to the unitholders and to the general partner for any one or more of the next four quarters and plus, all cash on hand on that date of determination of available cash for the quarter resulting from working capital borrowings made after the end of the quarter for which the determination is being made.

General Partner Interest and Incentive Distribution Rights — The general partner is entitled to 2 percent of all quarterly distributions that the Partnership makes prior to its liquidation. This general partner interest is represented by 954,176 equivalent units as of December 31, 2006. The general partner has the right, but not the obligation, to contribute a proportionate amount of capital to the Partnership to maintain its current general partner interest. The general partner’s initial 2 percent interest in these distributions will be reduced if the Partnership issues additional units in the future and the general partner does not contribute a proportionate amount of capital to the Partnership to maintain its 2 percent general partner interest.

The incentive distribution rights held by the general partner entitles it to receive an increasing share of Available Cash when pre-defined distribution targets are achieved. The general partner’s incentive distribution rights are not reduced if the Partnership issues additional units in the future and the general partner does not contribute a proportionate amount of capital to the Partnership to maintain its 2 percent general partner interest. Please read the Distributions of Available Cash during the Subordination Period and Distributions of Available Cash after the Subordination Period sections below for more details about the distribution targets and their impact on the general partner’s incentive distribution rights.

Subordinated Units  — All of the subordinated units are held by HM Capital Investors. The partnership agreement provides that, during the subordination period, the common units will have the right to receive distributions of Available Cash each quarter in an amount equal to $0.35 per common unit, or the “Minimum Quarterly Distribution,” plus any arrearages in the payment of the Minimum Quarterly Distribution on the common units from prior quarters, before any distributions of Available Cash may be made on the subordinated units. These units are deemed ”subordinated” because for a period of time, referred to as the

F-14

Regency Energy Partners LP

Notes to Consolidated Financial Statements — (Continued)

subordination period, the subordinated units will not be entitled to receive any distributions until the common units have received the Minimum Quarterly Distribution plus any arrearages from prior quarters. Furthermore, no arrearages will be paid on the subordinated units. The practical effect of the subordinated units is to increase the likelihood that during the subordination period there will be Available Cash to be distributed on the common units. The subordination period will end, and the subordinated units will convert to common units, on a one for one basis, when certain distribution requirements, as defined in the partnership agreement, have been met. The earliest date at which the subordination period may end is December 31, 2008 and all of the subordinated units may convert to common units earlier if certain provisions are met for early termination of subordination period. The rights of the subordinated unitholders, other than the distribution rights described above, are substantially the same as the rights of the common unitholders.

Distributions of Available Cash during the Subordination Period  — The partnership agreement requires that we make distributions of Available Cash for any quarter during the subordination period in the following manner:

•  first, 98 percent to the common unitholders, pro rata, and 2 percent to the general partner, until we distribute for each outstanding common unit an amount equal to the Minimum Quarterly Distribution for that quarter;

•  second, 98 percent to the common unitholders, pro rata, and 2 percent to the general partner, until we distribute for each outstanding common unit an amount equal to any arrearages in payment of the Minimum Quarterly Distribution on the common units for any prior quarters during the subordination period;

•  third, 98 percent to the subordinated unitholders, pro rata, and 2 percent to the general partner, until we distribute for each subordinated unit an amount equal to the Minimum Quarterly Distribution for that quarter;

•  fourth, 98 percent to all unitholders, pro rata, and 2 percent to the general partner, until each unitholder receives a total of $0.4025 per unit for that quarter;

•  fifth, 85 percent to all unitholders, pro rata, and 15 percent to the general partner, until each unitholder receives a total of $0.4375 per unit for that quarter;

•  sixth, 75 percent to all unitholders, pro rata, and 25 percent to the general partner, until each unitholder receives a total of $0.525 per unit for that quarter; and

•  thereafter, 50 percent to all unitholders, pro rata, and 50 percent to the general partner.

Distributions of Available Cash after the Subordination Period — The partnership agreement requires that we make distributions of Available Cash from operating surplus for any quarter after the subordination period in the following manner:

•  first, 98 percent to all unitholders, pro rata, and 2 percent to the general partner, until each unitholder receives a total of $0.4025 per unit for that quarter;

•  second, 85 percent to all unitholders, pro rata, and 15 percent to the general partner, until each unitholder receives a total of $0.4375 per unit for that quarter;

•  third, 75 percent to all unitholders, pro rata, and 25 percent to the general partner, until each unitholder receives a total of $0.525 per unit for that quarter; and

•  thereafter, 50 percent to all unitholders, pro rata, and 50 percent to the general partner

Distributions — The Partnership made the following cash distributions during the year ended December 31, 2006.

F-15

Regency Energy Partners LP

Notes to Consolidated Financial Statements — (Continued)

	Cash Distribution
Period	(per unit)
May 15, 2006(1)	$	0.2217
August 14, 2006		0.3500
November 14, 2006(2)		0.3700

(1)	The distribution constitutes the minimum quarterly distribution per Common Unit of $0.3500 (or $1.40 per unit annually), prorated for the period in the first quarter of 2006 since the Partnership’s February 3, 2006 initial public offering.
(2)	Represents the minimum quarterly distribution per Common Unit plus $0.02 per unit excluding the Class B and Class C Common Units which were not entitled to any distributions until after they were converted into Common Units.

5.   Loss per Limited Partner Unit

The following data show the amounts used in computing limited partner loss per unit and the effect on loss and the weighted average number of units of dilutive potential common units for the year ended December 31, 2006.

	(In thousands except
	unit data and
	per unit data)
Net loss for the period from February 1, 2006 through December 31, 2006	$	(8,808	)
Adjustments:
General partner’s equity ownership		(176	)
Limited partners’ interest in net loss	$	(8,632	)
Net loss allocated to common unitholders	$	(4,003	)
Weighted average common limited partner units — basic and diluted		19,103,896
Common limited partners’ basic and diluted loss per unit	$	(0.21	)
Net loss allocated to subordinated unitholders	$	(4,003	)
Weighted average subordinated limited partner units — basic and diluted		19,103,896
Subordinated limited partners’ basic and diluted loss per unit	$	(0.21	)
Net loss allocated to Class B unitholders	$	(626	)
Weighted average Class B common units outstanding		5,173,189
Class B common limited partners’ basic and diluted loss per unit	$	(0.12	)
Net loss allocated to Class C unitholders	$	—
Weighted average Class C common units outstanding		871,817
Class C common limited partners’ basic and diluted loss per unit	$	—

Loss per unit for the year ended December 31, 2006 reflects only the eleven months since the closing of the Partnership’s IPO on February 3, 2006. For convenience, January 31, 2006 has been used as the date of the change in ownership. Accordingly, results for January 2006 have been excluded from the calculation of loss per unit. Potentially dilutive units related to the Partnership’s long-term incentive plan of 909,600 common unit options and 516,500 restricted common units have been excluded from diluted loss per unit as the effect is antidilutive for the year ended December 31, 2006 as the Partnership reported a net loss. Furthermore, while the non-vested (or restricted) units are deemed to be outstanding for legal purposes, they have been excluded from the calculation of basic loss per unit in accordance with SFAS No. 128.

F-16

Regency Energy Partners LP

Notes to Consolidated Financial Statements — (Continued)

In accordance with SFAS 128, the Partnership allocates net income or loss to each class of equity security in proportion to the amount of distributions earned during that period. Because the Class B common units used in the TexStar Acquisition were deemed to be outstanding for all periods presented, a portion of net income or loss was allocated to this class of equity in periods where they were not expressly prohibited from receiving distributions. The Partnership Agreement requires that the general partner shall receive a 100 percent allocation of income until its capital account is made whole for all of the net losses allocated to it in prior tax years.

6.   Acquisitions and Dispositions

2006

TexStar — On August 15, 2006, the Partnership acquired all the outstanding equity of TexStar by issuing 5,173,189 Class B common units valued at $119,183,000, a cash payment of $62,074,000 and the assumption of $167,652,000 of TexStar’s outstanding bank debt. Because the TexStar Acquisition is a transaction between commonly controlled entities, the Partnership accounted for the TexStar Acquisition in a manner similar to a pooling of interests. As a result, the historical financial statements of the Partnership and TexStar have been combined to reflect the historical operations, financial position and cash flows from the date common control began (December 1, 2004) forward.

The following table presents the revenues and net income for the previously separate entities and the combined amounts presented in these audited consolidated financial statements.

							Period from
							Acquisition
							(December 1,
							2004 ) to
	Year Ended December 31,						December 31,
	2006			2005			2004
				(In thousands)
Revenues
Regency Energy Partners	$	812,564		$	692,603		$	47,841
TexStar		84,301			16,798			16
Combined		896,865			709,401			47,857
Net income (loss)
Regency Energy Partners		(1,639	)		(11,224	)		1,464
TexStar		(5,605	)		364			10
Combined	$	(7,244	)	$	(10,860	)	$	1,474

Como — On July 25, 2006, TexStar consummated an Asset Purchase and Sale Agreement (the “Como Acquisition Agreement”) dated June 16, 2006 with Valence Midstream, Ltd. and EEC Midstream, Ltd., under which TexStar acquired certain natural gas gathering, treating and processing assets from the other parties thereto for $81,695,000 including transaction costs. The assets acquired consisted of approximately 59 miles of pipelines and certain specified contracts (the “Como Assets”). The results of operations of the Como Assets have been included in the statements of operations beginning July 26, 2006. The Partnership’s purchase price allocation resulted in $18,493,000 being allocated to property, plant and equipment and $63,202,000 being allocated to intangible assets.

2005

Enbridge — TexStar acquired two sulfur recovery plants, one NGL plant and 758 miles of pipelines in East and South Texas (the “Enbridge Assets”) from Enbridge Pipelines (NE Texas), LP, Enbridge Pipeline (Texas Intrastate), LP and Enbridge Pipelines (Texas Gathering), LP (collectively “Enbridge”) for $108,282,000 inclusive of transaction expenses on December 7, 2005 (the “Enbridge Acquisition”). The

F-17

Regency Energy Partners LP

Notes to Consolidated Financial Statements — (Continued)

Enbridge Acquisition was accounted for using the purchase method of accounting. For convenience, the results of operations of the Enbridge Assets are included in the statements of operations beginning December 1, 2005. The purchase price was allocated to gas plants and buildings ($42,361,000), gathering and transmission systems ($65,002,000) and other property, plant and equipment ($919,000) as of December 1, 2005. TexStar assumed no material liabilities in this acquisition.

The following unaudited pro forma financial information has been prepared as if the acquisition of the Como Assets and Enbridge Assets had occurred at the beginning of each period presented. The pro forma amounts include certain adjustments to historical results of operations including depreciation and amortization expense (based upon the estimated fair values and useful lives of property, plant and equipment). Such unaudited pro forma information does not purport to be indicative of the results of operations that would have been achieved if the transactions to which the Partnership is giving pro forma effect actually occurred on the date referred to above or the results of operations that may be expected in the future.

	Pro Forma Year Ended
	December 31,
	2006			2005
	(In thousands except unit
	and per unit data)
Revenues	$	914,997		$	821,504
Net loss		(8,124	)		(8,722	)
Less net income from January 1-31, 2006		1,564
Net loss for partners		(9,688	)
General partner’s equity ownership		(194	)
Limited partners’ interest in net loss		(9,494	)
Net loss allocated to common unitholders	$	(4,403	)
Weighted average common units-basic and diluted		19,103,896
Basic and diluted loss per common unit	$	(0.23	)
Net loss allocated to subordinated unitholders	$	(4,403	)
Weighted average subordinated units-basic and diluted		19,103,896
Basic and diluted loss per subordinated unit	$	(0.23	)
Net loss allocated to Class B unitholders	$	(688	)
Weighted average Class B units-basic and diluted		5,173,189
Basic and diluted loss per Class B unit	$	(0.13	)
Net loss allocated to Class C unitholders	$	—
Weighted average Class C units-basic and diluted		871,817
Basic and diluted loss per Class C unit	$	—

Other 2005 Acquisitions — The Partnership made several other asset acquisitions during the year ended December 31, 2005. These individually immaterial acquisitions, when aggregated, are not material to the financial position or results of operations of the Partnership.

2004

Acquisition of Regency Gas Services LLC by the HM Capital Investors — On December 1, 2004, Acquisition completed the HM Capital Transaction. Equity funding for the HM Capital Transaction was provided by funds managed by HM Capital Partners and other investors, including directors and members of the Partnership’s management (collectively, “HM Capital Investors”).

F-18

Regency Energy Partners LP

Notes to Consolidated Financial Statements — (Continued)

The HM Capital Transaction was effected pursuant to a Purchase and Sale Agreement (“PSA”) dated October 21, 2004 among Regency Acquisition, as the purchaser, and, among others, Seller, the owner of the member interests. The aggregate purchase price was $419,562,000, including transaction costs of $8,227,000. The purchase price was funded primarily through $243,036,000 of term loans, net of issuance costs, to the Partnership and $171,000,000 of equity investments by the Parent. Pursuant to the PSA, a liability in the amount of $5,808,000 was recorded at December 31, 2004 to reflect a post-closing adjustment to the purchase price primarily for working capital adjustments. The Partnership paid this amount in February 2005.

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition.

	At December 1,
	2004
	(In thousands)
Current assets	$	65,434
Property, plant and equipment		331,622
Definite lived intangible assets		18,517
Goodwill		58,783
Total assets acquired		474,356
Less: current liabilities		54,794
Net assets acquired	$	419,562

As part of the PSA, $12,500,000 of the purchase price was transferred to an escrow account. The escrow was paid in full in June 2006 in accordance with the PSA.

Cardinal Gas Services — On April 1, 2004, the Regency LLC Predecessor completed the purchase of gas processing and treating assets located in Louisiana and Texas from Cardinal Gas Services LLC for $3,533,000 of cash. The value of assumed liabilities was immaterial. Subsequent to the purchase, the assets were contributed to a new subsidiary operating as Regency Gas Treating LP. These assets consisted of Joule-Thompson and refrigeration gas processing equipment, amine gas treating equipment and contracts to provide processing and treating services. The equipment removes impurities and natural gas liquids from natural gas, resulting in the natural gas meeting standards required by transmission pipeline operators. After the acquisition, additional capacity was added.

Soon after the acquisition, the Regency LLC Predecessor determined that these assets were not core to its operations and classified these assets as held for sale on the balance sheet at December 31, 2004. On May 2, 2005, the Partnership sold the assets of Regency Gas Treating LP for $6,000,000. After the allocation of $977,000 of goodwill, the resulting gain was $626,000.

F-19

Regency Energy Partners LP

Notes to Consolidated Financial Statements — (Continued)

The Partnership has treated Regency Gas Treating LP as a discontinued operation, the results of which are shown below.

					Regency
					LLC
	Regency Energy Partners LP				Predecessor
			Period from
			Acquisition		Period From
	Year Ended		(December 1, 2004)		January 1, 2004
	December 31,		to December 31,		to November 30,
	2005		2004		2004
	(In thousands)
Equipment lease revenue	$	335	$	68	$	457
Operating income		186		18		59
Net income (loss)		732		—		(121	)
Gain on disposal		626		—		—

Waha — On March 1, 2004, Regency LLC Predecessor completed the purchase of gathering, processing, and treating assets in west Texas from Duke Energy Field Services LP (“Duke”) for $67,264,000 of cash and $1,000,000 in assumed liabilities, including transaction costs. The facilities, known as the Waha system, consist of more than 750 miles of pipeline, 42,000 horsepower of compression, and gas processing and treating capacities of 125 MMcf/d. The assets are owned and operated by Regency Gas Services Waha, LP, a wholly owned subsidiary of the Regency LLC Predecessor. The purchase accounting method resulted in an allocation of the total purchase price to property, plant and equipment with no goodwill or intangible assets.

The following unaudited pro forma financial information has been prepared as if the acquisition of the Waha assets had occurred at the beginning of the period presented. The pro forma amounts include certain adjustments to historical results of operations including depreciation and amortization expense (based upon the estimated fair values and useful lives of property, plant and equipment). Such unaudited pro forma information does not purport to be indicative of the results of operations that would have been achieved if the transactions to which the Partnership is giving pro forma effect actually occurred on the date referred to above or the results of operations that may be expected in the future. Pro forma revenue and net income for the 11 month period ended November 30, 2004 was $454,100,000 and $21,100,000 respectively.

7.   Risk Management Activities

Effective July 1, 2005, Regency Gas Services LLC elected hedge accounting for its ethane, propane, butane and natural gasoline swaps, as well as for its interest rate swaps. These contracts are accounted for as cash flow hedges under SFAS No. 133, as amended. Prior to the election of hedge accounting, realized and unrealized losses of $16,226,000 were recorded as a charge against revenue during the six month period ended June 30, 2005. No amounts were recorded to the statement of operations for the years ended December 31, 2006 and 2005 for hedge ineffectiveness.

As of December 31, 2006, the Partnership’s hedging positions accounted for as cash flow hedges reduce exposure to variability of future commodity prices through 2009. The Partnership expects to reclassify $1,065,000 of net losses into earnings from other comprehensive income (loss) in the next twelve months. The net fair value of risk management activities was an asset of $8,000 and a liability of $13,157,000 as of December 31, 2006 and 2005.

Upon the early termination of an interest rate swap in June 2006 with a notional debt amount of $200,000,000 that was effective from April 2007 through March 2009, the Partnership received $3,550,000 in cash from the counterparty. The Partnership issued in a private placement $550,000,000 of senior notes that accrue interest at a fixed rate of 8.375 percent in December 2006, which results in only $50,000,000 remaining outstanding under the term credit facility. The Partnership reclassified $2,663,000 from accumulated

F-20

Regency Energy Partners LP

Notes to Consolidated Financial Statements — (Continued)

other comprehensive income (loss) to interest expense, net in December 2006 related to the portion of the forecasted transaction that is probable of not occurring.

In December 2006, the Partnership terminated two interest rate swaps totaling a notional debt amount of $200,000,000 that was effective until March 2007 and received $1,390,000 in cash from the counterparties. Since the forecasted hedge transaction of $150,000,000 floating rate debt is no longer probable of occurring, the Partnership reclassified $1,199,000 from accumulated other comprehensive income (loss) to interest expense, net in December 2006.

8.   Long-term Debt

Obligations in the form of senior notes, and borrowings under the credit facilities are as follows.

	December 31, 2006			December 31, 2005
	(In thousands)
Senior notes	$	550,000		$	—
Term loans		50,000			308,350
Term loans — TexStar		—			70,000
Revolving loans		64,700			50,000
HM Capital Partners promissory note — TexStar		—			600
Total		664,700			428,950
Less: current portion		—			(700	)
Long-term debt	$	664,700		$	428,250
Availability
Total Facility Limit	$	300,000		$	468,350
Term loans		(50,000	)		(308,350	)
Revolver loans		(64,700	)		(50,000	)
Letters of credit		(5,183	)		(10,700	)
Total	$	180,117		$	99,300
Total Facility Limit — TexStar	$	—		$	85,000
Term loans		—			(70,000	)
Revolver loans		—			—
Letters of credit		—			—
Total	$	—		$	15,000

F-21

Regency Energy Partners LP

Notes to Consolidated Financial Statements — (Continued)

Long-term debt maturities as of December 31, 2006 for each of the next five years are as follows.

	Amount
	(In thousands)
2007	$	—
2008		—
2009		—
2010		—
2011		64,700
Thereafter		600,000
Total	$	664,700

During the year ended December 31, 2006 the Partnership borrowed $195,300,000 under the revolving credit facility, primarily to fund capital expenditures and temporarily finance the TexStar Acquisition. During the same period, it repaid $180,600,000 of these borrowings with the proceeds from term loans and private equity offering proceeds. During the year ended December 31, 2005, the Partnership borrowed $85,500,000 and repaid $35,500,000 under the revolving credit facility.

Senior Notes — On December 12, 2006, the Partnership and Regency Energy Finance Corp. (“Finance Corp”), a wholly-owned subsidiary of RGS, issued $550,000,000 senior notes that mature on December 15, 2013 in a private placement (“Senior Notes”). The Senior Notes bear interest at 8.375 percent and interest is payable semi-annually in arrears on each June 15 and December 15, commencing on June 15, 2007.

The Senior Notes and the guarantees are unsecured and rank equally with all of the Partnership’s and the guarantors’ existing and future unsubordinated obligations. The Senior Notes and the guarantees will be senior in right of payment to any of the Partnership’s and the guarantors’ future obligations that are, by their terms, expressly subordinated in right of payment to the notes and the guarantees (explained below). The Senior Notes and the guarantees will be effectively subordinated to the Partnership’s and the guarantors’ secured obligations, including the Partnership’s Credit Facility, to the extent of the value of the assets securing such obligations.

The notes are initially guaranteed by each of the Partnership’s current subsidiaries (the Guarantors), except Finance Corp. These note guarantees are the joint and several obligations of the Guarantors. A Guarantor may not sell or otherwise dispose of all or substantially all of its properties or assets if such sale would cause a default under the terms of the senior notes. Events of default include nonpayment of principal or interest when due; failure to make a change of control offer (explained below); failure to comply with reporting requirements according to SEC rules and regulations; and defaults on the payment of obligations under other mortgages or indentures.

The Partnership may redeem the Senior Notes, in whole or in part, at any time on or after December 15, 2010, at a redemption price equal to 100 percent of the principal amount thereof, plus a premium declining ratably to par and accrued and unpaid interest and liquidated damages, if any, to the redemption date. At any time before December 15, 2010, the Partnership may redeem some or all of the notes at a redemption price equal to 100 percent of the principal amount plus a make-whole premium, plus accrued and unpaid interest and liquidated damages, if any, to the redemption date. At any time before December 15, 2009, the Partnership may redeem up to 35 percent of the aggregate principal amount of the notes issued under the indenture with the net cash proceeds of one or more qualified equity offerings at a redemption price equal to 108.375 percent of the principal amount of the notes to be redeemed, plus accrued and unpaid interest and liquidated damages, if any, to the redemption date; provided that: (i) at least 65 percent of the aggregate principal amount of the notes remains outstanding immediately after the occurrence of such redemption; and (ii) such redemption occurs within 90 days of the date of the closing of any such qualified equity offering.

F-22

Regency Energy Partners LP

Notes to Consolidated Financial Statements — (Continued)

Upon a change of control, each holder of notes will be entitled to require us to purchase all or a portion of its notes at a purchase price equal to 101 percent of the principal amount thereof, plus accrued and unpaid interest and liquidated damages, if any, to the date of purchase. The Partnership’s ability to purchase the notes upon a change of control will be limited by the terms of the Partnership’s debt agreements, including the Credit Facility.

The Senior Notes contain covenants that, among other things, limit the Partnership’s ability and the ability of certain of the Partnership’s subsidiaries to: (i) incur additional indebtedness; (ii) pay distributions on, or repurchase or redeem equity interests; (iii) make certain investments; (iv) incur liens; (v) enter into certain types of transactions with affiliates; and (vi) sell assets or consolidate or merge with or into other companies. If the Senior Notes achieve investment grade ratings by both Moody’s and S&P and no default or event of default has occurred and is continuing, the Partnership and its restricted subsidiaries will no longer be subject to many of the foregoing covenants.

The Senior Notes have a registration rights agreement whereby the Partnership agrees to: (i) file a registration statement within 150 days of the issue date, enabling Senior Notes holders to exchange the privately placed notes for publicly registered exchange notes with substantially the same terms; (ii) use commercially reasonable efforts to cause the registration statement to become effective within 310 days of the issue date; (iii) use commercially reasonable efforts to issue the exchange notes within 30 business days after the registration statement has become effective, unless prohibited by law or SEC policy; and (iv) file a shelf registration statement for the resale of the Senior Notes if the Partnership cannot consummate the exchange offer within the time period listed above and in certain other circumstances. The Partnership has agreed to pay liquidated damages in the form of additional interest payments, subject to a maximum of one percent per year, to holders of the Senior Notes under certain circumstances if the Partnership does not comply with its obligations under the registration rights agreement.

Finance Corp. does not have any operations of any kind and will not have any revenue other than as may be incidental as a co-issuer of the Senior Notes. Since the Partnership has no independent operations, the guarantees are full and unconditional and joint and several and there are no subsidiaries of the Partnership that do not guarantee the Senior Notes, the Partnership has not included condensed consolidated financial information of guarantors of the Senior Notes.

Original Credit Facility — In May 2003 the Regency LLC Predecessor entered into a credit facility under which the lenders provided a $10,000,000 revolving credit facility and a $70,000,000 term loan facility for the principal purpose of financing the acquisition of the mid-continent and north Louisiana assets. On March 1, 2004, the Regency LLC Predecessor amended the credit facility to provide a $30,000,000 revolving credit facility and an $110,000,000 term loan facility for the principal purpose of financing the acquisition of the Waha assets. The revolving credit facility had a $15,000,000 sublimit for the issuance of letters of credit. Simultaneously with the March 1, 2004 amendment, the Regency LLC Predecessor expensed $1,400,000 of debt issuance costs in accordance with EITF No. 96-19 “Debtor’s Accounting for a Modification or Exchange of Debt Instrument” and EITF No. 98-14, “Debtor’s Accounting for Changes in Line-of-Credit or Revolving-Debt Arrangements.” On December 1, 2004, the Regency Gas Services LLC terminated this credit facility and a $55,000,000 notional interest rate swap contract. The outstanding debt of $101,471,000 of term loans and $13,000,000 of revolving loans were repaid and the remaining debt issuance costs of $1,600,000 were expensed. Regency Gas Services LLC entered into the New Credit Facility on December 1, 2004.

New Credit Facility — The Partnership had two credit facilities with an aggregate capacity of $290,000,000 outstanding as of December 31, 2004. Under the agreements, the Partnership had a $40,000,000 revolving credit facility and a $250,000,000 term loan facility.

Substantially all of the Regency Gas Services LLC’s assets were pledged as collateral under the credit agreements. Covenants within the credit agreements required the maintenance of total leverage ratios, interest

F-23

Regency Energy Partners LP

Notes to Consolidated Financial Statements — (Continued)

coverage ratios, and annual capital expenditures within stated limits. The credit facilities restricted payment of dividends to Regency Acquisition and the Parent, but allowed for the reimbursement of tax, legal, accounting, and filing costs incurred by those entities with certain limitations. No such dividends were made. If the Regency Gas Services LLC issued debt or equity securities, the agreements required a repayment of amounts borrowed equal to 100 percent of the net cash proceeds of an issuance of debt securities and 50 percent of the net cash proceeds of an issuance of equity securities. After December 31, 2005, payments of principal in addition to scheduled principal payments were required if certain excess cash flows tests were met.

In July 2005, Regency Gas Services LLC amended its credit agreement, increasing the available term loans to $308,350,000 from $249,000,000, increasing the available revolving loans to $150,000,000 from $40,000,000, and available letters of credit to $30,000,000 from $20,000,000. The $308,350,000 consists of first lien term loans of $258,350,000 and second lien term loans of $50,000,000. Letters of credit, to the extent issued, reduced the amount available for revolving loans. Interest was charged at LIBOR or the Alternate Base Rate (“ABR”) (equivalent to the US prime lending rate) plus an applicable margin, which is equivalent to the rates charged prior to this amendment.

In connection with the amendments of the credit agreement, the Parent contributed $15,000,000 of additional equity on July 25, 2005. Upon closing of the amended credit agreements, the Regency Gas Services LLC borrowed an additional $25,000,000 of term loans. The outstanding revolver debt of $10,000,000 was repaid, consistent with the refinancing plan, which included the above mentioned equity infusion and the additional term loan. In September 2005 Regency Gas Services LLC borrowed the remaining $35,000,000 against the term loan commitments.

The quarterly principal payment schedule was amended to require 0.25 percent of the original principal of any additional term loans in addition to the $500,000 quarterly principal payments associated with the original term loans. The term loans were originally issued as $260,000,000 of first lien debt and $50,000,000 of second lien debt. During 2005, Regency Gas Services LLC repaid $1,650,000 of these term loans. Under the agreement, term loans may not be re-borrowed once repaid. The rate paid on the second lien term notes was 3.25 percent greater than the rate paid on the first lien term notes. The term loans matured in two tranches, with principal repayments of $246,700,000 due on June 1, 2010 and $50,000,000 due on December 1, 2010. Commitments for the revolving credit facility were set to expire on July 26, 2010. If letters of credit were issued, fees were paid on the outstanding letter of credit balance at the rate of 2.88 percent or lower if the credit quality improved.

Loans under the credit agreements bear interest on the outstanding balances of term debt and revolver debt at either LIBOR plus margin or at the ABR plus margin, or a combination of both. The weighted average interest rate for the two term loan facilities, including the interest rate swap settlements, was 6.75 percent for the year ended December 31, 2005. The effective interest rate for the revolving loans for the period was 7.57 percent. The weighted average effective rate for the term loans and revolving loans was 6.76 percent for the year ended December 31, 2005. A commitment fee on the undrawn revolver balance was charged at an annual rate of 0.5 percent.

Covenants within the credit agreement require maintaining interest rate protection on at least one-half of its outstanding debt for a minimum of two years. In January 2005, the Partnership entered into an interest rate swap contract, effectively fixing the interest rate on $125,000,000 of the term loan borrowings at 6.47 percent for a period of two years. Following the July 2005 amendment of its credit facilities, the Partnership entered into additional interest rate swaps that effectively fix the interest rate on $200,000,000 of LIBOR based term loans at 6.70 percent through March 2007 and at 7.36 percent through March 2009.

In accordance with EITF No. 96-19 “Debtor’s Accounting for a Modification or Exchange of Debt Instrument” and EITF No. 98-14, “Debtor’s Accounting for Changes in Line-of-Credit or Revolving-Debt Arrangements,” Regency Gas Services LLC treated the amendments as an extinguishment and reissuance of

F-24

Regency Energy Partners LP

Notes to Consolidated Financial Statements — (Continued)

debt, thereby recognizing a loss in 2005 on such transaction due to the expensing of $7,724,000, consisting of $5,800,000 of unamortized debt issuance costs and $1,924,000 paid in July 2005 in connection with the credit facility amendment.

On November 30, 2005, Regency Gas Services LLC amended the credit facilities, increasing the first-lien term loan commitments by $50,000,000 to $308,350,000 from $258,350,000, immediately using the increased amount to convert the higher cost $50,000,000 second-lien borrowing into a first-lien term loan. Repayments of term loan principal are now deferred until the maturity date of June 1, 2010. The interest rate applied to the resulting first-lien loan balance, as well as the rate charged for letters of credit, was reduced by 0.5 percent. Interest on borrowings is calculated at either an adjusted LIBOR plus an applicable margin of 2.25 percent per annum or a base rate plus an applicable margin of 1.25 percent per annum, depending on the election made at the time of the borrowing. A commitment fee of 0.5 percent is charged on the unused portion of the revolving loan commitments. An aggregate rate of 2.375 percent per annum on the average daily outstanding balance is charged on letters of credit. Payments for interest on term loans, commitment fees, and letters of credit are made at the end of each calendar quarter.

Revolving-debt commitments increased to $160,000,000 from $150,000,000, and the amount available for letters of credit increased to $50,000,000 from $30,000,000. Letters of credit, to the extent issued, reduce the amount available for revolving loans. The amended and restated credit agreement also includes an option to increase the term loan commitments on up to four separate occasions in an aggregate amount not to exceed $40,000,000. Substantially all of the Regency Gas Services LLC’s assets are pledged as collateral under the credit agreement. The credit facility contains financial covenants requiring us to maintain debt to adjusted EBITDA and adjusted EBITDA to interest expense ratios within certain thresholds. At December 31, 2006 and 2005, the Partnership was in compliance with these covenants.

In accordance with EITF No. 96-19, “Debtor’s Accounting for a Modification or Exchange of Debt Instrument” and EITF No. 98-14, “Debtor’s Accounting for Changes in Line-of-Credit or Revolving-Debt Arrangements,” the Partnership recorded a charge of $756,000 in the fourth quarter of 2005 related to the extinguishment of its $50,000,000 second-lien credit facility and amendment of the first-lien credit agreement.

Fourth Amended and Restated Credit Agreement — In connection with the TexStar Acquisition, RGS amended and restated its $470,000,000 credit agreement, increasing the facility to $850,000,000 consisting of $600,000,000 in term loans and $250,000,000 in a revolving credit facility. The availability for letters of credit was increased to $100,000,000. RGS has the option to increase the commitments under the revolving credit facility or the term loan facility, or both, by an amount up to $200,000,000 in the aggregate, provided that no event of default has occurred or would result due to such increase, and all other additional conditions for the increase of the commitments set forth in the Fourth Amended and Restated Credit Agreement (“Credit Facility”) have been met.

RGS’ obligations under the Credit Facility are secured by substantially all of the assets of RGS and its subsidiaries and are guaranteed by the Partnership and each such subsidiary. The revolving loans under the facility will mature in five years, and the term loans thereunder will mature in seven years.

Interest on term loan borrowings under the Credit Facility will be calculated, at the option of RGS, at either: (a) a base rate plus an applicable margin of 1.50 percent per annum or (b) an adjusted LIBOR rate plus an applicable margin of 2.50 percent per annum. Interest on revolving loans thereunder will be calculated, at the option of RGS, at either: (a) a base rate plus an applicable margin of 1.00 percent per annum or (b) an adjusted LIBOR rate plus an applicable margin of 2.00 percent per annum. RGS must pay (i) a commitment fee equal to 0.50 percent per annum of the unused portion of the revolving loan commitments, (ii) a participation fee for each revolving lender participating in letters of credit equal to 2.25 percent per annum of the average daily amount of such lender’s letter of credit exposure, and (iii) a fronting fee to the issuing bank

F-25

Regency Energy Partners LP

Notes to Consolidated Financial Statements — (Continued)

of letters of credit equal to 0.125 percent per annum of the average daily amount of the letter of credit exposure.

The Credit Facility contains financial covenants requiring RGS and its subsidiaries to maintain debt to EBITDA and EBITDA to interest expense within certain threshold ratios. At December 31, 2006, RGS and its subsidiaries were in compliance with these covenants.

The Credit Facility restricts the ability of RGS to pay dividends and distributions other than reimbursements of the Partnership for expenses and payment of dividends to the Partnership to the extent of the Partnership’s determination of available cash (so long as no default or event of default has occurred or is continuing). The Credit Facility also contains various covenants that limit (subject to certain exceptions and negotiated baskets), among other things, the ability of RGS (but not the Partnership):

•  to incur indebtedness;

•  to grant liens;

•  to enter into sale and leaseback transactions;

•  to make certain investments, loans and advances;

•  to dissolve or enter into a merger or consolidation;

•  to enter into asset sales or make acquisitions;

•  to enter into transactions with affiliates;

•  to prepay other indebtedness or amend organizational documents or transaction documents (as defined in the Credit Facility);

•  to issue capital stock or create subsidiaries; or

•  to engage in any business other than those businesses in which it was engaged at the time of the effectiveness of the Credit Facility or reasonable extensions thereof.

The outstanding balances of term debt and revolving debt under the Credit Facility bear interest at either LIBOR plus margin or at Alternative Base Rate (equivalent to the US prime lending rate) plus margin, or a combination of both. The weighted average interest rates for the revolving and term loan facilities, including interest rate swap settlements, commitment fees, and amortization of debt issuance costs were 7.70 percent, 6.57 percent and 6.76 percent for the years ended December 31, 2006, 2005 and 2004.

In accordance with EITF No. 96-19, “Debtor’s Accounting for a Modification or Exchange of Debt Instrument” and EITF No. 98-14, “Debtor’s Accounting for Changes in Line-of-Credit or Revolving-Debt Arrangements,” the Partnership treated the amendment of the Credit Facility as an extinguishment and reissuance of debt, and therefore recorded a charge to loss on debt refinancing in the year ended December 31, 2006 of $5,626,000.

HMTF Gas Partners Promissory Note — On February 18, 2005, TexStar issued a $600,000 promissory note to HM Capital Partners. The promissory note bore interest at 8.5 percent and was repaid in full during the year ended December 31, 2006.

TexStar Loan Agreement — On December 6, 2005, TexStar entered into a credit agreement with a third party financial institution to provide financing for the Enbridge Acquisition. The credit agreement provided for a term loan facility in the principal amount of $70,000,000 and a revolving credit facility in the amount of $15,000,000. The credit agreement also provided for letters of credit in varying amounts not to exceed the unused borrowing base of the revolving credit facility. As of December 31, 2005, there were no letters of

F-26

Regency Energy Partners LP

Notes to Consolidated Financial Statements — (Continued)

credit outstanding. The credit agreement provided for swingline loans not to exceed $3,750,000 on the unused borrowing of the revolving credit facility.

The term, revolving credit facility and swingline loans bear various interest rates based upon the Alternative Base Rate (“ABR”), as defined in the credit agreement dated December 6, 2005, plus an applicable margin, as defined by the credit agreement, which was adjusted based upon TexStar’s leverage ratio. The credit agreement also provided an interest rate option tied to a London Inter-Bank Offer Rate (“LIBOR”), plus the applicable margin. At December 31, 2005, the applicable margin for the term loan facility was 2.25 percent for the ABR based loans and 3.25 percent for the LIBOR based loans.

The term loan facility and the revolving credit facility accrued interest at rates ranging from an average 7.71 percent for the term loan facility to 9.25 percent for the revolving credit facility during the period from December  7, 2005 to December 31, 2005. Commitment fees of 0.25 percent to 0.50 percent per annum on the unused portion of the loan up to the conversion date are required. The total commitment fees paid during 2005 were immaterial.

The term loan facility and revolving credit facility are collateralized by substantially all of the TexStar assets. TexStar was required to comply with various restrictive covenants contained in the loan agreement which included maintaining specific debt and interest coverage. The credit agreement also restricted payment of dividends, asset sales, sale leaseback transactions, acquisitions, mergers and consolidations, capital expenditures, and creation of liens and limits additional indebtedness. If TexStar issued debt, preferred stock or equity securities, the credit agreement required a repayment of amounts borrowed equal to 100 percent of the net cash proceeds of an issuance of debt securities or preferred stock and 50 percent of the net cash proceeds of an issuance of equity securities. TexStar was in compliance with its debt covenants as of December 31, 2005.

Upon the completion of the TexStar Acquisition, the Partnership terminated the TexStar loan agreement and recorded a $5,135,000 loss on the extinguishment of this debt.

9.   Other Assets

Intangible assets, net — Intangible assets, net consist of the following. The weighted average amortization period for permits and licenses is fifteen years and customer contracts are twenty eight years.

							Regency Gas
							Treating LP
	Permits and			Customer			Discontinued
	Licenses			Contracts			Operations			Total
	(In thousands)
Balance at January 1, 2005	$	11,818		$	6,406		$	118		$	18,342
Amortization		(778	)		(1,076	)		—			(1,854	)
Disposals		—			—			(118	)		(118	)
Balance at December 31, 2005		11,040			5,330			—			16,370
Additions		—			63,202			—			63,202
Amortization		(793	)		(1,856	)		—			(2,649	)
Balance at December 31, 2006	$	10,247		$	66,676		$	—		$	76,923

F-27

Regency Energy Partners LP

Notes to Consolidated Financial Statements — (Continued)

The expected amortization of the intangible assets for each of the five succeeding years is as follows.

For the Year Ending December 31,	Total
	(In thousands)
2007		3,923
2008		3,261
2009		3,261
2010		3,261
2011		3,261

Investment in Unconsolidated Subsidiaries — The Partnership has a 50 percent interest in the Palafox Joint Venture (“Palafox”). The Partnership recorded $2,181,000 in investments in unconsolidated subsidiaries for the amount paid for Palafox in excess of its ownership percentage in the underlying net assets. This excess of the investment over the underlying carrying value is being amortized over the estimated useful life of the underlying assets of 20 years. At December 31, 2006 and 2005, the net unamortized excess of the Partnership’s investments in Palafox was $1,918,000 and $2,027,000, respectively. The amortization expense for the years ended December 31, 2006, 2005 and 2004 was $109,000, $109,000 and $45,000, respectively. The estimated amortization expense for each of the next five years is $109,000.

Goodwill — Goodwill consists of the following.

					Regency Gas
					Treating LP
	Gathering and				Discontinued
	Processing		Transportation		Operations			Total
	(In thousands)
Balance at January 1, 2005	$	23,309	$	34,243	$	977		$	58,529
Disposals		—		—		(977	)		(977	)
Balance at December 31, 2005		23,309		34,243		—			57,552
Additions		—		—		—			—
Balance at December 31, 2006	$	23,309	$	34,243	$	—		$	57,552

10.   Fair Value of Financial Instruments

The estimated fair value of financial instruments was determined using available market information and valuation methodologies. The carrying amount of cash and cash equivalents, accounts receivable and accounts payable approximates fair value due to their short-term maturities. Restricted cash and related escrow payable approximate fair value due to the relatively short-term settlement period of the escrow payable. Risk management assets and liabilities are carried at fair value. Long-term debt other than the Senior Notes was comprised of borrowings under which, at December 31, 2006 and 2005, accrued interest under a floating interest rate structure. Accordingly, the carrying value approximates fair value for the long term debt amounts outstanding. The fixed interest rate for the Senior Notes was established in December 2006 and accordingly the carrying value approximates fair value as of December 31, 2006.

F-28

Regency Energy Partners LP

Notes to Consolidated Financial Statements — (Continued)

11.   Leases

The Partnership leases office space and certain equipment for various periods. In the normal course of business, office space leases will likely be renewed or replaced by other leases. The Partnership has determined that its leases are classified as operating leases. The following table is a schedule of future minimum lease payments for operating leases that had initial or remaining noncancelable lease terms in excess of one year as of December 31, 2006.

For the Year Ended December 31,	Amount
	(In thousands)
2007	$	619
2008		492
2009		183
2010		144
2011		—
2012 and beyond		—
Total Minimum Lease Payments	$	1,438

Total rent expense for operating leases, including those leases with terms of less than one year, was $1,721,000, $1,430,000, and $1,533,000 for the years ended December 31, 2006, 2005 and 2004, respectively. The Partnership subleases office space from an affiliate. The lease is classified as an operating lease and provides for minimum annual rentals of $148,000 through September 2010, plus contingent rentals based on a fixed allocation of operating expenses.

12.   Commitments and Contingencies

Legal — The Partnership is involved in various claims and lawsuits incidental to its business. In the opinion of management, these claims and lawsuits in the aggregate will not have a material adverse effect on the business, financial condition, results of operations or cash flows.

Escrow Payable — At December 31, 2006, $5,783,000 remained in escrow pending the completion by El Paso Field Services, LP (“El Paso”) of environmental remediation projects pursuant to the purchase and sale agreement (“El Paso PSA”) related to the assets in north Louisiana and in the mid-continent area. In the El Paso PSA, El Paso indemnified the Regency LLC Predecessor against losses arising from pre-closing and known environmental liabilities subject to a limit of $84,000,000 and subject to certain deductible limits. Upon completion of a Phase II environmental study, Regency LLC Predecessor notified El Paso of remediation obligations amounting to $1,800,000 with respect to known environmental matters and $3,600,000 with respect to pre-closing environmental liabilities. Upon satisfactory completion of the remediation by El Paso, the amount held in escrow will be released. These contractual rights of Regency LLC Predecessor were continued by the Partnership unaffected by the HM Capital Transaction and the Partnership’s IPO.

Environmental — Waha Phase I. A Phase I environmental study was performed on the Waha assets in connection with the pre-acquisition due diligence process in 2004. Most of the identified environmental contamination had either been remediated or was being remediated by the previous owners or operators of the properties. The estimated potential environmental remediation costs at specific locations were $1,900,000 to $3,100,000. No governmental agency has required that the Partnership undertakes these remediation efforts. Management believes that the likelihood that it will be liable for any significant potential remediation liabilities identified in the study is remote. Separately, the Partnership acquired an environmental pollution liability insurance policy in connection with the acquisition to cover any undetected or unknown pollution discovered in the future. The policy covers clean-up costs and damages to third parties, and has a 10-year term (expiring 2014) with a $10,000,000 limit subject to certain deductibles.

F-29

Regency Energy Partners LP

Notes to Consolidated Financial Statements — (Continued)

TCEQ Notice of Enforcement — In November 2004, the Texas Commission on Environmental Quality, or TCEQ, sent a Notice of Enforcement, or NOE, to the Regency LLC Predecessor relating to the operation of the Waha processing plant in 2001 before it was acquired. The Partnership settled this NOE with the TCEQ in November 2005 for an immaterial amount.

Regardless of the allegations in the NOE, the air emissions at the Waha processing plant would have been considered “grandfathered;” and therefore not subject to more stringent emission limitations, only until 2007. In anticipation of the expiration of the facility’s “grandfathered” status and regardless of the outcome of the NOE, in February 2005 the Partnership submitted an application to the TCEQ for a state air permit for the Waha plant predicated on the use of acid gas reinjection for air emission control and, after completion of the well and facilities, the reinjection of the previously emitted gases. The well was completed in March 2007 pursuant to an extension granted by the TCEQ.

Regulatory Environment — In August 2005, Congress enacted and the President signed the Energy Policy Act of 2005. With respect to the oil and gas industry, the new legislation focuses on the exploration and production sector, interstate pipelines, and refinery facilities. In many cases, the Act requires action by various government agencies over the near to mid-term. Management is unable to determine what impact, if any, the Act will have on its operations and cash flows.

13.   Related Party Transactions

Prior to HM Capital Transaction

On April 1, 2004, the Regency LLC Predecessor acquired Cardinal Gas Services LLC (now classified as a discontinued operation), a gas treating and processing business, for total cash consideration of $3,533,000. Three former executive officers of the Regency LLC Predecessor owned a portion of the equity interest in Cardinal Gas Services LLC.

The Regency LLC Predecessor paid $183,000 in management fees in 2004 for corporate development and administrative services to Charlesbank Capital Partners LLC, an affiliate of the Regency LLC Predecessor prior to the HM Capital Transaction.

The Regency LLC Predecessor had consulting contracts in place with two former directors. The contracts have been terminated and the amounts paid under these contracts in 2004 were not material to the Regency LLC Predecessor’s results of operations.

The equity interests of the members of Regency Services LLC, some of whom were formerly directors of the Regency LLC Predecessor, were sold as a result of the HM Capital Transaction.

Subsequent to the HM Capital Transaction

Upon the completion of the HM Capital Transaction, an advisory transaction fee of $6,083,000 was paid to an affiliate of HM Capital Partners, by Regency Acquisition LLC. This amount is included in the purchase price and was allocated to the assets. Management and financial advisory fees in the amount of $1,073,000 were paid to an affiliate of HM Capital Partners in the year ended December 31, 2005, and $83,000 for the month of December 2004. Concurrent with the closing of the Partnership’s IPO, the Partnership paid $9,000,000 to an affiliate of HM Capital Partners to terminate a management services contract with a remaining tenor of 9 years. TexStar entered into a management services contract with HM Capital Partners on July 30, 2004 with a term expiring on July 30, 2009. TexStar paid $361,000, $13,000 and $1,000 to HM Capital Partners for the years ended December 31, 2006, 2005 and 2004. In connection with the acquisition of TexStar, the Partnership paid $3,542,000 to terminate TexStar’s management services contract.

Under an omnibus agreement, Regency Acquisition LP, the entity that owns the Managing General Partner and the General Partner, agreed to indemnify the Partnership in an aggregate not to exceed

F-30

Regency Energy Partners LP

Notes to Consolidated Financial Statements — (Continued)

$8,600,000, generally for three years after February 3, 2006, for certain environmental noncompliance and remediation liabilities associated with the assets transferred to the Partnership and occurring or existing before that date. To date, no claims have been made against the omnibus agreement.

BlackBrush Oil & Gas, LP (“BBOG”), an affiliate of the Partnership, is a shipper on the Partnership’s gas gathering and processing system and is a shipper on the gathering system of the Palafox Joint Venture. In connection with the TexStar Acquisition, BBOG entered into an agreement providing for the long term dedication to TexStar of the production from its leases. The Partnership acquired compressors from BBOG for $1,800,000 on January 31, 2005. The purchase price exceeded book value by $1,152,000. Since BBOG and the Partnership are commonly controlled by HMTF Gas Partners, the excess amount was recorded as an acquisition of assets under common control.

BlackBrush Energy, Inc., a wholly owned subsidiary of HM Capital, is the lessee of office space in the south Texas region. The Partnership subleased space from BlackBrush Energy, Inc., for which it paid $70,000 in 2006 and $13,000 in 2005.

During the years ended December 31, 2006 and 2005 and the one month ended December 31, 2004, the Partnership generated related party revenues of $2,160,000, $833,000 and $16,000 on transportation and compression of natural gas for BBOG. The Partnership also incurred related party expenses of $1,630,000 and $523,000 for the years ended December 31, 2006 and 2005. As of December 31, 2006 and 2005, the Partnership’s related party accounts receivable balances, which are recorded in accounts receivable on the consolidated balance sheets, were $386,000 and $274,000, respectively. Related party payables, which are recorded in accounts payable and accrued liabilities on the consolidated balance sheets, were $280,000 and $3,380,000 as of December 31, 2006 and 2005, respectively.

In July 2005, in connection with the amendment and restatement of the credit agreement, Regency Acquisition contributed an additional $15,000,000 of equity.

In February 2005, TexStar issued a promissory note to HM Capital Partners in the amount of $600,000 bearing interest at a fixed rate of 8.5 percent per annum. Concurrent with the Partnership’s acquisition of TexStar in August 2006, the promissory note was repaid in full.

The employees operating the assets of the Partnership and its subsidiaries and all those providing staff or support services are employees of Regency GP LLC, the Partnership’s managing general partner. Pursuant to the Partnership Agreement, the managing general partner receives a monthly reimbursement for all direct and indirect expenses that it incurs on behalf of the Partnership. Reimbursements of $16,789,000 were recorded in the Partnership’s financial statements during the year ended December 31, 2006 as operating expenses or general and administrative expenses, as appropriate.

The Partnership made cash distributions of $20,139,000 during the year ended December 31, 2006 to HM  Capital Partners and affiliates as a result of their ownership of a portion of the Partnerships’ common and subordinated units, and their ownership of the general partner interest.

TexStar paid a transaction fee in the amount of $1,200,000 to an affiliate of HM Capital Partners upon completing its acquisition of the Como Assets. This amount was capitalized as a part of the purchase price.

In December 2006, following the reconciliation of costs associated with its IPO, the Partnership rendered an invoice to HM Capital Partners in the amount of $179,000. Further, in connection with the TexStar acquisition, the Partnership incurred audit fees on behalf of HM Capital Partners in the amount of $190,000. These amounts are reflected on the balance sheet as related party receivables.

F-31

Regency Energy Partners LP

Notes to Consolidated Financial Statements — (Continued)

14.   Concentration Risk

The following table provides information about the extent of reliance on major customers and gas suppliers. Total revenues and cost of gas and liquids from transactions with single external customers or suppliers amounting to 10 percent or more of revenues or cost of gas and liquids are disclosed below, together with the identity of the reporting segment.

										Regency LLC
		Regency Energy Partners LP								Predecessor
								Period from
								Acquisition		Period from
		Year Ended			Year Ended			(December 1, 2004)		January 1, 2004
	Reporting	December 31,			December 31,			to December		November 30,
	Segment	2006			2005			31, 2004		2004
	(In thousands)
Customer
Customer A	Transportation	$	89,736		$	132,539		$	11,056	$	69,696
Customer B	Gathering and Processing			*		*			7,107		*
Customer C	Gathering and Processing			*		76,115			5,773		*
Supplier
Supplier A	Transportation			*	$	93,188		$	6,785	$	54,983
Supplier B	Transportation			*		63,398			*		*
Supplier C	Transportation			*		75,414			3,824		*
Supplier D	Gathering and Processing	$	67,751				*		*		*

* Amounts are less than 10 percent of the total revenues or cost of gas and liquids.

The Partnership is a party to various commercial netting agreements that allow it and contractual counterparties to net receivable and payable obligations. These agreements are customary and the terms follow standard industry practice. In the opinion of management, these agreements reduce the overall counterparty risk exposure.

15.   Segment Information

The Partnership has two reportable segments: i) gathering and processing and ii) transportation. Gathering and processing involves the collection of raw natural gas from producer wells across the five operating regions, which now includes the Partnership’s TexStar acquisition, aggregated for segment reporting purposes, and transporting it to a treating plant where water and other impurities such as hydrogen sulfide and carbon dioxide are removed. Treated gas then goes through further processing to remove the natural gas liquids. The treated and processed natural gas then is transported to market, separately from the natural gas liquids. The Partnership aggregates the results of its gathering and processing activities across five geographic regions into a single reporting segment.

F-32

Regency Energy Partners LP

Notes to Consolidated Financial Statements — (Continued)

The transportation segment uses pipelines to move natural gas from processing plants to interconnections with larger pipelines or to trading hubs. The Partnership performs transportation services for shipping customers under firm or interruptible arrangements. In either case, revenues are primarily fee based and involve minimal direct exposure to commodity price fluctuations. The Partnership also purchases natural gas at the inlets to the pipeline and sells this gas at its outlets. The north Louisiana intrastate pipeline operated by this segment serves the Partnership’s gathering and processing facilities in the same area, which create the intersegment revenues shown in the table below.

Management evaluates the performance of each segment and makes capital allocation decisions through the separate consideration of segment margin and operation and maintenance. Segment margin is defined as total revenues, including service fees, less cost of gas and liquids. Management believes segment margin is an important measure because it is directly related to volumes and commodity price changes. Operation and maintenance are a separate measure used by management to evaluate operating performance of field operations. Direct labor, insurance, property taxes, repair and maintenance, utilities and contract services comprise the most significant portion of operation and maintenance. These expenses are largely independent of the volume throughput but fluctuate depending on the activities performed during a specific period. The Partnership does not deduct operation and maintenance from total revenues in calculating segment margin because management separately evaluates commodity volume and price changes in segment margin.

Results for each income statement period, together with amounts related to balance sheets for each segment, are shown below.

	Gathering and
	Processing		Transportation		Corporate		Eliminations			Total
	(In thousands)
External Revenue
For the year ended December 31, 2006	$	645,770	$	251,095							896,865
For the year ended December 31, 2005		505,721		203,680		—		—			709,401
For the one month ended December 31, 2004		35,113		12,744		—		—			47,857
For the eleven months ended November 30, 2004*		317,577		114,744		—		—			432,321
Intersegment Revenue
For the year ended December 31, 2006				39,504				(39,504	)		—
For the year ended December 31, 2005		—		57,066		—		(57,066	)		—
For the one month ended December 31, 2004		—		3,418		—		(3,418	)		—
For the eleven months ended November 30, 2004*		—		15,218		—		(15,218	)		—
Cost of Gas and Liquids
For the year ended December 31, 2006		532,768		206,048		—		—			738,816
For the year ended December 31, 2005		444,334		188,008		—		—			632,342
For the one month ended December 31, 2004		28,851		12,136		—		—			40,987
For the eleven months ended November 30, 2004*		256,230		106,532		—		—			362,762
Segment Margin
For the year ended December 31, 2006		113,002		45,047		—		—			158,049
For the year ended December 31, 2005		61,387		15,672		—		—			77,059
For the one month ended December 31, 2004		6,262		608		—		—			6,870
For the eleven months ended November 30, 2004*		61,347		8,212		—		—			69,559
Operation and Maintenance
For the year ended December 31, 2006		35,008		4,488		—		—			39,496
For the year ended December 31, 2005		22,362		1,929		—		—			24,291
For the one month ended December 31, 2004		1,655		164		—		—			1,819
For the eleven months ended November 30, 2004*		16,230		1,556		—		—			17,786

F-33

Regency Energy Partners LP

Notes to Consolidated Financial Statements — (Continued)

	Gathering and
	Processing		Transportation		Corporate		Eliminations		Total
	(In thousands)
Depreciation and Amortization
For the year ended December 31, 2006		26,831		11,927		896		—		39,654
For the year ended December 31, 2005		17,955		4,666		550		—		23,171
For the one month ended December 31, 2004		1,321		276		64		—		1,661
For the eleven months ended November 30, 2004*		8,110		1,383		636		—		10,129
Assets
December 31, 2006		648,116		316,038		48,931		—		1,013,085
December 31, 2005		495,156		291,998		19,586		—		806,740
Investments in Unconsolidated Subsidiaries
December 31, 2006		5,616		—		—		—		5,616
December 31, 2005		5,992		—		—		—		5,992
Expenditures for Long-Lived Assets
For the year ended December 31, 2006		192,115		29,810		1,725				223,650
For the year ended December 31, 2005		140,463		158,079		923		—		299,465
For the one month ended December 31, 2004		2,581		—		—		—		2,581
For the eleven months ended November 30, 2004*		71,253		7,500		4,800		—		83,553

* Regency LLC Predecessor

F-34

Regency Energy Partners LP

Notes to Consolidated Financial Statements — (Continued)

The table below provides a reconciliation of total segment margin to net income (loss) from continuing operations.

										Regency LLC
	Regency Energy Partners LP									Predecessor
							Period from
							Acquisition Date			Period from
	Year Ended			Year Ended			(December 1, 2004)			January 1, 2004 to
	December 31,			December 31,			to December 31,			November 30,
	2006			2005			2004			2004
	(In thousands)
Total Segment Margin (from above)	$	158,049		$	77,059		$	6,870		$	69,559
Operation and maintenance		(39,496	)		(24,291	)		(1,819	)		(17,786	)
General and administrative		(22,826	)		(15,039	)		(645	)		(6,571	)
Management services termination fees		(12,542	)		—			—			—
Related party expenses		(1,630	)		(523	)		—			—
Transaction expenses		(2,041	)		—			—			(7,003	)
Depreciation and amortization		(39,654	)		(23,171	)		(1,661	)		(10,129	)
Operating Income		39,860			14,035			2,745			28,070
Other income and deductions
Interest expense, net		(37,182	)		(17,880	)		(1,335	)		(5,097	)
Equity income		532			312			56			—
Loss on debt refinancing		(10,761	)		(8,480	)		—			(3,022	)
Other income and deductions, net		307			421			8			186
Total other income and deductions		(47,104	)		(25,627	)		(1,271	)		(7,933	)
Net Income (Loss) from continuing operations	$	(7,244	)	$	(11,592	)	$	1,474		$	20,137

16.   Equity Based Compensation

On December 12, 2005, the compensation committee of the board of directors of Regency GP LLC approved a long-term incentive plan (“LTIP”) for the Partnership’s employees, directors and consultants covering an aggregate of 2,865,584 common units. Awards under the LTIP have been made since completion of the Partnership’s IPO. LTIP awards generally vest on the basis of one-third of the award each year. The options have a maximum contractual term, expiring ten years after the grant date.

The grant-date fair values of restricted common units and common unit options for the year ended December 31, 2006 were $21.06 per unit and $1.32 per option, respectively. The options were valued with the Black-Scholes Option Pricing Model assuming 15 percent volatility in the unit price, a ten year term, a strike price equal to the grant-date price per unit, a distribution per unit equal to the annualized most recent quarterly dividend per unit which was $1.40 for the majority of the grants made during the year ended December 31, 2006, a risk-free interest rate of 4.25 percent, and an average exercise of the options of four years after vesting is complete. The assumption that employees will, on average, exercise their options four years from the vesting date is based on the average of the mid-points from vesting to expiration of the options.

The Partnership will make distributions to non-vested restricted common units on a one-for-one ratio with the per unit distributions paid to common units. Restricted common units are subject to contractual restrictions which lapse over time. Upon the vesting and exercise of the common unit options, the Partnership intends to settle these obligations with common units. Accordingly, the Partnership expects to recognize an aggregate of

F-35

Regency Energy Partners LP

Notes to Consolidated Financial Statements — (Continued)

$11,469,000 of compensation expense related to the grants under LTIP, or $3,823,000 for each of the three years of the vesting period for such grants.

The common unit option and restricted unit activity for 2006 is as follows.

	2006
				Weighted		Weighted
				Average		Average		Aggregate
				Exercise		Contractual		Intrinsic
Common Unit Options	Units			Price		Terms (Years)		Value*
								(In thousands)
Outstanding at beginning of period		—			—
Granted		943,900		$	21.05
Exercised		—			—
Forfeited or expired		(34,300	)		20.75
Outstanding at end of period		909,600		$	21.06		9.3	$	5,522
Exercisable as end of period		—

* Intrinsic value equals the closing market price of a unit less the option strike price, multiplied by the number of unit options outstanding.

	2006
			Weighted
			Average
			Grant Date
Restricted (Non-Vested) Units	Units		Fair Value
Outstanding at end of period		—		—
Granted		516,500	$	21.06
Forfeited or expired		—		—
Outstanding at end of period		516,500	$	21.06

17.   Subsequent Events

On February 14, 2007, the Partnership paid a distribution of $0.37 per common and subordinated unit (other than Class B and Class C common units, which are not entitled to distributions for the third or fourth quarters of 2006).

Effective February 1, 2007, the Partnership acquired the remaining 50 percent interest in the Palafox Joint Venture for $5,000,000.

In February 2007, the Class B and Class C common units were converted into Common Units.

In March 2007, the board of directors of Regency GP LLC approved and granted 191,000 LTIP awards of the Partnership’s restricted common units that vest on a basis of one-third of the award each year. The grant date fair value of these awards is $5,291,000.

F-36

Regency Energy Partners LP

Notes to Consolidated Financial Statements — (Continued)

18.   Quarterly Financial Data (Unaudited)

									Basic			Diluted
									Earnings			Earnings			Basic
			Operating						per Common			per Common and			Earnings			Basic
Quarter	Operating		Income			Net Income			and Subordinated			Subordinated			per Class B			per Class C
Ended	Revenues		(Loss)			(Loss)			Unit			Unit			Common Unit			Common Unit
	(In thousands except earnings per unit)
2006
March 31(1)	$	231,266	$	1,500		$	(6,319	)	$	(0.18	)	$	(0.18	)	$	(0.18	)	$	—
June 30		214,658		11,948			3,760			0.08			0.08			0.08			—
September 30		229,132		11,987			(11,272	)		(0.27	)		(0.27	)		(0.14	)		—
December 31		221,809		14,425			6,587			0.17			0.14			—			—
2005
March 31(1)	$	106,949	$	(12,003	)	$	(15,062	)		x			x			x			x
June 30		137,945		10,731			6,528			x			x			x			x
September 30		191,554		8,011			(3,906	)		x			x			x			x
December 31		272,953		7,296			1,580			x			x			x			x

(1)	- All quarterly financial data for the period ending March 31, 2006 have been recast to give effect to the TexStar acquisition, accounted for in a manner similar to pooling.
x	- The Partnership became a public entity on February 3, 2006 and accordingly has not presented earnings per unit information for such periods.

F-37

EX-4.2

Exhibit 4.2

EXECUTION VERSION

REGENCY ENERGY PARTNERS LP

REGENCY ENERGY FINANCE CORP.

AND EACH OF THE GUARANTORS PARTY HERETO

8 ³/8% SENIOR NOTES DUE 2013

INDENTURE

Dated as of December 12, 2006

WELLS FARGO BANK, NATIONAL ASSOCIATION

Trustee

CROSS-REFERENCE TABLE*

Trust Indenture Act Section	Indenture Section
310 (a)(1)	7.10
(a)(2)	7.10
(a)(3)	N.A.
(a)(4)	N.A.
(a)(5)	7.10
(b)	7.10
(c)	N.A.
311 (a)	7.11
(b)	7.11
(c)	N.A.
312 (a)	2.05
(b)	12.03
(c)	12.03
313 (a)	7.06
(b)(1)	N.A.
(b)(2)	7.06; 7.07
(c)	7.06; 12.02
(d)	7.06
314 (a)	4.03; 12.02; 12.05
(b)	N.A.
(c)(1)	12.04
(c)(2)	12.04
(c)(3)	N.A.
(d)	N.A.
(e)	12.05
(f)	N.A.
315 (a)	7.01
(b)	7.05; 12.02
(c)	7.01
(d)	7.01
(e)	6.11
316 (a)(last sentence)	2.09
(a)(1)(A)	6.05
(a)(1)(B)	6.04
(a)(2)	N.A.
(b)	6.07
(c)	2.12
317 (a)(1)	6.08
(a)(2)	6.09
(b)	2.04
318 (a)	12.01
(b)	N.A.
(c)	12.01

N.A. means not applicable.
*	This Cross Reference Table is not part of the Indenture.

TABLE OF CONTENTS

		Page
ARTICLE 1
DEFINITIONS AND INCORPORATION BY REFERENCE
Section 1.01	Definitions		1
Section 1.02	Other Definitions		23
Section 1.03	Incorporation by Reference of Trust Indenture Act		24
Section 1.04	Rules of Construction		24
ARTICLE 2
THE NOTES
Section 2.01	Form and Dating		25
Section 2.02	Execution and Authentication		25
Section 2.03	Registrar and Paying Agent		26
Section 2.04	Paying Agent to Hold Money in Trust		26
Section 2.05	Holder Lists		26
Section 2.06	Transfer and Exchange		26
Section 2.07	Replacement Notes		36
Section 2.08	Outstanding Notes		36
Section 2.09	Treasury Notes		37
Section 2.10	Temporary Notes		37
Section 2.11	Cancellation		37
Section 2.12	Defaulted Interest		37
ARTICLE 3
REDEMPTION AND REPURCHASE
Section 3.01	Notices to Trustee		38
Section 3.02	Selection of Notes to Be Redeemed		38
Section 3.03	Notice of Redemption		38
Section 3.04	Effect of Notice of Redemption		39
Section 3.05	Deposit of Redemption or Purchase Price		39
Section 3.06	Notes Redeemed or Purchased in Part		40
Section 3.07	Optional Redemption		40
Section 3.08	[Reserved]		41
Section 3.09	Offer to Purchase by Application of Excess Proceeds		41
ARTICLE 4
COVENANTS
Section 4.01	Payment of Notes		42
Section 4.02	Maintenance of Office or Agency		43
Section 4.03	Reports		43

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		Page
Section 4.04	Compliance Certificate		44
Section 4.05	Taxes		44
Section 4.06	Stay, Extension and Usury Laws		44
Section 4.07	Restricted Payments		45
Section 4.08	Dividend and Other Payment Restrictions Affecting Subsidiaries		48
Section 4.09	Incurrence of Indebtedness and Issuance of Disqualified Equity		49
Section 4.10	Asset Sales		52
Section 4.11	Transactions with Affiliates		53
Section 4.12	Liens		55
Section 4.13	Business Activities		55
Section 4.14	Corporate Existence		56
Section 4.15	Offer to Repurchase Upon Change of Control		56
Section 4.16	Limitation on Sale and Leaseback Transactions		58
Section 4.17	Payments for Consent		58
Section 4.18	Additional Guarantees		58
Section 4.19	Designation of Restricted and Unrestricted Subsidiaries		58
Section 4.20	Termination of Covenants		59
ARTICLE 5
SUCCESSORS
Section 5.01	Merger, Consolidation, or Sale of Assets		59
Section 5.02	Successor Person Substituted		61
ARTICLE 6
DEFAULTS AND REMEDIES
Section 6.01	Events of Default		61
Section 6.02	Acceleration		63
Section 6.03	Other Remedies		64
Section 6.04	Waiver of Past Defaults		64
Section 6.05	Control by Majority		64
Section 6.06	Limitation on Suits		64
Section 6.07	Rights of Holders of Notes to Receive Payment		65
Section 6.08	Collection Suit by Trustee		65
Section 6.09	Trustee May File Proofs of Claim		65
Section 6.10	Priorities		65
Section 6.11	Undertaking for Costs		66
Section 6.12	Willful Action or Inaction		66
ARTICLE 7
TRUSTEE
Section 7.01	Duties of Trustee		66
Section 7.02	Rights of Trustee		67
Section 7.03	Individual Rights of Trustee		68
Section 7.04	Trustee’s Disclaimer		68

-ii-

		Page
Section 7.05	Notice of Defaults		68
Section 7.06	Reports by Trustee to Holders of the Notes		68
Section 7.07	Compensation and Indemnity		69
Section 7.08	Replacement of Trustee		69
Section 7.09	Successor Trustee by Merger, etc.		70
Section 7.10	Eligibility; Disqualification		70
Section 7.11	Preferential Collection of Claims Against the Issuers		71
ARTICLE 8
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
Section 8.01	Option to Effect Legal Defeasance or Covenant Defeasance		71
Section 8.02	Legal Defeasance and Discharge		71
Section 8.03	Covenant Defeasance		71
Section 8.04	Conditions to Legal or Covenant Defeasance		72
Section 8.05	Deposited Money and Government Securities to be Held in Trust; Other Miscellaneous Provisions		73
Section 8.06	Repayment to the Issuers		74
Section 8.07	Reinstatement		74
ARTICLE 9
AMENDMENT, SUPPLEMENT AND WAIVER
Section 9.01	Without Consent of Holders of Notes		74
Section 9.02	With Consent of Holders of Notes		75
Section 9.03	Compliance with Trust Indenture Act		76
Section 9.04	Revocation and Effect of Consents		76
Section 9.05	Notation on or Exchange of Notes		77
Section 9.06	Trustee to Sign Amendments, etc.		77
ARTICLE 10
NOTE GUARANTEES
Section 10.01	Guarantee		77
Section 10.02	Limitation on Guarantor Liability		78
Section 10.03	Execution and Delivery of Note Guarantee		79
Section 10.04	Guarantors May Consolidate, etc., on Certain Terms		79
Section 10.05	Releases		80
ARTICLE 11
SATISFACTION AND DISCHARGE
Section 11.01	Satisfaction and Discharge		80
Section 11.02	Application of Trust Money		81

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		Page
ARTICLE 12
MISCELLANEOUS
Section 12.01	Trust Indenture Act Controls		82
Section 12.02	Notices		82
Section 12.03	Communication by Holders of Notes with Other Holders of Notes		83
Section 12.04	Certificate and Opinion as to Conditions Precedent		83
Section 12.05	Statements Required in Certificate or Opinion		83
Section 12.06	Rules by Trustee and Agents		84
Section 12.07	No Personal Liability of Directors, Officers, Employees and Stockholders		84
Section 12.08	Governing Law		84
Section 12.09	No Adverse Interpretation of Other Agreements		84
Section 12.10	Successors		84
Section 12.11	Severability		84
Section 12.12	Counterpart Originals		85
Section 12.13	Table of Contents, Headings, etc.		85

-iv-

EXHIBITS

Exhibit A	FORM OF NOTE
Exhibit B	FORM OF CERTIFICATE OF TRANSFER
Exhibit C	FORM OF CERTIFICATE OF EXCHANGE
Exhibit D	FORM OF CERTIFICATE ACQUIRING INSTITUTIONAL ACCREDITED INVESTOR
Exhibit E	FORM OF NOTATION OF GUARANTEE
Exhibit F	FORM OF SUPPLEMENTAL INDENTURE

-v-

           INDENTURE dated as of December 12, 2006 among REGENCY ENERGY PARTNERS LP, a Delaware limited partnership (“Regency Energy Partners”), and REGENCY ENERGY FINANCE CORP., a Delaware corporation (“Finance Corp.” and, together with Regency Energy Partners, the “Issuers”), the Guarantors (as defined) and Wells Fargo Bank, National Association, as trustee.

           The Issuers, the Guarantors and the Trustee agree as follows for the benefit of each other and for the equal and ratable benefit of the Holders (as defined) of the 8 3/8% Senior Notes due 2013 (the “Notes”):

ARTICLE 1

DEFINITIONS AND INCORPORATION BY REFERENCE

Section 1.01 Definitions.

           “144A Global Note” means a Global Note substantially in the form of Exhibit A hereto bearing the Global Note Legend and the Private Placement Legend and deposited with or on behalf of, and registered in the name of, the Depositary or its nominee that will be issued in a denomination equal to the outstanding principal amount of the Notes sold in reliance on Rule 144A.

           “Acquired Debt” means, with respect to any specified Person:

     (1) Indebtedness of any other Person existing at the time such other Person is merged with or into or becomes a Subsidiary of such specified Person, whether or not such Indebtedness is incurred in connection with, or in contemplation of, such other Person merging with or into, or becoming a Subsidiary of, such specified Person, but excluding Indebtedness which is extinguished, retired or repaid in connection with such Person merging with or becoming a Subsidiary of such specific Person; and

     (2) Indebtedness secured by a Lien encumbering any asset acquired by such specified Person.

           “Additional Notes” means additional Notes (other than the Initial Notes) issued under this Indenture in accordance with Sections 2.02 and 4.09 hereof, as part of the same series as the Initial Notes.

           “Affiliate” of any specified Person means any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For purposes of this definition, “control,” as used with respect to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities, by agreement or otherwise; provided that beneficial ownership of 10% or more of the Voting Stock of a Person will be deemed to be control; provided, further, that any third Person which also beneficially owns 10% or more of the Voting Stock of a specified Person shall not be deemed to be an Affiliate of either the specified Person or the other Person merely because of such common ownership in such specified Person. For purposes of this definition, the terms “controlling,” “controlled by” and “under common control with” have correlative meanings.

           “Agent” means any Registrar or Paying Agent.

           “Applicable Premium” means, with respect to any Note on any redemption date, the greater of:

           (1) 1.0% of the principal amount of the Note; or

     (2) the excess of: (a) the present value at such Redemption Date of (i) the redemption price of the Note at December 15, 2010 (such redemption price being set forth in the table appearing in Section 3.07 hereof) plus (ii) all required interest payments due on the Note through December 15, 2010 (excluding accrued but unpaid interest to the Redemption Date), computed using a discount rate equal to the Treasury Rate as of such Redemption Date plus 50 basis points; over (b) the principal amount of the Note.

           “Applicable Procedures” means, with respect to any transfer or exchange of or for beneficial interests in any Global Note, the rules and procedures of the Depositary, Euroclear and Clearstream that apply to such transfer or exchange.

           “Asset Sale” means:

     (1) the sale, lease, conveyance or other disposition of any properties or assets; provided, however, that the sale, lease, conveyance or other disposition of all or substantially all of the properties or assets of Regency Energy Partners and its Subsidiaries taken as a whole will be governed by Section 4.15 hereof and/or Section 5.01 hereof and not by Section 4.10 hereof; and

     (2) the issuance of Equity Interests in any of Regency Energy Partners’ Restricted Subsidiaries or the sale of Equity Interests in any of its Restricted Subsidiaries.

           Notwithstanding the preceding, none of the following items will be deemed to be an Asset Sale:

     (1) any single transaction or series of related transactions that involves properties or assets having a Fair Market Value of less than $10.0 million;

     (2) a transfer of properties or assets between or among Regency Energy Partners and its Restricted Subsidiaries;

     (3) an issuance or sale of Equity Interests by a Restricted Subsidiary of Regency Energy Partners to Regency Energy Partners or to a Restricted Subsidiary of Regency Energy Partners;

     (4) the sale or lease of products, services or accounts receivable in the ordinary course of business and any sale or other disposition of damaged, worn-out or obsolete properties or assets in the ordinary course of business;

     (5) the sale or other disposition of cash or Cash Equivalents, Hedging Obligations or other financial instruments in the ordinary course of business;

     (6) a Restricted Payment that does not violate Section 4.07 hereof or a Permitted Investment;

     (7) any trade or exchange by Regency Energy Partners or any Restricted Subsidiary of properties or assets of any type for properties or assets of any type owned or held by another Person, including any disposition of some but not all of the Equity Interests of a Restricted Subsidiary in exchange for assets or properties and after which the Person whose Equity Interests have been so disposed of continues to be a Restricted Subsidiary, provided that the Fair Market Value of the properties or assets traded or exchanged by Regency Energy Partners or such Restricted Subsidiary (together with any cash or Cash Equivalents and liabilities assumed) is rea-

-2-

sonably equivalent to the Fair Market Value of the properties or assets (together with any cash or Cash Equivalents and liabilities assumed) to be received by Regency Energy Partners or such Restricted Subsidiary; and provided, further, that any cash received must be applied in accordance with Section 4.10 hereof; and

     (8) the creation or perfection of a Lien that is not prohibited by Section 4.12 hereof and any disposition in connection with a Permitted Lien.

           “Attributable Debt” in respect of a sale and leaseback transaction means, at the time of determination, the present value of the obligation of the lessee for net rental payments during the remaining term of the lease included in such sale and leaseback transaction including any period for which such lease has been extended or may, at the option of the lessor, be extended. Such present value shall be calculated using a discount rate equal to the rate of interest implicit in such transaction, determined in accordance with GAAP; provided, however, that if such sale and leaseback transaction results in a Capital Lease Obligation, the amount of Indebtedness represented thereby will be determined in accordance with the definition of “Capital Lease Obligation.”

           “Available Cash” has the meaning assigned to such term in the Partnership Agreement, as in effect on the date of this Indenture.

           “Bankruptcy Law” means Title 11, U.S. Code or any similar federal or state law for the relief of debtors.

           “Beneficial Owner” has the meaning assigned to such term in Rule 13d-3 and Rule 13d-5 under the Exchange Act, except that in calculating the beneficial ownership of any particular “person” (as that term is used in Section 13(d)(3) of the Exchange Act), such “person” will be deemed to have beneficial ownership of all securities that such “person” has the right to acquire by conversion or exercise of other securities, whether such right is currently exercisable or is exercisable only after the passage of time. The terms “Beneficially Owns” and “Beneficially Owned” have a corresponding meaning.

           “Board of Directors” means:

     (1) with respect to a corporation, the board of directors of the corporation or any committee thereof duly authorized to act on behalf of such board;

     (2) with respect to a partnership, the board of directors or board of managers of the general partner of the partnership, or, if such general partner is itself a limited partnership, then the board of directors or board of managers of its general partner;

     (3) with respect to a limited liability company, the managing member or members or any controlling committee of managing members thereof; and

     (4) with respect to any other Person, the board or committee of such Person serving a similar function.

           “Broker-Dealer” has the meaning attributed to the term “Participating Broker-Dealer” in the initial Registration Rights Agreement.

           “Business Day” means any day other than a Legal Holiday.

-3-

           “Capital Lease Obligation” means, at the time any determination is to be made, the amount of the liability in respect of a capital lease that would at that time be required to be capitalized on a balance sheet prepared in accordance with GAAP.

           “Capital Stock” means:

     (1) in the case of a corporation, corporate stock;

     (2) in the case of an association or business entity, any and all shares, interests, participations, rights or other equivalents (however designated) of corporate stock;

     (3) in the case of a partnership or limited liability company, partnership interests (whether general or limited) or membership interests; and

     (4) any other interest or participation that confers on a Person the right to receive a share of the profits and losses of, or distributions of assets of, the issuing Person,

           but excluding from all of the foregoing any debt securities convertible into Capital Stock, whether or not such debt securities include any right of participation with Capital Stock.

           “Cash Equivalents” means:

     (1) United States dollars or, in an amount up to the amount necessary or appropriate to fund local operating expenses, other currencies;

     (2) securities issued or directly and fully guaranteed or insured by the United States government or any agency or instrumentality of the United States government (provided that the full faith and credit of the United States is pledged in support of those securities) having maturities of not more than one year from the date of acquisition;

     (3) certificates of deposit and eurodollar time deposits with maturities of six months or less from the date of acquisition, bankers’ acceptances with maturities not exceeding six months and overnight bank deposits, in each case, with any domestic commercial bank having capital and surplus in excess of $500.0 million and a Thomson Bank Watch Rating of “B” or better;

     (4) repurchase obligations with a term of not more than seven days for underlying securities of the types described in clauses (2) and (3) above entered into with any financial institution meeting the qualifications specified in clause (3) above;

     (5) commercial paper having one of the two highest ratings obtainable from Moody’s or S&P and, in each case, maturing within six months after the date of acquisition; and

     (6) money market funds at least 95% of the assets of which constitute Cash Equivalents of the kinds described in clauses (1) through (5) of this definition.

           “Change of Control” means the occurrence of any of the following:

     (1) the direct or indirect sale, lease, transfer, conveyance or other disposition (other than by way of merger or consolidation), in one or a series of related transactions, of all or substantially all of the properties or assets of Regency Energy Partners and its Subsidiaries taken as a

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whole to any “person” (as that term is used in Section 13(d)(3) of the Exchange Act), which occurrence is followed by a Ratings Decline within 90 days;

     (2) the adoption of a plan relating to the liquidation or dissolution of Regency Energy Partners or the removal of the General Partner by the limited partners of Regency Energy Partners;

     (3) the consummation of any transaction (including, without any merger or consolidation), the result of which is that any “person” (as defined above), other than a Qualified Owner, becomes the Beneficial Owner, directly or indirectly, of more than 50% of the Voting Stock of the General Partner or of Regency Energy Partners, measured by voting power rather than number of shares, which occurrence is followed by a Ratings Decline within 90 days; or

     (4) the first day on which a majority of the members of the Board of Directors of the General partner are not Continuing Directors, which occurrence is followed by a Ratings Decline within 90 days.

           Notwithstanding the preceding, a conversion of Regency Energy Partners from a limited partnership to a corporation, limited liability company or other form of entity or an exchange of all of the outstanding limited partnership interests for capital stock in a corporation, for member interests in a limited liability company or for Equity Interests in such other form of entity shall not constitute a Change of Control, so long as following such conversion or exchange the “persons” (as defined above) who Beneficially Owned the Capital Stock of Regency Energy Partners immediately prior to such transactions continue to Beneficially Own in the aggregate more than 50% of the Voting Stock of such entity, or continue to Beneficially Own sufficient Equity Interests in such entity to elect a majority of its directors, managers, trustees or other persons serving in a similar capacity for such entity, and, in either case no “person,” excluding any Qualifying Owner, Beneficially Owns more than 50% of the Voting Stock of such entity.

           “Company Order” means a written order delivered to the Trustee by Regency Energy Partners and executed on its behalf by an Officer of the General Partner.

           “Consolidated Cash Flow” means, with respect to any specified Person for any period, the Consolidated Net Income of such Person for such period plus, without duplication:

     (1) an amount equal to (i) any extraordinary loss plus (ii) any net loss realized by such Person or any of its Restricted Subsidiaries in connection with an Asset Sale or the disposition of any securities by such Person or any of its Restricted Subsidiaries or the extinguishment of any Indebtedness of such Person or any of its Restricted Subsidiaries, in each case, to the extent such losses were deducted in computing such Consolidated Net income; plus

     (2) provision for taxes based on income or profits of such Person and its Restricted Subsidiaries for such period, to the extent that such prevision for taxes was deducted in computing such Consolidated Net Income; plus

     (3) the consolidated interest expense of such Person and its Restricted Subsidiaries for such period, whether paid or accrued (including amortization of debt issuance costs and original issue discount, non-cash interest payments, the interest component of any deferred payment obligations, the interest component of all payments associated with Capital Lease Obligations, imputed interest with respect to Attributable Debt, commissions, discounts and other fees and charges incurred in respect of letter of credit or bankers’ acceptance financings, and net of all

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payments, if any, pursuant to Hedging Obligations), to the extent that any such expense was deducted in computing such Consolidated Net Income; plus

     (4) depreciation, amortization (including amortization of intangibles but excluding amortization of prepaid cash expenses that were paid in a prior period) and other non-cash expenses (excluding any such non-cash expense to the extent that it represents an accrual of or reserve for cash expenses in any future period or amortization of a prepaid cash expense that was paid in a prior period) of such Person and its Restricted Subsidiaries for such period to the extent that such depreciation, amortization and other non-cash expenses were deducted in computing such Consolidated Net Income; plus

     (5) unrealized non-cash losses resulting from foreign currency balance sheet adjustments required by GAAP to the extent such losses were deducted in computing such Consolidated Net Income; plus

     (6) all extraordinary or non-recurring items of gain or loss, or revenue or expense; minus

     (7) non-cash items increasing such Consolidated Net Income for such period, other than the accrual of revenue in the ordinary course of business,

in each case, on a consolidated basis and determined in accordance with GAAP.

           “Consolidated Net Income” means, with respect to any specified Person for any period, the aggregate of the Net Income of such Person and its Restricted Subsidiaries for such period, on a consolidated basis, determined in accordance with GAAP; provided that:

     (1) the aggregate Net Income (but not loss) of any Person that is not a Restricted Subsidiary or that is accounted for by the equity method of accounting will be included only to the extent of the amount of dividends or similar distributions paid in cash to the specified Person or a Restricted Subsidiary of the Person;

     (2) the Net Income of any Restricted Subsidiary will be excluded to the extent that the declaration or payment of dividends or similar distributions by that Restricted Subsidiary of that Net Income is not at the date of determination permitted without any prior governmental approval (that has not been obtained) or, directly or indirectly, by operation of the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to that Restricted Subsidiary or its stockholders, partners or members;

     (3) the cumulative effect of a change in accounting principles will be excluded;

     (4) unrealized losses and gains under derivative instruments included in the determination of Consolidated Net Income, including those resulting from the application of Statement of Financial Accounting Standards No. 133 will be excluded; and

     (5) any nonrecurring charges relating to any premium or penalty paid, write off of deferred finance costs or other charges in connection with redeeming or retiring any Indebtedness prior to its Stated Maturity will be excluded.

           “Consolidated Net Tangible Assets” means, with respect to any Person at any date of determination, the aggregate amount of total assets included in such Person’s most recent quarterly or annual

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consolidated balance sheet prepared in accordance with GAAP less applicable reserves reflected in such balance sheet, after (i) adding the aggregate incremental amount of total assets that would have resulted from an acquisition of assets from an Affiliate that is accounted for as a pooling had it been accounted for using purchase accounting and (ii) deducting the following amounts: (a) all current liabilities reflected in such balance sheet, and (b) all goodwill, trademarks, patents, unamortized debt discounts and expenses and other like intangibles reflected in such balance sheet.

           “Continuing Directors” means, as of any date of determination, any member of the Board of Directors of the General Partner who:

     (1) was a member of such Board of Directors on the date of this Indenture; or

     (2) was nominated for election or elected to such Board of Directors with the approval of a majority of the Continuing Directors who were members of such Board of Directors at the time of such nomination or election,

           “Corporate Trust Office of the Trustee” will be at the address of the Trustee specified in Section 12.02 hereof or such other address as to which the Trustee may give notice to the Issuers.

           “Credit Agreement” means that certain Fourth Amended and Restated Credit Agreement, dated as of December 1, 2004 and amended and restated at various dates, most recently August 15, 2006, by and among Regency Gas Services LP, Regency Energy Partners, the Guarantors party thereto, the lenders party thereto, Wachovia Bank, National Association, as administrative agent, collateral agent, swingline lender and issuing bank, UBS Securities LLC and Wachovia Capital Markets, LLC, as joint lead arrangers and joint book managers for the Tranche B-1 Term Loans, Wachovia Capital Markets, LLC, Citigroup Global Markets Inc. and UBS Securities LLC, as joint lead arrangers and joint book managers for the Revolving Loans, UBS Loan Finance LLC, as syndication agent, Citigroup Global Markets Inc., as co-syndication agent for the Revolving Loans, and Fortis Capital Corp. and JPMorgan Chase Bank, N.A., as co-documentation agents, providing for $850.0 million of borrowings and letters of credit, including any related notes, Guarantees, collateral documents, instruments and agreements executed in connection therewith, and, in each case, as amended, restated, modified, renewed, refunded, replaced or refinanced in whole or in part from time to time.

           “Credit Facilities” means, one or more debt facilities (including the Credit Agreement) or commercial paper facilities, in each case, with banks or other institutional lenders providing for revolving credit loans, term loans, accounts receivable financing (including through the sale of accounts receivable to such lenders or to special purpose entities formed to borrow from such lenders against such receivables) or letters of credit, in each case, as amended, restated, modified, renewed, refunded, replaced or refinanced (including by means of sales of debt securities to institutional investors) in whole or in part from time to time.

           “Custodian” means the Trustee, as custodian with respect to the Notes in global form, or any successor entity thereto.

           “Default” means any event that is, or with the passage of time or the giving of notice or both would be, an Event of Default.

           “Definitive Note” means a certificated Note registered in the name of the Holder thereof and issued in accordance with Section 2.06 hereof, substantially in the form of Exhibit A hereto except that such Note shall not bear the Global Note Legend and shall not have the “Schedule of Exchanges of Interests in the Global Note’ attached thereto.

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           “Depositary” means, with respect to the Notes issuable or issued in whole or in part in global form, the Person specified in Section 2.03 hereof as the Depositary with respect to the Notes, and any and all successors thereto appointed as Depositary hereunder and having become such pursuant to the applicable provision of this Indenture.

           “Disqualified Equity” means any Equity Interest that, by its terms (or by the terms of any security into which it is convertible, or for which it is exchangeable, in each case, at the option of the holder of the Equity Interest), or upon the happening of any event, matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at the option of the holder of the Equity Interest, in whole or in part, on or prior to the date that is 91 days after the date on which the Notes mature. Notwithstanding the preceding sentence, any Equity Interest that would constitute Disqualified Equity solely because the holders of the Equity Interest have the right to require Regency Energy Partners to repurchase such Equity Interest upon the occurrence of a change of control or an asset sale will not constitute Disqualified Equity if the terms of such Equity Interest provide that Regency Energy Partners may not repurchase or redeem any such Equity Interest pursuant to such provisions unless such repurchase or redemption complies with Section 4.07 hereof.

           “Domestic Subsidiary” means any Restricted Subsidiary of Regency Energy Partners that was formed under the laws of the United States or any state of the United States or the District of Columbia.

           “Equity Interests” means Capital Stock and all warrants, options or other rights to acquire Capital Stock (but excluding any debt security that is convertible into, or exchangeable for, Capital Stock).

           “Equity Offering” means any public or private sale of Equity Interests (other than Disqualified Equity) made for cash on a primary basis by Regency Energy Partners after the date of this Indenture.

           “Exchange Notes” means the Notes issued in an Exchange Offer pursuant to Section 2.06(f) hereof. “Exchange Offer” has the meaning set forth in the applicable Registration Rights Agreement.

           “Exchange Offer Registration Statement” has the meaning set forth in the applicable Registration Rights Agreement.

           “Existing Indebtedness” means the aggregate principal amount of Indebtedness of Regency Energy Partners and its Subsidiaries (other than Indebtedness under the Credit Agreement) in existence on the date of this Indenture, until such amounts are repaid.

           “Fair Market Value” means the value that would be paid by a willing buyer to an unaffiliated willing seller in a transaction not involving distress or necessity of either party, determined in good faith by the Board of Directors of Regency Energy Partners (unless otherwise provided in this Indenture).

           “FERC Subsidiary” means a Restricted Subsidiary of Regency Energy Partners that is subject to the regulatory jurisdiction of the Federal Energy Regulatory Commission (or any successor thereof) under Section 7(c) of the Natural Gas Act of 1938.

           “Fixed Charge Coverage Ratio” means with respect to any specified Person for any four-quarter reference period, the ratio of the Consolidated Cash Flow of such Person for such period to the

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Fixed Charges of such Person for such period. If the specified Person or any of its Restricted Subsidiaries incurs, assumes, guarantees, repays, repurchases, redeems, defeases or otherwise discharges any Indebtedness (other than ordinary working capital borrowings) or issues, repurchases or redeems Disqualified Equity subsequent to the commencement of the applicable four-quarter reference period and on or prior to the date on which the event for which the calculation of the Fixed Charge Coverage Ratio is made (the “Calculation Date”), then the Fixed Charge Coverage Ratio will be calculated giving pro forma effect to such incurrence, assumption, Guarantee, repayment, repurchase, redemption, defeasance or other discharge of Indebtedness, or such issuance, repurchase or redemption of Disqualified Equity, and the use of the proceeds therefrom, as if the same had occurred at the beginning of such period.

           In addition, for purposes of calculating the Fixed Charge Coverage Ratio:

     (1) acquisitions that have been made by the specified Person or any of its Restricted Subsidiaries, including through mergers or consolidations and including any related financing transactions during the four-quarter reference period or subsequent to such reference period and on or prior to the Calculation Date will be given pro forma effect as if they had occurred on the first day of the four-quarter reference period, including any Consolidated Cash Flow and any pro forma expense and cost reductions that have occurred or are reasonably expected to occur, in the reasonable judgment of the chief financial or accounting officer of Regency Energy Partners (regardless of whether those cost savings or operating improvements could then be reflected in pro forma financial statements in accordance with Regulation S-X promulgated under the Securities Act or any other regulation or policy of the SEC related thereto);

     (2) the Consolidated Cash Flow attributable to discontinued operations, as determined in accordance with GAAP, and operations or businesses (and ownership interests therein) disposed of prior to the Calculation Date, will be excluded;

     (3) the Fixed Charges attributable to discontinued operations, as determined in accordance with GAAP, and operations or businesses (and ownership interests therein) disposed of prior to the Calculation Date, will be excluded, but only to the extent that the obligations giving rise to such Fixed Charges will not be obligations of the specified Person or any of its Restricted Subsidiaries following the Calculation Date;

     (4) interest income reasonably anticipated by such Person to be received during the applicable four-quarter period from cash or Cash Equivalents held by such Person or any Restricted Subsidiary of such Person, which cash or Cash Equivalents exist on the Calculation Date or will exist as a result of the transaction giving rise to the need to calculate the Fixed Charge Coverage Ratio, will be included;

     (5) if any Indebtedness bears a floating rate of interest, the interest expense on such Indebtedness will be calculated as if the average rate in effect from the beginning of the applicable period to the Calculation Date had been the applicable rate for the entire period (taking into account any Hedging Obligation applicable to such Indebtedness if such Hedging Obligation has a remaining term as at the Calculation Date in excess of 12 months); and

     (6) if any Indebtedness is incurred under a revolving credit facility and is being given pro forma effect, the interest on such Indebtedness shall be calculated based on the average daily balance of such Indebtedness for the four fiscal quarters subject to the pro forma calculation.

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           “Fixed Charges” means, with respect to any specified Person for any period, (A) the sum, without duplication, of:

     (1) the consolidated interest expense of such Person and its Restricted Subsidiaries for such period, whether paid or accrued, including amortization of debt issuance costs and original issue discount, non-cash interest payments, the interest component of any deferred payment obligations, the interest component of all payments associated with Capital Lease Obligations, imputed interest with respect to Attributable Debt, commissions, discounts and other fees and charges incurred in respect of letter of credit or bankers’ acceptance financings, and net of the effect of all payments made or received pursuant to Hedging Obligations in respect of interest rates; plus

     (2) the consolidated interest expense of such Person and its Restricted Subsidiaries that was capitalized during such period; plus

     (3) any interest on Indebtedness of another Person that is guaranteed by such Person or one of its Restricted Subsidiaries or secured by a Lien on assets of such Person or one of its Restricted Subsidiaries, whether or not such Guarantee or Lien is called upon; plus

     (4) all dividends, whether paid or accrued and whether or not in cash, on any series of Disqualified Equity of such Person or any of its Restricted Subsidiaries, other than dividends on Equity Interests payable solely in Equity Interests of Regency Energy Partners (other than Disqualified Equity) or to Regency Energy Partners or a Restricted Subsidiary of Regency Energy Partners; minus

(B) to the extent included in (A) above, write-offs of deferred financing costs of such Person and its Restricted Subsidiaries during such period and any charge related to, or any premium or penalty paid in connection with, paying any such Indebtedness of such Person and its Restricted Subsidiaries prior to its Stated Maturity.

           “GAAP” means generally accepted accounting principles in the United States, from time to time.

           “General Partner” means Regency GP LLC, a Delaware limited liability company, and its successors and permitted assigns as general partner of Regency GP, LP, a Delaware limited partnership, and its successors and permitted assigns as general partner of Regency Energy Partners or as the business entity with the ultimate authority to manage the business and operations of Regency Energy Partners.

           “Global Note Legend” means the legend set forth in Section 2.06(g)(2) hereof, which is required to be placed on all Global Notes issued under this Indenture.

           “Global Notes” means, individually and collectively, each of the Restricted Global Notes and the Unrestricted Global Notes deposited with or on behalf of and registered in the name of the Depositary or its nominee, substantially in the form of Exhibit A hereto and that bears the Global Note Legend and that has the “Schedule of Exchanges of Interests in the Global Note” attached thereto, issued in accordance with Section 2.01, 2.06(b)(3), 2.06(b)(4), 2.06(d)(2) or 2.06(f) hereof.

           “Government Securities” means direct obligations of, or obligations guaranteed by, the United States of America for the payment of which guarantee or obligations the full faith and credit of the United States of America is pledged.

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           “Guarantee” means a guarantee other than by endorsement of negotiable instruments for collection in the ordinary course of business, direct or indirect, in any manner including by way of a pledge of assets or through letters of credit or reimbursement agreements in respect thereof, of all or any part of any Indebtedness.

           “Guarantors” means each of:

     (1) the Subsidiaries of Regency Energy Partners, other than Finance Corp., executing this Indenture as initial Guarantors; and

     (2) any other Subsidiary of Regency Energy Partners that becomes a Guarantor in accordance with the provisions of this Indenture,

and their respective successors and assigns, in each case, until the Note Guarantee of such Person has been released in accordance with the provisions of this Indenture.

           “Hedging Obligations” means, with respect to any specified Person, the obligations of such Person incurred in the ordinary course of business and not for speculative purposes under:

     (1) interest rate swap agreements (whether from fixed to floating or from floating to fixed), interest rate cap agreements and interest rate collar agreements entered into with one or more financial institutions and designed to reduce costs of borrowing or to protect the Person or any of its Restricted Subsidiaries entering into the agreement against fluctuations in interest rates with respect to Indebtedness incurred;

     (2) other agreements or arrangements designed to manage interest rates or interest rate risk;

     (3) foreign exchange contracts and currency protection agreements entered into with one of more financial institutions and designed to protect the Person or any of its Restricted Subsidiaries entering into the agreement against fluctuations in currency exchange rates with respect to Indebtedness incurred;

     (4) any commodity futures contract, commodity option or other similar agreement or arrangement designed to protect against fluctuations in the price of Hydrocarbons used, produced, processed or sold by that Person or any of its Restricted Subsidiaries at the time; and

     (5) other agreements or arrangements designed to protect such Person or any of its Restricted Subsidiaries against fluctuations in currency exchange rates or commodity prices.

           “Holder” means a Person in whose name a Note is registered.

           “Hydrocarbons” means crude oil, natural gas, natural gas liquids, casinghead gas, drip gasoline, condensate, distillate, liquid hydrocarbons, gaseous hydrocarbons and all constituents, elements or compounds thereof and products refined or processed therefrom.

           “Indebtedness” means, with respect to any specified Person, any indebtedness of such Person, whether or not contingent:

     (1) in respect of borrowed money;

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     (2) evidenced by bonds, notes, debentures or similar instruments or letters of credit (or reimbursement agreements in respect thereof);

     (3) in respect of bankers’ acceptances;

     (4) representing Capital Lease Obligations or Attributable Debt in respect of sale and leaseback transactions;

     (5) representing the balance deferred and unpaid of the purchase price of any property or services due more than six months after such property is acquired or such services are completed; or

     (6) representing any Hedging Obligations,

if and to the extent any of the preceding items (other than letters of credit, Attributable Debt and Hedging Obligations) would appear as a liability upon a balance sheet of the specified Person prepared in accordance with GAAP. In addition, the term “Indebtedness” includes all Indebtedness of others secured by a Lien on any asset of the specified Person (whether or not such Indebtedness is assumed by the specified Person) and, to the extent not otherwise included, the Guarantee by the specified Person of any Indebtedness of any other Person.

           Notwithstanding the foregoing, the following shall not constitute “Indebtedness”:

     (1) accrued expenses and trade accounts payable arising in the ordinary course of business;

     (2) any obligation of Regency Energy Partners or any of its Restricted Subsidiaries in respect of bid, performance, surety and similar bonds issued for the account of Regency Energy Partners and any of its Restricted Subsidiaries in the ordinary course of business, including Guarantees and obligations of Regency Energy Partners or any of its Restricted Subsidiaries with respect to letters of credit supporting such obligations (in each case other than an obligation for money borrowed);

     (3) any Indebtedness that has been defeased in accordance with GAAP or defeased pursuant to the deposit of cash or Government Securities (in an amount sufficient to satisfy all such Indebtedness at fixed maturity or redemption, as applicable, and all payments of interest and premium, if any) in a trust or account created or pledged for the sole benefit of the holders of such Indebtedness and subject to no other Liens, and the other applicable terms of the instrument governing such Indebtedness;

     (4) any obligation arising from the honoring by a bank or other financial institution of a check, draft or similar instrument drawn against insufficient funds in the ordinary course of business; provided, however, that such obligation is extinguished within five Business Days of its incurrence; and

     (5) any obligation arising from any agreement providing for indemnities, guarantees, purchase price adjustments, holdbacks, contingency payment obligations based on the performance of the acquired or disposed assets or similar obligations (other than guarantees of Indebtedness) incurred by any Person in connection with the acquisition or disposition of assets.

           “Indenture” means this Indenture, as amended or supplemented from time to time.

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           “Initial Notes” means the first $550,000,000 aggregate principal amount of Notes issued under this Indenture on the date hereof.

           “Initial Purchasers” means UBS Securities LLC, Lehman Brothers Inc., Wachovia Capital Markets LLC, Citigroup Global Markets Inc. and J.P. Morgan Securities Inc.

           “Institutional Accredited Investor” means an institution that is an “accredited investor” as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act, who is not also a QIB.

           “Investment Grade Rating” means a rating equal to or higher than Baa3 (or the equivalent) by Moody’s and BBB- (or the equivalent) by S&P.

           “Investments” means, with respect to any Person, all direct or indirect investments by such Person in other Persons (including Affiliates) in the forms of loans (including Guarantees or other obligations), advances or capital contributions (excluding (1) commission, travel and similar advances to officers and employees made in the ordinary course of business and (2) advances to customers in the ordinary course of business that are recorded as accounts receivable on the balance sheet of the lender), purchases or other acquisitions for consideration of Indebtedness, Equity Interests or other securities, together with all items that are or would be classified as investments on a balance sheet prepared in accordance with GAAP. If Regency Energy Partners or any Restricted Subsidiary of Regency Energy Partners sells or otherwise disposes of any Equity Interests of any direct or indirect Restricted Subsidiary of Regency Energy Partners such that, after giving effect to any such sale or disposition, such Person is no longer a Restricted Subsidiary of Regency Energy Partners, Regency Energy Partners will be deemed to have made an Investment on the date of any such sale or disposition equal to the Fair Market Value of Regency Energy Partners’ Investments in such Restricted Subsidiary that were not sold or disposed of in an amount determined as provided in Section 4.07(b) hereof.

           “Joint Venture” means any Person that is not a direct or indirect Subsidiary of Regency Energy Partners in which Regency Energy Partners or any of its Restricted Subsidiaries makes any Investment.

           “Legal Holiday” means a Saturday, a Sunday or a day on which banking institutions in the City of Dallas, New York or at a place of payment are authorized by law, regulation or executive order to remain closed. If a payment date is a Legal Holiday at a place of payment, payment may be made at that place on the next succeeding day that is not a Legal Holiday, and no interest shall accrue on such payment for the intervening period.

           “Letter of Transmittal” means the letter of transmittal to be prepared by the Issuers and sent to all Holders of the Notes for use by such Holders in connection with an Exchange Offer.

           “Lien” means, with respect to any asset, any mortgage, lien, pledge, charge, security interest or encumbrance of any kind in respect of such asset, whether or not filed, recorded or otherwise perfected under applicable law, including any conditional sale or other title retention agreement, any lease in the nature thereof, any option or other agreement to sell or give a security interest in and any filing of or agreement to give any financing statement under the Uniform Commercial Code (or equivalent statutes) of any jurisdiction other than a precautionary financing statement respecting a lease not intended as a security interest. In no event shall a right of first refusal be deemed to constitute a lien.

           “Liquidated Damages” means all liquidated damages then owing pursuant to a Registration Rights Agreement.

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           “Moody’s” means Moody’s Investors Service, Inc., or any successor to the rating agency business thereof.

           “Net Income” means, with respect to any specified Person, the net income (loss) of such Person, determined in accordance with GAAP and before any reduction in respect of preferred stock dividends, excluding, however:

     (1) any gain (but not loss), together with any related provision for taxes on such gain (but not loss), realized in connection with:

     (a) any Asset Sale; or

     (b) the disposition of any securities by such Person or the extinguishment of any Indebtedness of such Person; and

     (2) any extraordinary gain (but not loss), together with any related provision for taxes on such extraordinary gain (but not loss).

           “Net Proceeds” means the aggregate cash proceeds received by Regency Energy Partners or any of its Restricted Subsidiaries in respect of any Asset Sale (including any cash received upon the sale or other disposition of any non-cash consideration received in any Asset Sale), net of:

     (1) the direct costs relating to such Asset Sale, including legal, accounting and investment banking fees, and sales commissions, and any relocation expenses incurred as a result of the Asset Sale,

     (2) taxes paid or payable as a result of the Asset Sale, in each case, after taking into account any available tax credits or deductions and any tax sharing arrangements,

     (3) amounts required to be applied to the repayment of Indebtedness, other than revolving credit Indebtedness except to the extent resulting in a permanent reduction in availability of such Indebtedness under a Credit Facility, secured by a Lien on the properties or assets that were the subject of such Asset Sale and all distributions and payments required to be made to minority interest holders in Restricted Subsidiaries as a result of such Asset Sale, and

     (4) any amounts to be set aside in any reserve established in accordance with GAAP or any amount placed in escrow, in either case for adjustment in respect of the sale price of such properties or assets or for liabilities associated with such Asset Sale and retained by Regency Energy Partners or any of its Restricted Subsidiaries until such time as such reserve is reversed or such escrow arrangement is terminated, in which case Net Proceeds shall include only the amount of the reserve so reversed or the amount returned to Regency Energy Partners or its Restricted Subsidiaries from such escrow arrangement, as the case may be.

           “Non-Recourse Debt” means Indebtedness:

     (1) as to which neither Regency Energy Partners nor any of its Restricted Subsidiaries (a) provides credit support of any kind (including any undertaking, agreement or instrument that would constitute Indebtedness), (b) is directly or indirectly liable as a guarantor or otherwise or (c) is the lender;

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     (2) no default with respect to which (including any rights that the holders of the Indebtedness may have to take enforcement action against an Unrestricted Subsidiary) would permit upon notice, lapse of time or both any holder of any other Indebtedness of Regency Energy Partners or any of its Restricted Subsidiaries to declare a default on such other Indebtedness or cause the payment of the Indebtedness to be accelerated or payable prior to its Stated Maturity; and

     (3) as to which the lenders have been notified in writing that they will not have any recourse to the stock or assets of Regency Energy Partners or any of its Restricted Subsidiaries except as contemplated by clause (10) of the definition of Permitted Liens.

           For purposes of determining compliance with Section 4.09 hereof, if any Non-Recourse Debt of any of Regency Energy Partners’ Unrestricted Subsidiaries ceases to be Non-Recourse Debt of such Unrestricted Subsidiary, such event will be deemed to constitute an incurrence of Indebtedness by a Restricted Subsidiary of Regency Energy Partners.

           “Non-U.S. Person” means a Person who is not a U.S. Person.

           “Note Guarantee” means the Guarantee by each Guarantor of the Issuers’ obligations under this Indenture and the Notes, pursuant to the provisions of this Indenture.

           “Notes” has the meaning assigned to it in the preamble to this Indenture. The Initial Notes and the Additional Notes shall be treated as a single class for all purposes under this Indenture, and unless the context otherwise requires, all references to the Notes shall include the Initial Notes and any Additional Notes.

           “Obligations” means any principal, interest, penalties, fees, indemnifications, reimbursements, damages and other liabilities payable under the documentation governing any Indebtedness.

           “Offering Memorandum” means the final Offering Memorandum of the Issuers, dated December 7, 2006 with respect to the Notes.

           “Officer” means, with respect to any Person, the Chairman of the Board, the Chief Executive Officer, the President, the Chief Operating Officer, the Chief Financial Officer, the Treasurer, any Assistant Treasurer, the Controller, the Secretary or any Vice-President of such Person (or, if such Person is a limited partnership, the general partner of such Person, except it shall be the General Partner in the case of Regency Energy Partners).

           “Officers’ Certificate” means, with respect to any Person, a certificate signed on behalf of such Person by any two of its Officers, one of whom must be the principal executive officer, the principal financial officer or the principal accounting officer of such Person that meets the requirements of Section 12.05 hereof.

           “Operating Surplus” has the meaning assigned to such term in the Partnership Agreement, as in effect on the date of this Indenture.

           “Opinion of Counsel” means an opinion from legal counsel who is reasonably acceptable to the Trustee, that meets the requirements of Section 12.05 hereof. The counsel may be an employee of or counsel to Regency Energy Partners, the General Partner, any Subsidiary of Regency Energy Partners or the General Partner or the Trustee.

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           “Partnership Agreement” means the Amended and Restated Agreement of Limited Partnership of Regency Energy Partners LP, dated as of February 3, 2006, as amended on August 15, 2006 and September 21, 2006, and as such may be further amended, modified or supplemented from time to time.

           “Permitted Business” means either (1) gathering, transporting, treating, processing, marketing, distributing, storing or otherwise handling Hydrocarbons, or activities or services reasonably related or ancillary thereto including entering into Hedging Obligations related to these businesses, or (2) any other business that generates gross income that constitutes “qualifying income” under Section 7704(d) of the Internal Revenue Code of 1986, as amended.

           “Permitted Business Investments” means Investments by Regency Energy Partners or any of its Restricted Subsidiaries in any Unrestricted Subsidiary of Regency Energy Partners or in any Joint Venture, provided that:

     (1) either (a) at the time of such Investment and immediately thereafter, Regency Energy Partners could incur $1.00 of additional Indebtedness under the Fixed Charge Coverage Ratio test set forth in Section 4.09(a) hereof or (b) such Investment does not exceed the aggregate amount of Incremental Funds (as defined in Section 4.07 hereof) not previously expended at the time of making such Investment;

     (2) if such Unrestricted Subsidiary or Joint Venture has outstanding Indebtedness at the time of such Investment, either (a) all such Indebtedness is Non-Recourse Debt or (b) any such Indebtedness of such Unrestricted Subsidiaries or Joint Venture that is recourse to Regency Energy Partners or any of its Restricted Subsidiaries (which shall include all Indebtedness of such Unrestricted Subsidiary or Joint Venture for which Regency Energy Partners or any of its Restricted Subsidiaries may be directly or indirectly, contingently or otherwise, obligated to pay, whether pursuant to the terms of such Indebtedness, by law or pursuant to any guarantee, including any “claw-back,” “make-well” or “keepwell” arrangement) could, at the time such Investment is made, be incurred at that time by Regency Energy Partners and its Restricted Subsidiaries under the Fixed Charge Coverage Ratio test set forth in Section 4.09(a) hereof; and

     (3) such Unrestricted Subsidiary’s or Joint Venture’s activities are not outside the scope of the Permitted Business.

           “Permitted Investments” means:

     (1) any Investment in Regency Energy Partners or in a Restricted Subsidiary of Regency Energy Partners;

     (2) any Investment in Cash Equivalents;

     (3) any Investment by Regency Energy Partners or any Restricted Subsidiary of Regency Energy Partners in a Person, if as a result of such Investment:

     (a) such Person becomes a Restricted Subsidiary of Regency Energy Partners; or

     (b) such Person is merged, consolidated or amalgamated with or into, or transfers or conveys substantially all of its properties or assets to, or is liquidated into, Regency Energy Partners or a Restricted Subsidiary of Regency Energy Partners,

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     (4) any Investment made as a result of the receipt of non-cash consideration from:

     (a) an Asset Sale that was made pursuant to and in compliance with Section 4.10 hereof; or

     (b) pursuant to clause (7) of the items deemed not to be Asset Sales under the definition of “Asset Sale;”

     (5) any Investment in any Person solely in exchange for the issuance of Equity Interests (other than Disqualified Equity) of Regency Energy Partners;

     (6) any Investments received in compromise or resolution of (A) obligations of trade creditors or customers that were incurred in the ordinary course of business of Regency Energy Partners or any of its Restricted Subsidiaries, including pursuant to any plan of reorganization or similar arrangement upon the bankruptcy or insolvency of any trade creditor or customer, or as a result of a foreclosure by Regency Energy Partners or any of its Restricted Subsidiaries with respect to any secured Investment in default; or (B) litigation, arbitration or other disputes with Persons who are not Affiliates;

     (7) Investments represented by Hedging Obligations permitted to be incurred;

     (8) loans or advances to employees made in the ordinary course of business of Regency Energy Partners or any Restricted Subsidiary of Regency Energy Partners in an aggregate principal amount not to exceed $1.0 million at any one time outstanding;

     (9) repurchases of the Notes;

     (10) any Investments in prepaid expenses, negotiable instruments held for collection and lease, utility, workers’ compensation and performance and other similar deposits and prepaid expenses made in the ordinary course of business;

     (11) Permitted Business Investments; and

     (12) other Investments in any Person having an aggregate Fair Market Value (measured on the date each such Investment was made and without giving effect to subsequent changes in value), when taken together with all other Investments made pursuant to this clause (12) that are at the time outstanding not to exceed the greater of (a) $25.0 million and (b) 2.5% of Regency Energy Partners’ Consolidated Net Tangible Assets.

           “Permitted Liens” means:

     (1) Liens securing any Indebtedness under any of the Credit Facilities and all Obligations and Hedging Obligations relating to such Indebtedness;

     (2) Liens in favor of Regency Energy Partners or the Guarantors;

     (3) Liens on property of a Person existing at the time such Person is merged with or into or consolidated with Regency Energy Partners or any Subsidiary of Regency Energy Partners; provided that such Liens were in existence prior to such merger or consolidation and do not extend to any assets other than those of the Person merged into or consolidated with Regency Energy Partners or the Subsidiary;

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     (4) Liens on property existing at the time of acquisition of the property by Regency Energy Partners or any Restricted Subsidiary of Regency Energy Partners; provided that such Liens were in existence prior to, such acquisition, and not incurred in contemplation of, such acquisition;

     (5) Liens to secure the performance of statutory obligations, surety or appeal bonds, performance bonds or other obligations of a like nature incurred in the ordinary course of business;

     (6) Liens to secure Indebtedness (including Capital Lease Obligations) permitted by clause (4) of Section 4.09(b) hereof covering only the assets acquired with or financed by such Indebtedness;

     (7) Liens existing on the date of this Indenture (other than Liens securing the Credit Facilities);

     (8) Liens created for the benefit of (or to secure) the Notes (or the Note Guarantees);

     (9) Liens on any property or asset acquired, constructed or improved by Regency Energy Partners or any of its Restricted Subsidiaries (a “Purchase Money Lien”), which (a) are in favor of the seller of such property or assets, in favor of the Person developing, constructing, repairing or improving such asset or property, or in favor of the Person that provided the funding for the acquisition, development, construction, repair or improvement cost, as the case may be, of such asset or property, (b) are created within 360 days after the acquisition, development, construction, repair or improvement, (c) secure the purchase price or development, construction, repair or improvement cost, as the case may be, of such asset or property in an amount up to 100% of the Fair Market Value of such acquisition, construction or improvement of such asset or property, and (d) are limited to the asset or property so acquired, constructed or improved (including the proceeds thereof, accessions thereto and upgrades thereof);

     (10) Liens on and pledges of the Equity Interests of any Unrestricted Subsidiary or any Joint Venture owned by Regency Energy Partners or any Restricted Subsidiary of Regency Energy Partners to the extent securing Non-Recourse Debt or other Indebtedness of such Unrestricted Subsidiary or Joint Venture;

     (11) Liens in favor of collecting or payor banks having a right of setoff, revocation, refund or chargeback with respect to money or instruments of Regency Energy Partners or any of its Restricted Subsidiaries on deposit with or in possession of such bank;

     (12) Liens to secure performance of Hedging Obligations of Regency Energy Partners or any of its Restricted Subsidiaries;

     (13) Liens arising under construction contracts, interconnection agreements, operating agreements, joint venture agreements, partnership agreements, oil and gas leases, farmout agreements, division orders, contracts for purchase, gathering, processing, sale, transportation or exchange of crude oil, natural gas liquids, condensate and natural gas, natural gas storage agreements, unitization and pooling declarations and agreements, area of mutual interest agreements, real property leases and other agreements arising in the ordinary course of business of Regency Energy Partners and its Restricted Subsidiaries that are customary in the Permitted Business;

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     (14) Liens upon specific items of inventory, receivables or other goods or proceeds of Regency Energy Partners or any of its Restricted Subsidiaries securing such Person’s obligations in respect of bankers’ acceptances or receivables securitizations issued or created for the account of such Person to facilitate the purchase, shipment or storage of such inventory, receivables or other goods or proceeds and permitted by Section 4.09;

     (15) Liens securing any Indebtedness equally and ratably with all Obligations due under the Notes or any Note Guarantee pursuant to a contractual covenant that limits Liens in a manner substantially similar to Section 4.12;

     (16) Liens incurred in the ordinary course of business of Regency Energy Partners or any Restricted Subsidiary of Regency Energy Partners; provided, however, that, after giving effect to any such incurrence, the aggregate principal amount of all Indebtedness then outstanding and secured by any Liens pursuant to this clause (16) dates not exceed 5.0% of Regency Energy Partners’ Consolidated Net Tangible Assets at such time; and

     (17) any Lien renewing, extending, refinancing or refunding a Lien permitted by clauses (1) through (16) above; provided that (a) the principal amount of Indebtedness secured by such Lien does not exceed the principal amount of such Indebtedness outstanding immediately prior to the renewal, extension, refinance or refund of such Lien, plus all accrued interest on the Indebtedness secured thereby and the amount of all fees, expenses and premiums incurred in connection therewith, and (b) no assets encumbered by any such Lien other than the assets permitted to be encumbered immediately prior to such renewal, extension, refinance or refund are encumbered thereby.

           After termination of the covenants referred to in Section 4.20, for purposes of complying with Section 4.12, the Liens described in clauses (1) and (16) of this definition of “Permitted Liens” will be Permitted Liens only to the extent those Liens secure Indebtedness not exceeding, at the time of determination, 10% of the Consolidated Net Tangible Assets of Regency Energy Partners. Once effective, this 10% limitation on Permitted Liens will continue to apply during any later period in which the Notes do not have an Investment Grade Rating by both Rating Agencies.

           “Permitted Refinancing Indebtedness” means any Indebtedness of Regency Energy Partners or any of its Restricted Subsidiaries issued in exchange for, or the net proceeds of which are used to renew, refund, refinance, replace, defense or discharge other Indebtedness of Regency Energy Partners or any of its Restricted Subsidiaries (other than intercompany Indebtedness); provided that:

     (1) the principal amount of such Permitted Refinancing Indebtedness does not exceed the principal amount of the Indebtedness renewed, refunded, refinanced, replaced, defeased or discharged (plus all accrued interest on the Indebtedness and the amount of all fees and expenses, including premiums, incurred in connection therewith);

     (2) such Permitted Refinancing Indebtedness has a final maturity date no earlier than the final maturity date of, and has a Weighted Average Life to Maturity equal to or greater than the Weighted Average Life to Maturity of, the Indebtedness being renewed, refunded, refinanced, replaced, defamed or discharged;

     (3) if the Indebtedness being renewed, refunded, refinanced, replaced, defeased or discharged is subordinated in right of payment to the Notes or the Note Guarantees, such Permitted Refinancing Indebtedness is subordinated in right of payment to, the Notes or the Note Guarantees, on terms at least as favorable to the Holders of Notes as those contained in the documenta-

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tion governing the Indebtedness being renewed, refunded, refinanced, replaced, defeased or discharged; and

     (4) such Indebtedness is incurred either by Regency Energy Partners or by the Restricted Subsidiary that is the obligor on or guarantor of the Indebtedness being renewed, refunded, refinanced, replaced, defeased or discharged.

           “Person” means any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization, limited liability company or government or other entity.

           “Private Placement Legend” means the legend set forth in Section 2.06(g)(1)(A) hereof to be placed on all Notes issued under this Indenture except where otherwise permitted by the provisions of this Indenture.

           “QIB” means a “qualified institutional buyer” as defined in Rule 144A.

           “Qualified Owner” means Hicks, Muse, Tate & Furst Equity Fund V, LP and its Affiliates that are organized by such Person (or any Person controlling such Person) primarily for making, or otherwise having as their primary activity holding or exercising control over, equity or debt investments in Regency GP LLC or other portfolio companies.

           “Rating Agencies” means Moody’s and S&P.

           “Ratings Categories” means:

     (1) with respect to S&P, any of the following categories: AAA, AA, A, BBB, BB, B, CCC, CC, C and D (or equivalent successor categories); and

     (2) with respect to Moody’s, any of the following categories: Aaa, Aa, A, Baa, Ba, B, Caa, Ca, C and D (or equivalent successor categories).

           “Ratings Decline” means a decrease in the rating of the Notes by either Moody’s or S&P by one or more gradations (including gradations within Rating Categories as well as between Rating Categories). In determining whether the rating of the Notes has decreased by one or more gradations, gradations within Ratings Categories, namely + or — for S&P, and 1, 2, and 3 for Moody’s, will be taken into account; for example, in the case of S&P, a ratings decline either from BB+ to BB or BB to B- will constitute a decrease of one gradation.

           “Reporting Default” means a Default described in clause (4) under Section 6.01.

           “Registration Rights Agreement” means (i) with respect to the Initial Notes, the Registration Rights Agreement, dated as of December 12, 2006, among the Issuers, the Guarantors and the other parties named on the signature pages thereof, and (ii) with respect to any Additional Notes, the comparable agreement, in each case as such agreement may be amended, modified or supplemented from time to time.

           “Regulation S” means Regulation S promulgated under the Securities Act.

           “Regulation S Global Note” means a Global Note substantially in the form of Exhibit A hereto bearing the Global Note Legend and the Private Placement Legend and deposited with or on behalf

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of and registered in the name of the Depositary or its nominee, issued in a denomination equal to the outstanding principal amount of the Notes sold in reliance on Rule 903 of Regulation S.

           “Responsible Officer,” when used with respect to the Trustee, means any officer within the Corporate Trust Administration of the Trustee (or any successor group of the Trustee) or any other officer of the Trustee customarily performing functions similar to those performed by any of the above designated officers and also means, with respect to a particular corporate trust matter, any other officer to whom such matter is referred because of his knowledge of and familiarity with the particular subject.

           “Restricted Definitive Note” means a Definitive Note bearing the Private Placement Legend.

           “Restricted Global Note” means a Global Note bearing the Private Placement Legend.

           “Restricted Investment” means an Investment other than a Permitted Investment.

           “Restricted Subsidiary” of a Person means any Subsidiary of the referent Person that is not an Unrestricted Subsidiary. Notwithstanding anything in this Indenture to the contrary, Finance Corp. shall be a Restricted Subsidiary of Regency Energy Partners.

           “Rule 144” means Rule 144 promulgated under the Securities Act.

           “Rule 144A” means Rule 144A promulgated under the Securities Act.

           “Rule 903” means Rule 903 promulgated under the Securities Act.

           “Rule 904” means Rule 904 promulgated under the Securities Act.

           “S&P” means Standards & Poor’s Ratings Group, a division of The McGraw-Hill Companies, Inc., or any successor to the rating agency business thereof.

           “SEC” means the Securities and Exchange Commission.

           “Securities Act” means the Securities Act of 1933, as amended.

           “Senior Indebtedness” means with respect to any Person, Indebtedness of such Person, unless the instrument creating or evidencing such Indebtedness provides that such Indebtedness is subordinate in right of payment to the Notes or the Note Guarantee of such Person, as the case may be.

           “Shelf Registration Statement” means a registration statement effecting a Shelf Registration as defined in the initial Registration Rights Agreement.

           “Significant Subsidiary” means any Subsidiary that would be a “significant subsidiary” as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated pursuant to the Securities Act, as such Regulation is in effect on the date of this Indenture.

           “Stated Maturity” means, with respect to any installment of interest or principal on any series of Indebtedness, the date on which the payment of interest or principal was scheduled to be paid in the original documentation governing such Indebtedness, and will not include any contingent obligations to repay, redeem or repurchase any such interest or principal prior to the date originally scheduled for the payment thereof.

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           “Subsidiary” means, with respect to any specified Person:

     (1) any corporation, association or other business entity (other than a partnership or limited liability company) of which more than 50% of the total voting power of the Voting Stock is at the time owned or controlled, directly or indirectly, by that Person or one or more of the other Subsidiaries of that Person (or a combination thereof); and

     (2) any partnership (whether general or limited) or limited liability company (a) the sole general partner or member of which is such Person or a Subsidiary of such Person, or (b) if there is more than a single general partner or member, either (x) the only managing general partners or managing members of which are such Person or one or more Subsidiaries of such Person (or any combination thereof) or (y) such Person owns or controls, directly or indirectly, a majority of the outstanding general partner interests, member interests or other Voting Stock of such partnership or limited liability company, respectively.

           “TIA” means the Trust Indenture Act of 1939, as amended (15 U.S.C. §§ 77aaa-77bbbb).

           “Treasury Rate” means, with respect to any Redemption Date, the yield to maturity at the time of computation of United States Treasury securities with a constant maturity (as compiled and published in the most recent Federal Reserve Statistical Release H.15 (519) that has become publicly available at least two Business Days prior to the Redemption Date (or, if such Statistical Release is no longer published, any publicly available source of similar market data)) most nearly equal to the period from the Redemption Date to December 15, 2010; provided, however, that if such period is not equal to the constant maturity of a United States Treasury security for which a weekly average yield is given, Regency Energy Partners shall obtain the Treasury Rate by linear interpolation (calculated to the nearest one twelfth of a year) from the weekly average yields of United States Treasury securities for which such yields are given, except that if the period from the Redemption Date to December 15, 2010, is less than one year, the weekly average yield on actually traded United States Treasury securities adjusted to a constant maturity of one year will be used. Regency Energy Partners will (a) calculate the Treasury Rate on the second Business Day preceding the applicable Redemption Date and (b) prior to such Redemption Date file with the Trustee an Officers’ Certificate setting forth the Applicable Premium and the Treasury Rate and showing the calculation of each in reasonable detail.

           “Trustee” means Wells Fargo Bank, National Association, until a successor replaces it in accordance with the applicable provisions of this Indenture and thereafter means the successor serving hereunder.

           “Unrestricted Definitive Note” means a Definitive Note that does not bear and is not required to bear the Private Placement Legend

           “Unrestricted Global Note” means a Global Note that does not bear and is not required to bear the Private Placement Legend.

           “Unrestricted Subsidiary” means any Subsidiary of Regency Energy Partners (other than Finance Corp. or any successor to it) that is designated by the Board of Directors of the General Partner as an Unrestricted Subsidiary pursuant to a resolution of the Board of Directors, but only to the extent that such Subsidiary:

     (1) except to the extent permitted by subclause (2)(b) of the definition of “Permitted Business Investments,” has no Indebtedness other than Non-Recourse Debt;

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     (2) except as permitted under clause (4) of Section 4.11 hereof, is not party to any agreement, contract, arrangement or understanding with Regency Energy Partners or any Restricted Subsidiary of Regency Energy Partners unless the terms of any such agreement, contract, arrangement or understanding are no less favorable to Regency Energy Partners or such Restricted Subsidiary than those that might be obtained at the time from Persons who are not Affiliates of Regency Energy Partners;

     (3) is a Person with respect to which neither Regency Energy Partners nor any of its Restricted Subsidiaries has any direct or indirect obligation (a) to subscribe for additional Equity Interests or (b) to maintain or preserve such Person’s financial condition or to cause such Person to achieve any specified levels of operating results; and

     (4) has not guaranteed or otherwise directly or indirectly provided credit support for any Indebtedness of Regency Energy Partners or any of its Restricted Subsidiaries.

           All Subsidiaries of an Unrestricted Subsidiary shall be also Unrestricted Subsidiaries.

           “U.S. Person” means a U.S. Person as defined in Rule 902(k) promulgated under the Securities Act.

           “Voting Stock” of any specified Person as of any date means the Capital Stock of such Person that is at the time entitled (without regard to the occurrence of any contingency) to vote in the election of the Board of Directors of such Person.

           “Weighted Average Life to Maturity” means, when applied to any Indebtedness at any date, the number of years obtained by dividing:

     (1) the sum of the products obtained by multiplying (a) the amount of each then remaining installment, sinking fund, serial maturity or other required payments of principal, including payment at final maturity, in respect of the Indebtedness, by (b) the number of years (calculated to the nearest one-twelfth) that will elapse between such date and the making of such payment; by

     (2) the then outstanding principal amount of such Indebtedness.

Section 1.02 Other Definitions.

Term	Defined in Section
“Affiliate Transaction”		4.11
“Asset Sale Offer”		3.09
“Authentication Order”		2.02
“Change of Control Offer”		4.15
“Change of Control Payment”		4.15
“Change of Control Payment Date”		4.15
“Covenant Defeasance”		8.03
“DTC”		2.03
“Event of Default”		6.01
“Excess Proceeds”		4.10
“Incremental Funds”		4.07
“incur”		4.09

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Term	Defined in Section
“Legal Defeasance”		8.02
“Offer Amount”		3.09
“Offer Period”		3.09
“Paying Agent”		2.03
“Permitted Debt”		4.09
“Payment Default”		6.01
“Purchase Date”		3.09
“Redemption Date”		3.07
“Registrar”		2.03
“Restricted Payments”		4.07

Section 1.03 Incorporation by Reference of Trust Indenture Act.

           Whenever this Indenture refers to a provision of the TIA, the provision is incorporated by reference in and made a part of this Indenture.

           The following TIA terms used in this Indenture have the following meanings:

          “indenture securities“ means the Notes and the Note Guarantees;

          “indenture security holder” means a Holder of a Note;

          “indenture to be qualified” means this Indenture;

          “indenture trustee” or “institutional trustee” means the Trustee; and

           “obligor” on the Notes and the Note Guarantees means the Issuers and the Guarantors, respectively, and any successor obligor upon the Notes and the Note Guarantees, respectively.

           All other terms used in this Indenture that are defined by the TIA, defined by TIA reference to another statute or defined by SEC rule under the TIA have the meanings so assigned to them.

Section 1.04 Rules of Construction.

           Unless the context otherwise requires:

     (1) a term has the meaning assigned to it;

     (2) an accounting term not otherwise defined has the meaning assigned to it in accordance with GAAP;

     (3) “or” is not exclusive;

     (4) words in the singular include the plural, and in the plural include the singular;

     (5) “will” shall be interpreted to express a command;

     (6) provisions apply to successive events and transactions; and

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     (7) references to sections of or rules under the Securities Act or Exchange Act will be deemed to include substitute, replacement of successor sections or rules adopted by the SEC from time to time.

ARTICLE 2

THE NOTES

Section 2.01 Form and Dating.

           (a) General. The Notes and the Trustee’s certificate of authentication will be substantially in the form of Exhibit A hereto. The Notes may have notations, legends or endorsements required by law, stock exchange rule or usage. Each Note will be dated the date of its authentication. The Notes shall be in denominations of $1,000 and integral multiples thereof.

           The terms and provisions contained in the Notes will constitute, and are hereby expressly made, a part of this Indenture and the Issuers, the Guarantor and the Trustee, by their execution and delivery of this Indenture, expressly agree to such terms and provisions and to be bound thereby. However, to the extent any provision of any Note conflicts with the express provisions of this Indenture, the provisions of this Indenture shall govern and be controlling.

           (b) Global Notes. Notes issued in global form will be substantially in the form of Exhibit A hereto (including the Global Note Legend thereon and the “Schedule of Exchanges of Interests in the Global Note” attached thereto). Notes issued in definitive form will be substantially in the form of Exhibit A hereto (but without the Global Note Legend thereon and without the “Schedule of Exchanges of Interests in the Global Note” attached thereto). Each Global Note will represent such of the outstanding Notes as will be specified therein and each shall provide that it represents the aggregate principal amount of outstanding Notes from time to time endorsed thereon and that the aggregate principal amount of outstanding Notes represented thereby may from time to time be reduced or increased, as appropriate, to reflect exchanges and redemptions. Any endorsement of a Global Note to reflect the amount of any increase or decrease in the aggregate principal amount of outstanding Notes represented thereby will be made by the Trustee or the Custodian, at the direction of the Trustee, in accordance with instructions given by the Holder thereof as required by Section 2.06 hereof.

Section 2.02 Execution and Authentication.

           At least one Officer must sign the Notes for each of the Issuers by manual or facsimile signature.

           If an Officer whose signature is on a Note no longer holds that office at the time a Note is authenticated, the Note will nevertheless be valid.

           A Note will not be valid until authenticated by the manual signature of the Trustee. The signature will be conclusive evidence that the Note has been authenticated under this Indenture.

           The Trustee will, upon receipt of a written order of the Issuers signed by two Officers of each Issuer (an “Authentication Order”), authenticate Notes for original issue that may be validly issued under this Indenture, including any Additional Notes and Exchange Notes. The aggregate principal amount of Notes outstanding at any time may not exceed the aggregate principal amount of Notes authorized for issuance by the Issuers pursuant to one or more Authentication Orders, except as provided in Section 2.07 hereof.

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           The Trustee may appoint an authenticating agent acceptable to the Issuers to authenticate Notes. An authenticating agent may authenticate Notes whenever the Trustee may do so. Each reference in this Indenture to authentication by the Trustee includes authentication by such agent. An authenticating agent has the same rights as an Agent to deal with Holders or an Affiliate of the Issuers.

Section 2.03 Registrar and Paying Agent.

           The Issuers will maintain an office or agency where Notes may be presented for registration of transfer or for exchange (“Registrar”) and an office or agency where Notes may be presented for payment (“Paying Agent”). The Registrar will keep a register of the Notes and of their transfer and exchange. The Issuers may appoint one or more co-registrars and one or more additional paying agents. The term “Registrar” includes any co-registrar and the term “Paying Agent” includes any additional paying agent. The Issuers may change any Paying Agent or Registrar without notice to any Holder. The Issuers will notify the Trustee in writing of the name and address of any Agent not a party to this Indenture. If the Issuers fail to appoint or maintain another entity as Registrar or Paying Agent, the Trustee shall act as such. Regency Energy Partners, Finance Corp. or any of Regency Energy Partners’ other Subsidiaries may act as Paying Agent or Registrar.

           The Issuers initially appoint The Depository Trust Company (“DTC”) to act as Depositary with respect to the Global Notes.

           The Issuers initially appoint the Trustee to act as the Registrar and Paying Agent and to act as Custodian with respect to the Global Notes.

Section 2.04 Paying Agent to Hold Money in Trust.

           The Issuers will require each Paying Agent other than the Trustee to agree in writing that the Paying Agent will hold in trust for the benefit of Holders or the Trustee all money held by the Paying Agent for the payment of principal, premium or Liquidated Damages, if any, or interest on the Notes, and will notify the Trustee of any default by the Issuers in making any such payment. While any such default continues, the Trustee may require a Paying Agent to pay all money held by it to the Trustee, The Issuers at any time may require a Paying Agent to pay all money held by it to the Trustee. Upon payment over to the Trustee, the Paying Agent (if other than Regency Energy Partners or a Subsidiary) will have no further liability for the money. If Regency Energy Partners or a Subsidiary acts as Paying Agent, it will segregate and hold in a separate trust fund for the benefit of the Holders all money held by it as Paying Agent. Upon any bankruptcy or reorganization proceedings relating to Regency Energy Partners, the Trustee will serve as Paying Agent for the Notes.

Section 2.05 Holder Lists.

           The Trustee will preserve in as current a form as is reasonably practicable the most recent list available to it of the names and addresses of all Holders and shall otherwise comply with TIA § 312(a). If the Trustee is not the Registrar, the Issuers will furnish to the Trustee at least seven Business Days before each interest payment date and at such other times as the Trustee may request in writing, a list in such form and as of such date as the Trustee may reasonably require of the names and addresses of the Holders of Notes and the Issuers shall otherwise comply with TIA § 312(a).

Section 2.06 Transfer and Exchange.

           (a) Transfer and Exchange of Global Notes. A Global Note may not be transferred except as a whole by the Depositary to a nominee of the Depositary, by a nominee of the Depositary to the

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Depositary or to another nominee of the Depositary, or by the Depositary or any such nominee to a successor Depositary or a nominee of such successor Depositary. All Global Notes will be exchanged by the Issuers for Definitive Notes if:

     (1) the Issuers deliver to the Trustee notice from the Depositary that it is unwilling or unable to continue to act as Depositary or that it is no longer a clearing agency registered under the Exchange Act and, in either case, a successor Depositary is not appointed by the Issuers within 120 days after the date of such notice from the Depositary;

     (2) the Issuers in their sole discretion determine that the Global Notes (in whole but not in part) should be exchanged for Definitive Notes and deliver a written notice to such effect to the Trustee; or

     (3) there has occurred and is continuing a Default or Event of Default with respect to the Notes and the Depositary notifies the Trustee of its decision to exchange the Global Notes for Definitive Notes.

           Upon the occurrence of either of the preceding events in (1) or (2) above, Definitive Notes shall be issued in such names as the Depositary shall instruct the Trustee. Global Notes also may be exchanged or replaced, in whole or in part, as provided in Sections 2.07 and 2.10 hereof. Every Note authenticated and delivered in exchange for, or in lieu of, a Global Note or any portion thereof, pursuant to this Section 2.06 or Sections 2.07 or 2.10 hereof, shall be authenticated and delivered in the form of, and shall be, a Global Note. A Global Note may not be exchanged for another Note other than as provided in this Section 2.06(a), however, beneficial interests in a Global Note may be transferred and exchanged as provided in Section 2.06(b), (c) or (f) hereof.

           (b) Transfer and Exchange of Beneficial Interests in the Global Notes. The transfer and exchange of beneficial interests in the Global Notes will be effected through the Depositary, in accordance with the provisions of this Indenture and the Applicable Procedures. Beneficial interests in the Restricted Global Notes will be subject to restrictions on transfer comparable to those set forth herein to the extent required by the Securities Act. Transfers of beneficial interests in the Global Notes also will require compliance with either subparagraph (1) or (2) below, as applicable, as well as one or more of the other following subparagraphs, as applicable:

     (1) Transfer of Beneficial Interests in the Same Global Note. Beneficial interests in any Restricted Global Note may be transferred to Persons who take delivery thereof in the form of a beneficial interest in the same Restricted Global Note in accordance with the transfer restrictions set forth in the Private Placement Legend. Beneficial interests in any Unrestricted Global Note may be transferred to Persons who take delivery thereof in the form of a beneficial interest in an Unrestricted Global Note. No written orders or instructions shall be required to be delivered to the Registrar to effect the transfers described in this Section 2.06(b)(1).

     (2) All Other Transfers and Exchanges of Beneficial Interests in Global Notes. In connection with all transfers and exchanges of beneficial interests that are not subject to Section 2.06(b)(1) above, the transferor of such beneficial interest must deliver to the Registrar either:

     (A) both:

     (i) a written order from a participant or an indirect participant in the Depositary given to the Depositary in accordance with the Applicable Procedures directing the Depositary to credit or cause to be credited a beneficial interest in

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another Global Note in an amount equal to the beneficial interest to be transferred or exchanged; and

     (ii) instructions given in accordance with the Applicable Procedures containing information regarding the participant account to be credited with such increase; or

     (B) both:

     (i) a written order from a participant or an indirect participant in the Depositary given to the Depositary in accordance with the Applicable Procedures directing the Depositary to cause to be issued a Definitive Note in an amount equal to the beneficial interest to be transferred or exchanged; and

     (ii) instructions given by the Depositary to the Registrar containing information regarding the Person in whose name such Definitive Note shall be registered to effect the transfer or exchange referred to in (i) above.

Upon consummation of an Exchange Offer by the Issuers in accordance with Section 2.06(f) hereof, the requirements of this Section 2.06(b)(2) shall be deemed to have been satisfied upon receipt by the Registrar of the instructions contained in the Letter of Transmittal delivered by the Holder of such beneficial interests in the Restricted Global Notes. Upon satisfaction of all of the requirements for transfer or exchange of beneficial interests in Global Notes contained in this Indenture and the Notes or otherwise applicable under the Securities Act, the Trustee shall adjust the principal amount of the relevant Global Note(s) pursuant to Section 2.06(h) hereof.

     (3) Transfer of Beneficial Interests to Another Restricted Global Note. A beneficial interest in any Restricted Global Note may be transferred to a Person who takes delivery thereof in the form of a beneficial interest in another Restricted Global Note if the transfer complies with the requirements of Section 2.06(b)(2) above and the Registrar receives the following:

     (A) if the transferee will take delivery in the form of a beneficial interest in the 144A Global Note, then the transferor must deliver a certificate in the form of Exhibit B hereto, including the certifications in item (1) thereof;

     (B) if the transferee will take delivery in the form of a beneficial interest in the Regulation S Global Note, then the transferor must deliver a certificate in the form of Exhibit B hereto, including the certifications in item (2) thereof.

     (4) Transfer and Exchange of Beneficial Interests in a Restricted Global Note for Beneficial Interests in an Unrestricted Global Note. A beneficial interest in any Restricted Global Note may be exchanged by any holder thereof for a beneficial interest in an Unrestricted Global Note or transferred to a Person who takes delivery thereof in the form of a beneficial interest in an Unrestricted Global Note if the exchange or transfer complies with the requirements of Section 2.06(b)(2) above and:

     (A) such exchange or transfer is effected pursuant to an Exchange Offer in accordance with the related Registration Rights Agreement and the holder of the beneficial interest to be transferred, in the case of an exchange, or the transferee, in the case of a transfer, certifies in the applicable Letter of Transmittal that it is not (i) a Broker-Dealer,

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(ii) a Person participating in the distribution of the Exchange Notes or (iii) a Person who is an affiliate (as defined in Rule 144) of the Issuers;

     (B) such transfer is effected pursuant to a Shelf Registration Statement in accordance with the related Registration Rights Agreement;

     (C) such transfer is effected by a Broker-Dealer pursuant to an Exchange Offer Registration Statement in accordance with the related Registration Rights Agreement; or

     (D) the Registrar receives the following:

     (i) if the holder of such beneficial interest in a Restricted Global Note proposes to exchange such beneficial interest for a beneficial interest in an Unrestricted Global Note, a certificate from such holder in the form of Exhibit C hereto, including the certifications in item (1)(a) thereof; or

     (ii) if the holder of such beneficial interest in a Restricted Global Note proposes to transfer such beneficial interest to a Person who shall take delivery thereof in the form of a beneficial interest in an Unrestricted Global Note, a certificate from such holder in the form of Exhibit B hereto, including the certifications in item (4) thereof;

and, in each such case set forth in this subparagraph (D), if the Registrar so requests or if the Applicable Procedures so require, an Opinion of Counsel in form reasonably acceptable to the Registrar to the effect that such exchange or transfer is in compliance with the Securities Act and that the restrictions on transfer contained herein and in the Private Placement Legend are no longer required in order to maintain compliance with the Securities Act.

           If any such transfer is effected pursuant to subparagraph (B) or (D) above at a time when an Unrestricted Global Note has not yet been issued, the Issuers shall issue and, upon receipt of a Company Order the Trustee shall authenticate, one or more Unrestricted Global Notes in an aggregate principal amount equal to the aggregate principal amount of beneficial interests transferred pursuant to subparagraph (B) or (D) above.

           Beneficial interests in an Unrestricted Global Note cannot be exchanged for, or transferred to Persons who take delivery thereof in the form of, a beneficial interest in a Restricted Global Note.

           (c) Transfer or Exchange of Beneficial Interests for Definitive Notes.

           (1) Beneficial Interests in Restricted Global Notes to Restricted Definitive Notes. If any holder of a beneficial interest in a Restricted Global Note proposes to exchange such beneficial interest for a Restricted Definitive Note or to transfer such beneficial interest to a Person who takes delivery thereof in the form of a Restricted Definitive Note, then, upon receipt by the Registrar of the following documentation:

     (A) if the holder of such beneficial interest in a Restricted Global Note proposes to exchange such beneficial interest for a Restricted Definitive Note, a certificate from such holder in the form of Exhibit C hereto, including the certifications in item (2)(a) thereof;

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     (B) if such beneficial interest is being transferred to a QIB in accordance with Rule 144A, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (1) thereof;

     (C) if such beneficial interest is being transferred to a Non-U.S. Person in an offshore transaction in accordance with Rule 903 or Rule 904, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (2) thereof;

     (D) if such beneficial interest is being transferred pursuant to an exemption from the registration requirements of the Securities Act in accordance with Rule 144, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (3)(a) thereof;

     (E) if such beneficial interest is being transferred to an Institutional Accredited Investor in reliance on an exemption from the registration requirements of the Securities Act other than those listed in subparagraphs (B) through (D) above, a certificate to the effect set forth in Exhibit B hereto, including the certifications, certificates and Opinion of Counsel required by item (3) thereof, if applicable;

     (F) if such beneficial interest is being transferred to Regency Energy Partners or any of its Subsidiaries, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (3)(b) thereof; or

     (G) if such beneficial interest is being transferred pursuant to an effective registration statement under the Securities Act, a certificate to the effect set forth in Exhibit B hereto, including the certifications in item (3)(c) thereof,

the Trustee shall cause the aggregate principal amount of the applicable Global Note to be reduced accordingly pursuant to Section 2.06(h) hereof, and the Issuers shall execute and the Trustee shall authenticate and deliver to the Person designated in the instructions a Definitive Note in the appropriate principal amount. Any Definitive Note issued in exchange for a beneficial interest in a Restricted Global Note pursuant to this Section 2.06(c) shall be registered in such name or names and in such authorized denomination or denominations as the holder of such beneficial interest shall instruct the Registrar through instructions from the Depository. The Trustee shall deliver such Definitive Notes to the Persons in whose names such Notes are so registered. Any Definitive Note issued in exchange for a beneficial interest in a Restricted Global Note pursuant to this Section 2.06(c)(1) shall bear the Private Placement Legend and shall be subject to all restrictions on transfer contained therein.

           (2) Beneficial Interests in Restricted Global Notes to Unrestricted Definitive Notes. A holder of a beneficial interest in a Restricted Global Note may exchange such beneficial interest for an Unrestricted Definitive Note or may transfer such beneficial interest to a Person who takes delivery thereof in the form of an Unrestricted Definitive Note only if:

     (A) such exchange or transfer is effected pursuant to an Exchange Offer in accordance with the related Registration Rights Agreement and the holder of such beneficial interest, in the case of an exchange, or the transferee, in the case of a transfer, certifies in the applicable Letter of Transmittal that it is not (i) a Broker-Dealer, (ii) a Person participating in the distribution of the Exchange Notes or (iii) a Person who is an affiliate (as defined in Rule 144) of the Issuers;

     (B) such transfer is effected pursuant to a Shelf Registration Statement in accordance with the related Registration Rights Agreement;

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     (C) such transfer is effected by a Broker-Dealer pursuant to an Exchange Offer Registration Statement in accordance with the related Registration Rights Agreement; or

     (D) the Registrar receives the following:

     (i) if the holder of such beneficial interest in a Restricted Global Note proposes to exchange such beneficial interest for an Unrestricted Definitive Note, a certificate from such holder in the form of Exhibit C hereto, including the certifications in item (l)(b) thereof; or

     (ii) if the holder of such beneficial interest in a Restricted Global Note proposes to transfer such beneficial interest to a Person who shall take delivery thereof in the form of an Unrestricted Definitive Note, a certificate from such holder in the form of Exhibit B hereto, including the certifications in item (4) thereof;

and, in each such case set forth in this subparagraph (D), if the Registrar so requests or if the Applicable Procedures so require, an Opinion of Counsel in form reasonably acceptable to the Registrar to the effect that such exchange or transfer is in compliance with the Securities Act and that the restrictions on transfer contained herein and in the Private Placement Legend are no longer required in order to maintain compliance with the Securities Act.

           (3) Beneficial Interests in Unrestricted Global Notes to Unrestricted Definitive Notes. If any holder of a beneficial interest in an Unrestricted Global Note proposes to exchange such beneficial interest for a Definitive Note or to transfer such beneficial interest to a Person who takes delivery thereof in the form of a Definitive Note, then, upon satisfaction of the conditions set forth in Section 2.06(b)(2) hereof, the Trustee will cause the aggregate principal amount of the applicable Global Note to be reduced accordingly pursuant to Section 2.06(h) hereof, and the Issuers will execute and the Trustee will authenticate and deliver to the Person designated in the instructions a Definitive Note in the appropriate principal amount. Any Definitive Note issued in exchange for a beneficial interest pursuant to this Section 2.06(c)(3) will be registered in such name or names and in such authorized denomination or denominations as the holder of such beneficial interest requests through instructions to the Registrar from or through the Depositary and the Participant or Indirect Participant. The Trustee will deliver such Definitive Notes to the Persons in whose names such Notes are so registered. Any Definitive Note issued in exchange for a beneficial interest pursuant to this Section 2.06(c)(3) will not bear the Private Placement Legend.

           (d) Transfer and Exchange of Definitive Notes for Beneficial Interests. Definitive Notes may not be exchanged for beneficial interests in a Global Note.

           (e) Transfer and Exchange of Definitive Notes for Definitive Notes. Upon request by a Holder of Definitive Notes and such Holder’s compliance with the provisions of this Section 2.06(e), the Registrar will register the transfer or exchange of Definitive Notes. Prior to such registration of transfer or exchange, the requesting Holder must present or surrender to the Registrar the Definitive Notes duly endorsed or accompanied by a written instruction of transfer in form satisfactory to the Registrar duly executed by such Holder or by its attorney, duly authorized in writing. In addition, the requesting Holder must provide any additional certifications, documents and information, as applicable, required pursuant to the following provisions of this Section 2.06(e).

           (1) Restricted Definitive Notes to Restricted Definitive Notes. Any Restricted Definitive Note may be transferred to and registered in the name of Persons who take delivery thereof in the form of a Restricted Definitive Note if the Registrar receives the following:

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     (A) if the transfer will be made pursuant to Rule 144A, then the transferor must deliver a certificate in the form of Exhibit B hereto, including the certifications in item (1) thereof;

     (B) if the transfer will be made pursuant to Rule 903 or Rule 904, then the transferor must deliver a certificate in the form of Exhibit B hereto, including the certifications in item (2) thereof; and

     (C) if the transfer will be made pursuant to any other exemption from the registration requirements of the Securities Act, then the transferor must deliver a certificate in the form of Exhibit B hereto, including the certifications, certificates and Opinion of Counsel required by item (3) thereof, if applicable.

           (2) Restricted Definitive Notes to Unrestricted Definitive Notes. Any Restricted Definitive Note may be exchanged by the Holder thereof for an Unrestricted Definitive Note or transferred to a Person or Persons who take delivery thereof in the form of an Unrestricted Definitive Note if:

     (A) such exchange or transfer is effected pursuant to an Exchange Offer in accordance with the related Registration Rights Agreement and the Holder, in the case of an exchange, or the transferee, in the case of a transfer, certifies in the applicable Letter of Transmittal that it is not (i) a Broker-Dealer, (ii) a Person participating in the distribution of the Exchange Notes or (iii) a Person who is an affiliate (as defined in Rule 144) of the Issuers;

     (B) any such transfer is effected pursuant to a Shelf Registration Statement in accordance with the related Registration Rights Agreement;

     (C) any such transfer is effected by a Broker-Dealer pursuant to an Exchange Offer Registration Statement in accordance with the related Registration Rights Agreement; or

     (D) the Registrar receives the following:

     (i) if the Holder of such Restricted Definitive Notes proposes to exchange such Notes for an Unrestricted Definitive Note, a certificate from such Holder in the form of Exhibit C hereto, including the certifications in item (1)(d) thereof; or

     (ii) if the Holder of such Restricted Definitive Notes proposes to transfer such Notes to a Person who shall take delivery thereof in the form of an Unrestricted Definitive Note, a certificate from such Holder in the form of Exhibit B hereto, including the certifications in item (4) thereof;

and, in each such case set forth in this subparagraph (D), if the Registrar so requests, an Opinion of Counsel in form reasonably acceptable to the Registrar to the effect that such exchange or transfer is in compliance with the Securities Act and that the restrictions on transfer contained herein and in the Private Placement Legend are no longer required in order to maintain compliance with the Securities Act.

           (3) Unrestricted Definitive Notes to Unrestricted Definitive Notes. A Holder of Unrestricted Definitive Notes may transfer such Notes to a Person who takes delivery thereof in the form of an Unrestricted Definitive Note. Upon receipt of a request to register such a transfer, the Registrar shall register the Unrestricted Definitive Notes pursuant to the instructions from the Holder thereof.

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           (f) Exchange Offer. Upon the occurrence of an Exchange Offer in accordance with the related Registration Rights Agreement, the Issuers will issue and, upon receipt of an Authentication Order in accordance with Section 2.02 hereof, the Trustee will authenticate:

     (1) one or more Unrestricted Global Notes in an aggregate principal amount equal to the principal amount of the beneficial interests in the Restricted Global Notes accepted for exchange in the Exchange Offer by Persons that certify in the applicable Letters of Transmittal that (A) they are not Broker-Dealers, (B) they are not participating in a distribution of the Exchange Notes and (C) they are not affiliates (as defined in Rule 144) of the Issuers; and

     (2) Unrestricted Definitive Notes in an aggregate principal amount equal to the principal amount of the Restricted Definitive Notes accepted for exchange in the Exchange Offer by Persons that certify in the applicable Letters of Transmittal that (A) they are not Broker-Dealers, (B) they are not participating in a distribution of the Exchange Notes and (C) they are not affiliates (as defined in Rule 144) of the Issuers.

           Concurrently with the issuance of such Notes, the Trustee will cause the aggregate principal amount of the applicable Restricted Global Notes to be reduced accordingly, and the Issuers will execute and the Trustee will authenticate and deliver to the Persons designated by the Holders of Definitive Notes so accepted Unrestricted Definitive Notes in the appropriate principal amount.

           (g) Legends. The following legends will appear on the face of all Global Notes and Definitive Notes issued under this Indenture unless specifically stated otherwise in the applicable provisions of this Indenture.

           (1) Private Placement Legend.

           (A) Except as permitted by subparagraph (B) below, each Global Note and each Definitive Note (and all Notes issued in exchange therefor or substitution thereof) shall bear the legend in substantially the following form:

“THE NOTE (OR ITS PREDECESSOR) EVIDENCED HEREBY WAS ORIGINALLY ISSUED IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER SECTION 5 OF THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED, AND THE NOTE EVIDENCED HEREBY MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM. EACH PURCHASER OF THE NOTE EVIDENCED HEREBY IS HEREBY NOTIFIED THAT THE SELLER MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER OR ANOTHER EXEMPTION UNDER THE SECURITIES ACT. THE HOLDER OF THE NOTE EVIDENCED HEREBY AGREES FOR THE BENEFIT OF THE ISSUERS THAT (A) SUCH NOTE MAY BE OFFERED, RESOLD, PLEDGED OR OTHERWISE TRANSFERRED ONLY (l)(A) TO A PERSON WHO THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT), PURCHASING FOR ITS OWN ACCOUNT IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A UNDER THE SECURITIES ACT, (B) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144 OF THE SECURITIES ACT, (C) OUTSIDE THE UNITED STATES TO A FOREIGN PERSON IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 904 OF REGULATION S UNDER THE SECURITIES ACT, (D) TO AN “AC-

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CREDITED INVESTOR” WITHIN THE MEANING OF RULE 50l(A)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT (AN “INSTITUTIONAL ACCREDITED INVESTOR”) THAT IS PURCHASING AT LEAST $250,000 OF NOTES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF AN INSTITUTIONAL ACCREDITED INVESTOR OR (E) IN ACCORDANCE WITH ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT; PROVIDED THAT IN THE CASE OF A TRANSFER UNDER CLAUSE (E) SUCH TRANSFER IS SUBJECT TO THE RECEIPT BY THE TRUSTEE OF A CERTIFICATION OF THE TRANSFEROR AND AN OPINION OF COUNSEL TO THE EFFECT THAT SUCH TRANSFER IS IN COMPLIANCE WITH THE SECURITIES ACT, (2) TO THE ISSUERS OR THEIR RESPECTIVE SUBSIDIARIES OR (3) UNDER AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND, IN EACH CASE, IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY OTHER APPLICABLE JURISDICTION AND THE INDENTURE GOVERNING THE NOTES AND (B) THE HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER FROM IT OF THE NOTE EVIDENCED HEREBY OF THE RESALE RESTRICTIONS SET FORTH IN (A) ABOVE. IF ANY RESALE OR OTHER TRANSFER OF ANY NOTE IS PROPOSED TO BE MADE UNDER CLAUSE (A)(1)(D) ABOVE WHILE THESE TRANSFER RESTRICTIONS ARE IN FORCE THEN THE TRANSFEROR SHALL DELIVER A LETTER FROM THE TRANSFEREE TO THE TRUSTEE WHICH SHALL PROVIDE, AMONG OTHER THINGS, THAT THE TRANSFEREE IS AN INSTITUTIONAL ACCREDITED INVESTOR AND THAT IT IS ACQUIRING THE SECURITIES FOR INVESTMENT PURPOSES AND NOT FOR DISTRIBUTION IN VIOLATION OF THE SECURITIES ACT.”

           (B) Notwithstanding the foregoing, any Global Note or Definitive Note issued pursuant to subparagraphs (b)(4), (c)(2), (c)(3), (d)(2), (d)(3), (e)(2), (e)(3) or (f) of this Section 2.06 (and all Notes issued in exchange therefor or substitution thereof) will not bear the Private Placement Legend.

           (2) Global Note Legend. Each Global Note will bear a legend in substantially the following form:

“THIS GLOBAL NOTE IS HELD BY THE DEPOSITARY (AS DEFINED IN THE INDENTURE GOVERNING THIS NOTE) OR ITS NOMINEE IN CUSTODY FOR THE BENEFIT OF THE BENEFICIAL OWNERS HEREOF, AND IS NOT TRANSFERABLE TO ANY PERSON UNDER ANY CIRCUMSTANCES EXCEPT THAT (1) THE TRUSTEE MAY MAKE SUCH NOTATIONS HEREON AS MAY BE REQUIRED PURSUANT TO SECTION 2.06 OF THE INDENTURE, (2) THIS GLOBAL NOTE MAY BE EXCHANGED IN WHOLE BUT NOT IN PART PURSUANT TO SECTION 2.06(a) OF THE INDENTURE, (3) THIS GLOBAL NOTE MAY BE DELIVERED TO THE TRUSTEE FOR CANCELLATION PURSUANT TO SECTION 2.11 OF THE INDENTURE AND (4) THIS GLOBAL NOTE MAY BE TRANSFERRED TO A SUCCESSOR DEPOSITARY WITH THE PRIOR WRITTEN CONSENT OF THE ISSUERS.

UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR NOTES IN DEFINITIVE FORM, THIS NOTE MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITARY TO A NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR ANOTHER NOMINEE OF THE DEPOSITARY OR BY THE DEPOSITARY OR ANY SUCH NOMINEE

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TO A SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITARY. UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (55 WATER STREET, NEW YORK, NEW YORK) (“DTC”), TO THE ISSUERS OR THEIR AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS MAY BE REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR SUCH OTHER ENTITY AS MAY BE REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.”

           (h) Cancellation and/or Adjustment of Global Notes. At such time as all beneficial interests in a particular Global Note have been exchanged for Definitive Notes or a particular Global Note has been redeemed, repurchased or canceled in whole and not in part, each such Global Note will be returned to or retained and canceled by the Trustee in accordance with Section 2.11 hereof. At any time prior to such cancellation, if any beneficial interest in a Global Note is exchanged for or transferred to a Person who will take delivery thereof in the form of a beneficial interest in another Global Note or for Definitive Notes, the principal amount of Notes represented by such Global Note will be reduced accordingly and an endorsement will be made on such Global Note by the Trustee or by the Depositary at the direction of the Trustee to reflect such reduction; and if the beneficial interest is being exchanged for or transferred to a Person who will take delivery thereof in the form of a beneficial interest in another Global Note, such other Global Note will be increased accordingly and an endorsement will be made on such Global Note by the Trustee or by the Depositary at the direction of the Trustee to reflect such increase.

           (i) General Provisions Relating to Transfers and Exchanges.

           (1) To permit registrations of transfers and exchanges, the Issuers will execute and the Trustee will authenticate Global Notes and Definitive Notes upon receipt of a Company Order or at the Registrar’s request.

           (2) No service charge will be made to a Holder of a beneficial interest in a Global Note or to a Holder of a Definitive Note for any registration of transfer or exchange, but the Issuers may require payment of a sum sufficient to cover any transfer tax or similar governmental charge payable in connection therewith (other than any such transfer taxes or similar governmental charge payable upon exchange or transfer pursuant to Sections 2.10, 3.06, 3.09, 4.10, 4.15 and 9.05 hereof).

           (3) [Reserved.]

           (4) All Global Notes and Definitive Notes issued upon any registration of transfer or exchange of Global Notes or Definitive Notes will be the valid obligations of the Issuers, evidencing the same debt, and entitled to the same benefits under this Indenture, as the Global Notes or Definitive Notes surrendered upon such registration of transfer or exchange.

           (5) Neither the Registrar nor the Issuers will be required:

     (A) to issue, to register the transfer of or to exchange, any Notes during a period beginning at the opening of business 15 days before the day of any selection of Notes for redemption under Section 3.02 hereof and ending at the close of business on the day of selection;

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     (B) to register the transfer of or to exchange any Note selected for redemption in whole or in part, except the unredeemed portion of any Note being redeemed in part; or

     (C) to register the transfer of or to exchange a Note between a record date and the next succeeding interest payment date.

           (6) Prior to due presentment for the registration of a transfer of any Note, the Trustee, any Agent and the Issuers may deem and treat the Person in whose name any Note is registered as the absolute owner of such Note for the purpose of receiving payment of principal of and interest on such Notes and for all other purposes, and none of the Trustee, any Agent or the Issuers shall be affected by notice to the contrary.

           (7) The Trustee will authenticate Global Notes and Definitive Notes for original issue in accordance with the provisions of Section 2.02 hereof.

           (8) All certifications, certificates and Opinions of Counsel required to be submitted to the Registrar pursuant to this Section 2.06 to effect a registration of transfer or exchange may be submitted by facsimile.

Section 2.07 Replacement Notes.

           If any mutilated Note is surrendered to the Trustee or the Issuers and the Trustee receives evidence to its satisfaction of the destruction, loss or theft of any Note, the Issuers will issue and the Trustee, upon receipt of a Company Order, will authenticate a replacement Note if the Trustee’s requirements are met. If required by the Trustee or the Issuers, an indemnity bond must be supplied by the Holder that is sufficient in the judgment of the Trustee and the Issuers to protect the Issuers, the Trustee, any Agent and any authenticating agent from any loss that any of them may suffer if a Note is replaced. The Issuers and the Trustee may charge for their expenses in replacing a Note.

           Every replacement Note is an additional obligation of each of the Issuers and will be entitled to all of the benefits of this Indenture equally and proportionately with all other Notes duly issued hereunder.

Section 2.08 Outstanding Notes.

           The Notes outstanding at any time are all the Notes authenticated by the Trustee except for those canceled by it, those delivered to it for cancellation, those reductions in the interest in a Global Note effected by the Trustee in accordance with the provisions hereof, and those described in this Section 2.08 as not outstanding. Except as set forth in Section 2.09 hereof, a Note does not cease to be outstanding because the Issuers or an Affiliate of the Issuers holds the Note; however, Notes held by Regency Energy Partners or a Subsidiary of Regency Energy Partners shall not be deemed to be outstanding for purposes of Section 3.07(a) hereof.

           If a Note is replaced pursuant to Section 2.07 hereof, it ceases to be outstanding unless the Trustee receives proof satisfactory to it that the replaced Note is held by a protected purchaser.

           If the principal amount of any Note is considered paid under Section 4.01 hereof, it ceases to be outstanding and interest and Liquidated Damages, if any, on it cease to accrue.

           If the Paying Agent (other than Regency Energy Partners, a Subsidiary or an Affiliate of any thereof) holds as of 11:00 a.m. Eastern Time, on a Redemption Date or other maturity date, money

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sufficient to pay Notes payable on that date, then on and after that date such Notes will be deemed to be no longer outstanding and will cease to accrue interest and Liquidated Damages, if any.

Section 2.09 Treasury Notes.

           In determining whether the Holders of the required principal amount of Notes have concurred in any direction, waiver or consent, Notes owned by the Issuers or any Guarantor, or by any Person directly or indirectly controlling or controlled by or under direct or indirect common control with the Issuers or any Guarantor, will be considered as though not outstanding, except that for the purposes of determining whether the Trustee will be protected in relying on any such direction, waiver or consent, only Notes that the Trustee knows are so owned will be so disregarded.

Section 2.10 Temporary Notes.

           Until certificates representing Notes are ready for delivery, the Issuers may prepare and the Trustee, upon receipt of an Authentication Order, will authenticate temporary Notes. Temporary Notes will be substantially in the form of certificated Notes but may have variations that the Issuers consider appropriate for temporary Notes and as may be reasonably acceptable to the Trustee. Without unreasonable delay, the Issuers will prepare and the Trustee will authenticate definitive Notes in exchange for temporary Notes.

           Holders of temporary Notes will be entitled to all of the benefits of this Indenture.

Section 2.11 Cancellation.

           The Issuers at any time may deliver Notes to the Trustee for cancellation. The Registrar and Paying Agent will forward to the Trustee any Notes surrendered to them for registration of transfer, exchange or payment. The Trustee and no one else will cancel all Notes surrendered for registration of transfer, exchange, payment, replacement or cancellation and will destroy canceled Notes (subject to the record retention requirement of the Exchange Act). Certification of the destruction of all canceled Notes will be delivered to the Issuers. The Issuers may not issue new Notes to replace Notes that they have paid or that have been delivered to the Trustee for cancellation.

Section 2.12 Defaulted Interest.

           If the Issuers default in a payment of interest on the Notes, they will pay the defaulted interest in any lawful manner plus, to the extent lawful, interest payable on the defaulted interest, to the Persons who are Holders on a subsequent special record date, in each case at the rate provided in the Notes and in Section 4.01 hereof. The Issuers will notify the Trustee in writing of the amount of defaulted interest proposed to be paid on each Note and the date of the proposed payment. The Issuers will fix or cause to be fixed each such special record date and payment date; provided that no such special record date may be less than 10 days prior to the related payment date for such defaulted interest. At least 15 days before the special record date, the Issuers (or, upon the written request of the Issuers, the Trustee in the name and at the expense of the Issuers) will mail or cause to be mailed to Holders a notice that states the special record date, the related payment date and the amount of such interest to be paid.

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ARTICLE 3

REDEMPTION AND REPURCHASE

Section 3.01 Notices to Trustee.

           If the Issuers elect to redeem Notes pursuant to the optional redemption provisions of Section 3.07 hereof, Regency Energy Partners must furnish to the Trustee, at least five Business Days before the giving of the notice of redemption pursuant to Section 3.03, an Officers’ Certificate setting forth:

     (1) the clause of this Indenture pursuant to which the redemption shall occur,

     (2) the Redemption Date;

     (3) the principal amount of Notes to be redeemed; and

     (4) the redemption price, if then determinable and, if not, then a method for determination.

Section 3.02 Selection of Notes to Be Redeemed.

           If less than all of the Notes are to be redeemed at any time, the Trustee will select Notes for redemption as follows:

     (1) if the Notes are listed on any national securities exchange, in compliance with the requirements of the principal national securities exchange on which the Notes are listed; or

     (2) if the Notes are not listed on any national securities exchange, on a pro rata basis, by lot or by such other method as the Trustee shall deem fair and appropriate.

           No Notes of $1,000 or less can be redeemed in part.

Section 3.03 Notice of Redemption.

           Subject to the provisions of Section 3.09 hereof, at least 30 days but not more than 60 days before a Redemption Date, the Issuers will mail or cause to be mailed, by first class mail, a notice of redemption to each Holder whose Notes are to be redeemed at its registered address, except that redemption notices may be mailed more than 60 days prior to a Redemption Date if the notice is issued in connection with a defeasance of the Notes or a satisfaction and discharge of this Indenture pursuant to Articles 8 or 11 hereof.

           The notice will identify the Notes to be redeemed and will state:

     (1) the Redemption Date;

     (2) the redemption price, if then determinable, and, if not, then a method for determination;

     (3) if any Note is being redeemed in part, the portion of the principal amount of such Note to be redeemed and that, after the Redemption Date upon surrender of such Note, a new

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Note or Notes in principal amount equal to the unredeemed portion will be issued upon cancellation of the original Note;

     (4) the name and address of the Paying Agent;

     (5) that Notes called for redemption must be surrendered to the Paying Agent to collect the redemption price;

     (6) that, unless the Issuers default in making such redemption payment, interest and Liquidated Damages, if any, on Notes called for redemption ceases to accrue on and after the Redemption Date;

     (7) the paragraph of the Notes and/or Section of this Indenture pursuant to which the Notes called for redemption are being redeemed; and

     (8) that no representation is made as to the correctness or accuracy of the CUSIP number, if any, listed in such notice or printed on the Notes.

           At the Issuers’ request, the Trustee will give the notice of redemption in the Issuers’ names and at their expense; provided, however, that the Issuers have delivered to the Trustee, at least five Business Days prior to the date of giving such notice, an Officers’ Certificate requesting that the Trustee give such notice and setting forth the information to be stated in such notice as provided in the preceding paragraph. Such Officers’ Certificate may be combined with the Officers’ Certificate referred to in Section 3.01.

Section 3.04 Effect of Notice of Redemption.

           Once notice of redemption is delivered in accordance with Section 3.03 hereof, Notes called for redemption become irrevocably due and payable on the redemption date at the redemption price. A notice of redemption may not be conditional.

Section 3.05 Deposit of Redemption or Purchase Price.

           By 11:00 a.m. Eastern Time on the redemption or purchase date, the Issuers will deposit with the Trustee or with the Paying Agent money sufficient to pay the redemption or purchase price of and accrued interest and Liquidated Damages, if any, on all Notes to be redeemed or purchased on that date. The Trustee or the Paying Agent will promptly return to the Issuers any money deposited with the Trustee or the Paying Agent by the Issuers in excess of the amounts necessary to pay the redemption or purchase price of, and accrued interest and Liquidated Damages, if any, on, all Notes to be redeemed or purchased.

           If the Issuers comply with the provisions of the preceding paragraph, on and after the redemption or purchase date, interest and Liquidated Damages, if any, will cease to accrue on the Notes or the portions of Notes called for redemption or surrendered for purchase. If a Note is redeemed or purchased on or after an interest record date but on or prior to the related interest payment date, then any accrued and unpaid interest shall be paid to the Person in whose name such Note was registered at the close of business on such record date. If any Note called for redemption or surrendered for purchase is not so paid upon surrender for redemption or purchase because of the failure of the Issuers to comply with the preceding paragraph, interest shall be paid on the unpaid principal, from the redemption or purchase date until such principal is paid, and to the extent lawful on any interest not paid on such unpaid principal, in each case at the rate provided in the Notes and in Section 4.01 hereof.

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Section 3.06 Notes Redeemed or Purchased in Part.

           Upon surrender of a Note that is redeemed or purchased in part, the Issuers will issue and, upon receipt of a Company Order, the Trustee will authenticate for the Holder at the expense of the Issuers a new Note equal in principal amount to the unredeemed or unpurchased portion of the Note surrendered.

Section 3.07 Optional Redemption.

           (a) At any time prior to December 15, 2009, the Issuers may on any one or more occasions redeem up to 35% of the aggregate principal amount of Notes (including any Additional Notes) issued under this Indenture, upon not less than 30 nor more than 60 days’ notice, at a redemption price of 108 3/8% of the principal amount thereof, plus accrued and unpaid interest and Liquidated Damages, if any, to the Redemption Date (subject to the right of Holders of record on the relevant record date to receive interest due on an interest payment date that is on or prior to the Redemption Date), with the net cash proceeds of one or more Equity Offerings by Regency Energy Partners; provided that:

     (1) at least 65% of the aggregate principal amount of Notes (including any Additional Notes) issued under this Indenture (excluding Notes held by Regency Energy Partners and its Subsidiaries) remains outstanding immediately after the occurrence of such redemption; and

     (2) the redemption occurs within 90 days of the date of the closing of such Equity Offering.

           (b) Except pursuant to the preceding paragraph and paragraph (d) of this Section 3.07, the Notes will not be redeemable at the Issuers’ option prior to December 15, 2010.

           (c) On or after December 15, 2010, the Issuers may redeem all or a part of the Notes upon not less than 30 nor more than 60 days’ notice, at the redemption prices (expressed as percentages of principal amount) set forth below plus accrued and unpaid interest and Liquidated Damages, if any, on the Notes redeemed to the applicable Redemption Date, if redeemed during the twelve-month period beginning on December 15 of each year indicated below, subject to the rights of Holders of Notes on the relevant record date to receive interest on an interest payment date that is on or prior to the Redemption Date:

Year	Percentage
2010		104.188	%
2011		102.094	%
2012 and thereafter		100.000	%

           Unless the Issuers default in the payment of the redemption price, interest and Liquidated Damages, if any, will cease to accrue on the Notes or portions thereof called for redemption on the applicable Redemption Date.

           (d) At any time prior to December 15, 2010, the Issuers may also redeem all or a part of the Notes, upon not less than 30 nor more than 60 days’ prior notice, at a redemption price equal to 100% of the principal amount of Notes redeemed plus the Applicable Premium as of, and accrued and unpaid interest and Liquidated Damages, if any, to the date of redemption (the “Redemption Date”), subject to the rights of Holders on the relevant record date to receive interest due on an interest payment date that is on or prior to the Redemption Date.

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           (e) Any redemption pursuant to this Section 3.07 shall be made pursuant to the provisions of Sections 3.01 through 3.06 hereof.

Section 3.08 [Reserved].

Section 3.09 Offer to Purchase by Application of Excess Proceeds.

           In the event that, pursuant to Section 4.10 hereof, the Regency Energy Partners are required to commence an offer to all Holders to purchase Notes (an “Asset Sale Offer”), it will follow the procedures specified below.

           The Asset Sale Offer shall be made to all Holders and all holders of other Indebtedness that is pari passu with the Notes containing provisions similar to those set forth in this Indenture with respect to offers to purchase or redeem with the proceeds of sales of assets. The Asset Sale Offer will remain open for a period of at least 20 Business Days following its commencement and not more than 30 Business Days, except to the extent that a longer period is required by applicable law (the “Offer Period”). No later than three Business Days after the termination of the Offer Period (the “Purchase Date”), the Issuers will apply all Excess Proceeds (the “Offer Amount”) to the purchase of Notes and such other pari passu Indebtedness (on a pro rata basis, if applicable) or, if less than the Offer Amount has been tendered, all Notes and other Indebtedness tendered in response to the Asset Sale Offer. Payment for any Notes so purchased will be made in the manner prescribed in the Notes.

           If the Purchase Date is on or after an interest record date and on or before the related interest payment date, any accrued and unpaid interest and Liquidated Damages, if any, will be paid to the Person in whose name a Note is registered at the close of business on such record date, and no additional interest or Liquidated Damages will be payable to Holders who tender Notes pursuant to the Asset Sale Offer.

           Upon the commencement of an Asset Sale Offer, the Issuers will send, by first class mail, a notice to the Trustee and each of the Holders. The notice will contain all instructions and materials necessary to enable such Holders to tender Notes pursuant to the Asset Sale Offer. The notice, which will govern the terms of the Asset Sale Offer, will state:

     (1) that the Asset Sale Offer is being made pursuant to this Section 3.09 and Section 4.10 hereof and the length of time the Asset Sale Offer will remain open;

     (2) the Offer Amount, the purchase price and the Purchase Date;

     (3) that any Note not tendered or accepted for payment will continue to accrue interest and Liquidated Damages, if any;

     (4) that, unless the Issuers default in making such payment, any Note accepted for payment pursuant to the Asset Sale Offer will cease to accrue interest and Liquidate Damages, if any, after the Purchase Date;

     (5) that Holders electing to have a Note purchased pursuant to an Asset Sale Offer may elect to have Notes purchased in integral multiples of $1,000 only;

     (6) that Holders electing to have Notes purchased pursuant to any Asset Sale Offer will be required to surrender the Note, with the form entitled “Option of Holder to Elect Purchase” attached to the Notes completed, or transfer by book-entry transfer, to the Issuers, a de-

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positary, if appointed by the Issuers, or a Paying Agent at the address specified in the notice at least three Business Days before the Purchase Date;

     (7) that Holders will be entitled to withdraw their election if the Issuers, the depositary or the Paying Agent, as the case may be, receives, not later than the expiration of the Offer Period, a telegram, telex, facsimile transmission or letter setting forth the name of the Holder, the principal amount of the Note the Holder delivered for purchase and a statement that such Holder is withdrawing his election to have such Note purchased;

     (8) that, if the aggregate principal amount of Notes and other pari passu Indebtedness surrendered by holders thereof exceeds the Offer Amount, the Issuers will select the Notes and other pari passu Indebtedness to be purchased on a pro rata basis based on the principal amount of Notes and such other pari passu Indebtedness surrendered (with such adjustments as may be deemed appropriate by the Issuers so that only Notes in denominations of $1,000, or integral multiples thereof, will be purchased); and

     (9) that Holders whose Notes were purchased only in part will be issued new Notes equal in principal amount to the unpurchased portion of the Notes surrendered (or transferred by book-entry transfer).

           On or before the Purchase Date, the Issuers will, to the extent lawful, accept for payment, on a pro rata basis to the extent necessary, the Offer Amount allocable to the Notes or portions thereof tendered pursuant to the Asset Sale Offer, or if less than the Offer Amount allocable to the Notes has been tendered, all Notes tendered, and will deliver or cause to be delivered to the Trustee the Notes properly accepted together with an Officers’ Certificate stating that such Notes or portions thereof were accepted for payment by the Issuers in accordance with the terms of this Section 3.09. The Issuers, the depositary or the Paying Agent, as the case may be, will promptly (but in any case not later than five days after the Purchase Date) mail or deliver to each tendering Holder an amount equal to the purchase price of the Notes tendered by such Holder and accepted by the Issuers for purchase, and the Issuers will promptly issue a new Note, and the Trustee, upon receipt of a Company Order, will authenticate and mail or deliver (or cause to be transferred by book entry) such new Note to such Holder, in a principal amount equal to any unpurchased portion of the Note surrendered. Any Note not so accepted shall be promptly mailed or delivered by the Issuers to the Holder thereof. The Issuers will publicly announce the results of the Asset Sale Offer on the Purchase Date.

           Other than as specifically provided in this Section 3.09, any purchase pursuant to this Section 3.09 shall be made pursuant to the provisions of Sections 3.05 and 3.06 hereof.

ARTICLE 4

COVENANTS

Section 4.01 Payment of Notes.

           The Issuers shall pay or cause to be paid the principal of, premium, if any, and interest and Liquidated Damages, if any, on, the Notes on the dates and in the manner provided in the Notes. Principal, premium, if any, and interest and Liquidated Damages, if any will be considered paid on the date due if the Paying Agent, if other than the Regency Energy Partners or a Subsidiary thereof, holds as of 11:00 a.m. Eastern Time on the due date money deposited by the Issuers in immediately available funds and designated for and sufficient to pay all principal, premium, if any, and interest and Liquidated

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Damages, if any, then due. The Issuers will pay all Liquidated Damages, if any, in the same manner as interest on the dates and in the amounts set forth in the applicable Registration Rights Agreement.

           The Issuers shall pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue principal and premium, if any, at the then applicable interest rate on the Notes to the extent lawful; they shall pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue installments of interest and Liquidated Damages (without regard to any applicable grace period) at the same rate to the extent lawful.

           The Issuers shall notify the Trustee of the amounts and payment dates of any Liquidated Damages that may become payable under any Registration Rights Agreement.

Section 4.02 Maintenance of Office or Agency.

           The Issuers shall maintain in the continental United States an office or agency (which may be an office of the Trustee or an affiliate of the Trustee, Registrar or co-registrar) where Notes may be surrendered for registration of transfer or for exchange and where notices and demands to or upon the Issuers in respect of the Notes and this Indenture may be served. The Issuers shall give prompt written notice to the Trustee of the location, and any change in the location, of such office or agency. If at any time the Issuers fail to maintain any such required office or agency or fails to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the Corporate Trust Office of the Trustee.

           The Issuers may also from time to time designate one or more other offices or agencies where the Notes may be presented or surrendered for any or all such purposes and may from time to time rescind such designations; provided, however, that no such designation or rescission will in any manner relieve the Issuers of their obligation to maintain an office or agency in the continental United States for such purposes. The Issuers shall give prompt written notice to the Trustee of any such designation or rescission and of any change in the location of any such other office or agency.

           The Issuers hereby designate the Corporate Trust Office of the Trustee as one such office or agency of the Issuers in accordance with Section 2.03 hereof.

Section 4.03 Reports.

           (a) Whether or not required by the rules and regulations of the SEC, so long as any Notes are outstanding, Regency Energy Partners will furnish (whether through hard copy or internet access) to the Holders of Notes or cause the Trustee to furnish to the Holders of Notes, within the time periods specified in the SEC’s rules and regulations:

     (1) all quarterly and annual reports that would be required to be filed with the SEC on Forms 10-Q and 10-K if Regency Energy Partners were required to file such reports; and

     (2) all current reports that would be required to be filed with the SEC on Form 8-K if Regency Energy Partners were required to file such reports.

           All such reports will be prepared in all material respects in accordance with all of the rules and regulations applicable to such reports, including Section 3-10 of Regulation S-X. Each annual report on Form 10-K will include a report on Regency Energy Partners’ consolidated financial statements by Regency Energy Partners’ independent registered public accounting firm. In addition, Regency Energy Partners will file a copy of each of the reports referred to in clauses (1) and (2) above with the SEC

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for public availability within the time periods specified in the rules and regulations applicable to such reports (unless the SEC will not accept such a filing) and will post the reports on its website within those time periods.

           If, at any time Regency Energy Partners is no longer subject to the periodic reporting requirements of the Exchange Act for any reason, Regency Energy Partners will nevertheless continue filing the reports specified in the preceding paragraphs of this Section 4.03 with the SEC within the time periods specified above unless the SEC will not accept such a filing; provided that, for so long as Regency Energy Partners is not subject to the periodic reporting requirements of the Exchange Act for any reason, the time period for filing reports on Form 8-K shall be 5 Business Days after the event giving rise to the obligation to file such report. Regency Energy Partners will not take any action for the purpose of causing the SEC not to accept any such filings. If, notwithstanding the foregoing, the SEC will not accept Regency Energy Partners’ filings for any reason, Regency Energy Partners will post the reports referred to in the preceding paragraphs on its website within the time periods that would apply if Regency Energy Partners were required to file those reports with the SEC.

           (b) For so long as any Notes remain outstanding, if at any time they are not required to file with the SEC the reports required by Section 4.03(a), Regency Energy Partners and the Guarantors will furnish to the Holders of Notes and to securities analysts and prospective investors, upon their request, the information required to be delivered pursuant to Rule 144A(d)(4) under the Securities Act.

Section 4.04 Compliance Certificate.

           (a) The Issuers and each Guarantor (to the extent that such Guarantor is so required under the TIA) shall deliver to the Trustee, within 90 days after the end of each fiscal year, an Officers’ Certificate stating that a review of the activities of the Issuers and Regency Energy Partners’ Subsidiaries during the preceding fiscal year has been made under the supervision of the signing Officers with a view to determining whether the Issuers have kept, observed, performed and fulfilled their obligations under this Indenture, and further stating, as to each such Officer signing such certificate, that to the best of his or her knowledge the Issuers have kept, observed, performed and fulfilled each and every covenant contained in this Indenture and are not in default in the performance or observance of any of the terms, provisions and conditions of this Indenture (or, if a Default or Event of Default has occurred, describing all such Defaults or Events of Default of which he or she may have knowledge and what action the Issuers are taking or propose to take with respect thereto).

           (b) So long as any of the Notes are outstanding, the Issuers will deliver to the Trustee, promptly upon any Officer becoming aware of any Default or Event of Default, an Officers’ Certificate specifying such Default or Event of Default and what action the Issuers are taking or propose to take with respect thereto.

Section 4.05 Taxes.

           The Issuers shall pay, and will cause each of Regency Energy Partners’ Subsidiaries to pay, prior to delinquency, all material taxes, assessments, and governmental levies except such as are contested in good faith and by appropriate proceedings or where the failure to effect such payment is not adverse in any material respect to the Holders of the Notes.

Section 4.06 Stay, Extension and Usury Laws.

           The Issuers and each of the Guarantors covenant (to the extent that they may lawfully do so) that they shall not at any time insist upon, plead, or in any manner whatsoever claim or take the benefit

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or advantage of, any stay, extension or usury law wherever enacted, now or at any time hereafter in force, that may affect the covenants or the performance of this Indenture; and the Issuers and each of the Guarantors (to the extent that they may lawfully do so) hereby expressly waive all benefit or advantage of any such law, and covenants that they will not, by resort to any such law, hinder, delay or impede the execution of any power herein granted to the Trustee, but shall suffer and permit the execution of every such power as though no such law has been enacted.

Section 4.07 Restricted Payments.

           (a) Regency Energy Partners shall not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly:

     (1) declare or pay any dividend or make any other payment or distribution on account of its outstanding Equity Interests (including any payment in connection with any merger or consolidation involving Regency Energy Partners or any of its Restricted Subsidiaries) or to the direct or indirect holders of Regency Energy Partners’ or any of its Restricted Subsidiaries’ Equity Interests in their capacity as such (other than distributions or dividends payable in Equity Interests, excluding Disqualified Equity, of Regency Equity Partners and other than distributions or dividends payable to Regency Energy Partners or a Restricted Subsidiary);

     (2) purchase, redeem or otherwise acquire or retire for value (including in connection with any merger or consolidation involving Regency Energy Partners) any Equity Interests of Regency Energy Partners or any direct or indirect parent of Regency Energy Partners;

     (3) make any payment on or with respect to, or purchase, redeem, defease or otherwise acquire or retire for value any Indebtedness of Regency Energy Partners or any Guarantor that is contractually subordinated to the Notes or to any Note Guarantee (excluding intercompany Indebtedness between or among Regency Energy Partners and any of its Restricted Subsidiaries), except a payment of interest or principal within one month of the Stated Maturity thereof; or

     (4) make any Restricted Investment (all such payments and other actions set forth in these clauses (1) through (4) above being collectively referred to as “Restricted Payments”),

unless, at the time of and after giving effect to such Restricted Payment, no Default (except a Reporting Default) or Event of Default has occurred and is continuing or would occur as a consequence of such Restricted Payment and either:

     (1) if the Fixed Charge Coverage Ratio for Regency Energy Partners’ most recently ended four full fiscal quarters for which internal financial statements are available at the time of such Restricted Payment is not less than 1.75 to 1.0, such Restricted Payment, together with the aggregate amount of all other Restricted Payments made by Regency Energy Partners and its Restricted Subsidiaries (excluding Restricted Payments permitted by clauses (2), (3), (4) (to the extent, in the case of clause (4), payments are made to Regency Energy Partners or a Restricted Subsidiary), (5), (6), (7) and (8) of Section 4.07(b) hereof) during the quarter in which such Restricted Payment is made, is less than the sum, without duplication, of:

     (A) Available Cash from Operating Surplus as of the end of the immediately preceding quarter; plus

     (B) 100% of the aggregate net cash proceeds received by Regency Energy Partners (including the Fair Market Value of any Permitted Business or long-term assets

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that are used or useful in a Permitted Business to the extent acquired in consideration of Equity Interests of Regency Energy Partners (other than Disqualified Equity)) since the date of this Indenture as a contribution to its common equity capital or from the issue or sale of Equity Interests of Regency Energy Partners (other than Disqualified Equity) or from the issue or sale of convertible or exchangeable Disqualified Equity or convertible or exchangeable debt securities of Regency Energy Partners that have been converted into or exchanged for such Equity Interests (other than Equity Interests (or Disqualified Equity or debt securities) sold to a Subsidiary of Regency Energy Partners); plus

     (C) to the extent that any Restricted Investment that was made after the date of this Indenture is sold for cash or Cash Equivalents or otherwise liquidated or repaid for cash or Cash Equivalents, the return of capital with respect to such Restricted Investment (less the cost of disposition, if any); plus

     (D) the net reduction in Restricted Investments resulting from dividends, repayments of loans or advances, or other transfers of assets in each case to Regency Energy Partners or any of its Restricted Subsidiaries from any Person (including Unrestricted Subsidiaries) or from redesignations of Unrestricted Subsidiaries as Restricted Subsidiaries, to the extent such amounts have not been included in Available Cash from Operating Surplus for any period commencing on or after the date of this Indenture (items (b), (c) and (d) being referred to as “Incremental Funds”); minus

     (E) the aggregate amount of Incremental Funds previously expended pursuant to this clause (1) and clause (2) below; or

     (2) if the Fixed Charge Coverage Ratio for Regency Energy Partners’ most recently ended four full fiscal quarters for which internal financial statements are available at the time of such Restricted Payment is less than 1.75 to 1.0, such Restricted Payment, together with the aggregate amount of all other Restricted Payments made by Regency Energy Partners and its Restricted Subsidiaries (excluding Restricted Payments permitted by clauses (2),(3),(4) (to the extent, in the case of clause (4), payments are made to Regency Energy Partners or a Restricted Subsidiary), (5), (6), (7) and (8) of Section 4.07(b) hereof) during the quarter in which such Restricted Payment is made (such Restricted Payments for purposes of this clause (2) meaning only distributions on common units and subordinated units of Regency Energy Partners, plus the related distribution on the general partner interest), is less than the sum, without duplication, of:

     (A) $100.0 million less the aggregate amount of all prior Restricted Payments made by Regency Energy Partners and its Restricted Subsidiaries pursuant to this clause (2)(A) during the period since the date of this Indenture; plus

     (B) Incremental Funds to the extent not previously expended to this clause (2) or clause (1) above.

           (b) The provisions of Section 4.07(a) hereof shall not prohibit:

     (1) the payment of any dividend or distribution within 60 days after the date of its declaration, if at the date of declaration the payment would have complied with the provisions of this Indenture;

     (2) so long as no Default (except a Reporting Default) has occurred and is continuing or would be caused thereby, the redemption, repurchase, retirement, defeasance or other acquisi-

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tion of subordinated Indebtedness of Regency Energy Partners or any Guarantor or of any Equity Interests of Regency Energy Partners in exchange for, or out of the net cash proceeds of, a substantially concurrent (a) capital contribution to Regency Energy Partners from any Person (other than a Restricted Subsidiary of Regency Energy Partners) or (b) sale (other than to a Restricted Subsidiary of Regency Energy Partners) of Equity Interests of Regency Energy Partners, with a sale being deemed substantially concurrent if such redemption, repurchase, retirement, defeasance or other acquisition occurs not more than 120 days after such sale; provided that the amount of any such net cash proceeds that are utilized for any such redemption, repurchase, retirement, defeasance or other acquisition will be excluded or deducted from the calculation of Available Cash from Operating Surplus and Incremental Funds;

     (3) so long as no Default (except a Reporting Default) has occurred and is continuing or would be caused thereby, the defeasance, redemption, repurchase or other acquisition or retirement of any subordinated Indebtedness of Regency Energy Partners or any Guarantor with the net cash proceeds from an incurrence of, or in exchange for, Permitted Refinancing Indebtedness;

     (4) the payment of any distribution or dividend by a Restricted Subsidiary of Regency Energy Partners to the holders of its Equity Interests (other than Disqualified Equity) on a pro rata basis;

     (5) so long as no Default (except a Reporting Default) has occurred and is continuing or would be caused thereby, the repurchase, redemption or other acquisition or retirement for value of any Equity Interests of Regency Energy Partners or any Restricted Subsidiary of Regency Energy Partners held by any current or former officer, director or employee of the General Partner, Regency Energy Partners or any of Regency Energy Partners’ Restricted Subsidiaries pursuant to any equity subscription agreement or plan, stock or unit option agreement, shareholders’ agreement or similar agreement; provided that the aggregate price paid for all such repurchased, redeemed, acquired or retired Equity Interests may not exceed $2.0 million in any calendar year; provided further that such amount in any calendar year may be increased by an amount not to exceed (a) the cash proceeds received by Regency Energy Partners from the sale of Equity Interests of Regency Energy Partners to members of management or directors of the General Partner, Regency Energy Partners or its Restricted Subsidiaries that occurs after the date of this Indenture (to the extent the cash proceeds from the sale of such Equity Interests have not otherwise been applied to the payment of Restricted Payments by virtue of clauses (1)(B) or (2)(B) of Section 4.07(a) hereof), plus (b) the cash proceeds of key man life insurance policies received by Regency Energy Partners after the date of this Indenture;

     (6) so long as no Default (except a Reporting Default) has occurred and is continuing or would be caused thereby, payments of dividends on Disqualified Equity issued pursuant to Section 4.09 hereof;

     (7) repurchases of Capital Stock deemed to occur upon exercise of stock options, warrants or other convertible securities if such Capital Stock represents a portion of the exercise price of such options, warrants or other convertible securities; or

     (8) so long as no Default (except a Reporting Default) has occurred and is continuing or would be caused thereby, cash payments in lieu of the issuance of fractional shares in connection with the exercise of warrants, options or other securities convertible into or exchangeable for Capital Stock of Regency Energy Partners.

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           The amount of all Restricted Payments (other than cash) will be the Fair Market Value on the date of the Restricted Payment of the asset(s) or securities proposed to be transferred or issued by Regency Energy Partners or such Restricted Subsidiary, as the case may be, pursuant to the Restricted Payment. The Fair Market Value of any assets or securities that are required to be valued by this Section 4.07 will be determined, in the case of amounts under $15.0 million, by an Officer of the General Partner and, in the case of amounts over $15.0 million, by the Board of Directors of the General Partner, whose resolution with respect thereto shall be delivered to the Trustee. For the purposes of determining compliance with this Section 4.07, if a Restricted Payment meets the criteria of more than one of the categories of Restricted Payments described in the preceding clauses (1)-(8), Regency Energy Partners will be permitted to classify (or reclassify in whole or in part in its sole discretion) such Restricted Payment in any manner that complies with this Section 4.07.

Section 4.08 Dividend and Other Payment Restrictions Affecting Subsidiaries.

           (a) Regency Energy Partners shall not, and will not permit any of its Restricted Subsidiaries to, directly or indirectly, create or permit to exist or become effective any consensual encumbrance or restriction on the ability of any Restricted Subsidiary to:

     (1) pay dividends or make any other distributions on its Equity Interests to Regency Energy Partners or any of its Restricted Subsidiaries or to pay any indebtedness owed to Regency Energy Partners or any of its Restricted Subsidiaries;

     (2) make loans or advances to Regency Energy Partners or any of its Restricted Subsidiaries; or

     (3) sell, lease or transfer any of its properties or assets to Regency Energy Partners or any of its Restricted Subsidiaries.

           (b) The restrictions in Section 4.08(a) hereof will not apply to encumbrances or restrictions existing under or by reason of:

     (1) agreements as in effect on the date of this Indenture and any amendments, restatements, modifications, renewals, supplements, refundings, replacements or refinancings of those agreements or the Indebtedness to which they relate; provided that the amendments, restatements, modifications, renewals, supplements, refundings, replacements or refinancings are not materially more restrictive, taken as a whole, with respect to such dividend, distribution and other payment restrictions than those contained in those agreements on the date of this Indenture;

     (2) this Indenture, the Notes and the Note Guarantees;

     (3) applicable law, rule, regulation or order;

     (4) any instrument governing Indebtedness or Equity Interests of a Person acquired by Regency Energy Partners or any of its Restricted Subsidiaries as in effect at the time of such acquisition (except to the extent such Indebtedness or Equity Interests were incurred in connection with or in contemplation of such acquisition), which encumbrance or restriction is not applicable to any Person, or the properties or assets of any Person, other than the Person, or the property or assets of the Person, so acquired; provided that, in the case of Indebtedness, the incurrence thereof was otherwise permitted by the terms of this Indenture;

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     (5) customary non-assignment provisions contracts for purchase, gathering, processing, sale, transportation or exchange of crude oil, natural gas liquids, condensate and natural gas, natural gas storage agreements, in transportation agreements or purchase and sale or exchange agreements, pipeline or terminating agreements, or similar operational agreements or in licenses or leases, in each case licenses entered into in the ordinary course of business;

     (6) purchase money obligations for property acquired in the ordinary course of business and Capital Lease Obligations that impose restrictions on the property purchased or leased of the nature described in clause (3) of Section 4.08(a) hereof;

     (7) any agreement for the sale or other disposition of a Restricted Subsidiary that restricts distributions by that Restricted Subsidiary pending its sale or other disposition;

     (8) Permitted Refinancing Indebtedness; provided that the restrictions contained in the agreements governing such Permitted Refinancing Indebtedness are not materially more restrictive, taken as a whole, than those contained in the agreements governing the Indebtedness being refinanced;

     (9) Liens permitted to be incurred under the provisions of Section 4.12 hereof that limit the right of the debtor to dispose of the assets subject to such Liens;

     (10) provisions limiting the disposition or distribution of assets or property in joint venture agreements, asset sale agreements, sale-leaseback agreements, stock sale agreements, buy/sell agreements and other similar agreements entered into in the ordinary course of business;

     (11) any agreement or instrument relating to any property or assets acquired after the date hereof, so long as such encumbrance or restriction relates only to the property or assets so acquired and is not and was not created in anticipation of such acquisitions;

     (12) restrictions on cash or other deposits or net worth imposed by customers under contracts entered into in the ordinary course of business; and

     (13) any instrument governing Indebtedness of an FERC Subsidiary, provided that such Indebtedness was otherwise permitted by this Indenture to be incurred

Section 4.09 Incurrence of Indebtedness and Issuance of Disqualified Equity.

           (a) Regency Energy Partners shall not, and shall not permit any of its Restricted Subsidiaries to, directly or indirectly, create, incur, issue, assume, guarantee or otherwise become directly or indirectly liable, contingently or otherwise, with respect to (collectively, “incur”) any Indebtedness (including Acquired Debt), and Regency Energy Partners will not issue any Disqualified Equity and will not permit any of its Restricted Subsidiaries to issue any Disqualified Equity; provided, however, that Regency Energy Partners and any Restricted Subsidiary may incur Indebtedness (including Acquired Debt) and Regency Energy Partners and the Restricted Subsidiaries may issue Disqualified Equity, if the Fixed Charge Coverage Ratio for Regency Energy Partners’ most recently ended four full fiscal quarters for which internal financial statements are available immediately preceding the date on which such additional Indebtedness is incurred or such Disqualified Equity is issued, as the case may be, would have been at least 2.0 to 1.0, determined on a pro forma basis (including a pro forma application of the net proceeds therefrom), as if the additional Indebtedness had been incurred or the Disqualified Equity had been issued, as the case may be, at the beginning of such four-quarter period.

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           (b) The provisions of Section 4.09(a) hereof shall not prohibit the incurrence of any of the following items of Indebtedness (collectively, “Permitted Debt”) or the issuance of any preferred securities describe in clause (ii) below:

     (1) the incurrence by Regency Energy Partners and any Restricted Subsidiary of additional Indebtedness (including and letters of credit) under Credit Facilities, provided, that, after giving effect to such incurrence, the aggregate principal amount of all Indebtedness incurred under this clause (1) (with letters of credit being deemed to have a principal amount equal to the maximum potential liability of Regency Energy Partners and its Restricted Subsidiaries thereunder) and then outstanding does not exceed the greater of (a) $450.0 million and (b) the sum of $250.0 million and 20% of Regency Energy Partners’ Consolidated Net Tangible Assets;

     (2) the incurrence by Regency Energy Partners and its Restricted Subsidiaries of the Existing Indebtedness;

     (3) the incurrence by Regency Energy Partners, Finance Corp. and the Guarantors of Indebtedness represented by the Notes and the related Note Guarantees to be issued on the date of this Indenture and the Exchange Notes and the related Note Guarantees to be issued pursuant to a Registration Rights Agreement;

     (4) the incurrence by Regency Energy Partners or any of its Restricted Subsidiaries of Indebtedness represented by Capital Lease Obligations, mortgage financings or purchase money obligations, in each case, incurred for the purpose of financing all or any part of the purchase price or cost of construction or improvement of property, plant or equipment used in the business of Regency Energy Partners or any of its Restricted Subsidiaries, including all Permitted Refinancing Indebtedness incurred to renew, refund, refinance, replace, defense or discharge any Indebtedness incurred pursuant to this clause (4), provided that after giving effect to such incurrence the aggregate principal amount of all Indebtedness incurred pursuant to this clause (4) and then outstanding does not exceed the greater of (a) $20.0 million and (b) 2.0% of Regency Energy Partners’ Consolidated Net Tangible Assets;

     (5) the incurrence by Regency Energy Partners or any of its Restricted Subsidiaries of Permitted Refinancing Indebtedness in exchange for, or the net proceeds of which are used to renew, refund, refinance, replace, defease or discharge any Indebtedness (other than intercompany Indebtedness) that was permitted by this Indenture to be incurred under Section 4.09(a) hereof or clauses (2) or (3) of this Section 4.09(b) or this clause (5);

     (6) the incurrence by Regency Energy Partners or any of its Restricted Subsidiaries of intercompany Indebtedness between or among Regency Energy Partners and any of its Restricted Subsidiaries; provided, however, that:

     (A) if Regency Energy Partners or any Guarantor is the obligor on such Indebtedness and the payee is not Regency Energy Partners or a Guarantor, such Indebtedness must be expressly subordinated to the prior payment in full in cash of all Obligations then due with respect to the Notes, in the case of Regency Energy Partners, or the Note Guarantee, in the case of a Guarantor, and

     (B) (1) any subsequent issuance or transfer of Equity Interests that results in any such Indebtedness being held by a Person other than Regency Energy Partners or a Restricted Subsidiary of Regency Energy Partners and (2) any sale or other transfer of any such Indebtedness to a Person that is not either Regency Energy Partners or a Re-

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stricted Subsidiary of Regency Energy Partners, will be deemed, in each case, to constitute an incurrence of such Indebtedness by Regency Energy Partners or such Restricted Subsidiary, as the case may be, that was not permitted by this clause (6);

     (7) the incurrence by Regency Energy Partners or any of its Restricted Subsidiaries of Hedging Obligations;

     (8) the guarantee by Regency Energy Partners or any of its Restricted Subsidiaries of Indebtedness of Regency Energy Partners or a Restricted Subsidiary of Regency Energy Partners that was permitted to be incurred by another provision of this Section 4.09; provided that if the Indebtedness being guaranteed is subordinated to or pari passu with the Notes, then the Guarantee shall be subordinated or pari passu, as applicable, to the same extent as the Indebtedness guaranteed;

     (9) the incurrence by Regency Energy Partners or any of its Restricted Subsidiaries of obligations relating to net gas balancing positions arising in the ordinary course of business and consistent with past practice;

     (10) the incurrence by Regency Energy Partners or any of its Restricted Subsidiaries of Acquired Debt in connection with a transaction meeting either one of the financial tests set forth in clause (4) under Section 5.01(a);

     (11) the issuance by any of Regency Energy Partners’ Restricted Subsidiaries to Regency Energy Partners or to any of its Restricted Subsidiaries of any preferred securities; provided, however, that:

     (a) any subsequent issuance or transfer of Equity Interests that results in any such preferred securities being held by a Person other than Regency Energy Partners or a Restricted Subsidiary of Regency Energy Partners; and

     (b) any sale or other transfer of any such preferred securities to a Person that is not either Regency Energy Partners or a Restricted Subsidiary of Regency Energy Partners

will be deemed, in each case, to constitute an issuance of such preferred securities by such Restricted Subsidiary that was not permitted by this clause (11); and

     (12) the incurrence by Regency Energy Partners or any of its Restricted Subsidiaries of additional Indebtedness; provided that, after giving effect to any such incurrence, the aggregate principal amount of all Indebtedness incurred under this clause (12) does not exceed the greater of (a) $25.0 million and (b) 2.5% of Regency Energy Partners’ Consolidated Net Tangible Assets.

           Regency Energy Partners shall not incur, and shall not permit Finance Corp. or any Guarantor to incur, any Indebtedness (including Permitted Debt) that is contractually subordinated in right of payment to any other Indebtedness of Regency Energy Partners, Finance Corp. or such Guarantor unless such Indebtedness is also contractually subordinated in right of payment to the Notes and the applicable Note Guarantee on substantially identical terms; provided, however, that no Indebtedness of a Person shall be deemed to be contractually subordinated in right of payment to any other Indebtedness of such Person solely by virtue of being unsecured or by virtue of being secured on a first or junior Lien basis.

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           For purposes of determining compliance with this Section 4.09, if an item of proposed Indebtedness meets the criteria of more than one of the categories of Permitted Debt described in clauses (1) through (12) above, or is entitled to be incurred pursuant to Section 4.09(a) hereof, Regency Energy Partners will be permitted to classify such item of Indebtedness on the date of its incurrence, or later reclassify all or a portion of such item of Indebtedness, in any manner that complies with this Section 4.09. Indebtedness under Credit Facilities outstanding on the date on which Notes are first issued and authenticated under this Indenture will initially be deemed to have been incurred on such date in reliance on the exception provided by clause (1) of the definition of Permitted Debt.

           The accrual of interest, the accretion or amortization of original issue discount, the payment of interest on any Indebtedness in the form of additional Indebtedness with the same terms, the reclassification of preferred stock as Indebtedness due to a change in accounting principles, and the payment of dividends on Disqualified Equity in the form of additional shares of the same class of Disqualified Equity will not be deemed to be an incurrence of Indebtedness or an issuance of Disqualified Equity for purposes of this Section 4.09; provided, however, in each such case, that the amount of any such accrual, accretion or payment is included in Fixed Charges of Regency Energy Partners as accrued. Notwithstanding any other provision of this Section 4.09, the maximum amount of Indebtedness that Regency Energy Partners or any Restricted Subsidiary may incur pursuant to this Section 4.09 shall not be deemed to be exceeded solely as a result of fluctuations in exchange rates or currency values.

Section 4.10 Asset Sales.

           Regency Energy Partners shall not, and shall not permit any of its Restricted Subsidiaries to, consummate an Asset Sale unless:

     (1) Regency Energy Partners (or the Restricted Subsidiary, as the case may be) receives consideration at the time of the Asset Sale at least equal to the Fair Market Value of the assets or Equity Interests issued or sold or otherwise disposed of;

     (2) such Fair Market Value is determined by (a) an executive Officer of the General Partner if the value is less than $15.0 million, as evidenced by an Officers’ Certificate delivered to the Trustee, or (b) the Board of Directors of the General Partner if the value is $15.0 million or more, as evidenced by a resolution of such Board of Directors of the General Partners; and

     (3) at least 75% of the aggregate consideration received by Regency Energy Partners and its Restricted Subsidiaries in the Asset Sale and all other Asset Sales since the date of this Indenture is in the form of cash or Cash Equivalents. For purposes of this provision, each of the following shall be deemed to be cash:

     (A) any liabilities, as shown on Regency Energy Partners’ most recent consolidated balance sheet, of Regency Energy Partners or any Restricted Subsidiary (other than contingent liabilities and liabilities that are by their terms subordinated to the Notes or any Note Guarantee) that are assumed by the transferee of any such assets pursuant to a customary novation agreement that releases Regency Energy Partners or such Restricted Subsidiary from further liability; and

     (B) any securities, notes or other obligations received by Regency Energy Partners or any such Restricted Subsidiary from such transferee that are within 90 days after the Asset Sale (subject to ordinary settlement periods), converted by Regency Energy Partners or such Restricted Subsidiary into cash or Cash Equivalents, to the extent of the cash or Cash Equivalents received in that conversion.

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           Within 360 days after the receipt of any Net Proceeds from an Asset Sale, Regency Energy Partners (or the applicable Restricted Subsidiary, as the case may be) may apply such Net Proceeds:

     (1) to repay Senior Indebtedness of Regency Energy Partners and/or its Restricted Subsidiaries (or to make an offer to repurchase or redeem such Indebtedness, provided that such repurchase or redemption closes within 45 days after the end of such 360-day period) with a permanent reduction in availability for any revolving credit Indebtedness;

     (2) to acquire all or substantially all of the assets of, or any Capital Stock of, another Permitted Business, if, after giving effect to any such acquisition of Capital Stock, the Permitted Business is or becomes a Restricted Subsidiary of Regency Energy Partners;

     (3) to make a capital expenditure; or

     (4) to acquire other assets that are not classified as current assets under GAAP and that are used or useful in a Permitted Business.

Pending the final application of any Net Proceeds, Regency Energy Partners or the applicable Restricted Subsidiary may temporarily reduce revolving credit borrowings or otherwise invest the Net Proceeds in any manner that is not prohibited by this Indenture.

           Any Net Proceeds from Asset Sales that are not applied or invested as provided in the second paragraph of this Section 4.10 will constitute “Excess Proceeds.” When the aggregate amount of Excess Proceeds exceeds $20.0 million, within five days thereof, Regency Energy Partners will make an Asset Sale Offer, pursuant to Section 3.09, to all Holders of Notes and all holders of other Indebtedness that is pari passu with the Notes containing provisions similar to those set forth in this Indenture with respect to offers to purchase or redeem with the proceeds of sales of assets to purchase the maximum principal amount of Notes and such other pari passu Indebtedness that may be purchased out of the Excess Proceeds. The offer price in any Asset Sale Offer will be equal to 100% of the principal amount plus accrued and unpaid interest and Liquidated Damages, if any, to the date of purchase, and will be payable in cash. If any Excess Proceeds remain after consummation of an Asset Sale Offer, Regency Energy Partners may use those Excess Proceeds for any purpose not otherwise prohibited by this Indenture. If the aggregate principal amount of Notes and other pari passu Indebtedness tendered into such Asset Sale Offer exceeds the amount of Excess Proceeds, then the Notes and such other pari passu Indebtedness shall be purchased on a pro rata basis (with such adjustments as may be deemed appropriate by the Issuers so that only Notes and such other pari passu Indebtedness will be purchased in an authorized denomination and integral multiples thereof). Upon completion of each Asset Sale Offer, the amount of Excess Proceeds will be reset at zero.

           In making an Asset Sale Offer Regency Energy Partners will comply with the applicable requirements of Rule 14e-1 under the Exchange Act and other securities laws and regulations. To the extent that the provisions of any securities laws or regulations conflict with the provisions of Section 3.09 hereof or this Section 4.10, Regency Energy Partners will comply with the applicable securities laws and regulations and will not be deemed to have breached its obligations under Section 3.09 hereof or this Section 4.10 by virtue of such compliance.

Section 4.11 Transactions with Affiliates.

           (a) Regency Energy Partners shall not, and shall not permit any of its Restricted Subsidiaries to, make any payment to, or sell, lease, transfer or otherwise dispose of any of its properties or assets to, or purchase any property or assets from, or enter into or make or amend any transaction, con-

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tract, agreement, understanding, loan, advance or guarantee with, or for the benefit of, any Affiliate of Regency Energy Partners (each an “Affiliate Transaction”), unless:

     (1) the Affiliate Transaction is on terms that are no less favorable to Regency Energy Partners or the relevant Restricted Subsidiary than those that would have been obtained in a comparable transaction by Regency Energy Partners or such Restricted Subsidiary with an unrelated Person; and

     (2) Regency Energy Partners delivers to the Trustee:

     (A) with respect to any Affiliate Transaction or series of related Affiliate Transactions involving aggregate consideration in excess of $25.0 million, a resolution of the Board of Directors of the General Partner set forth in an Officers’ Certificate certifying that such Affiliate Transaction complies with clause (1) of this Section 4.11 (a) and that such Affiliate Transaction has been approved by a majority of the disinterested members of the Board of Directors of Regency Energy Partners; and

     (B) with respect to any Affiliate Transaction or series of related Affiliate Transactions involving aggregate consideration in excess of $50.0 million, a written opinion as to the fairness to Regency Energy Partners or such Subsidiary of such Affiliate Transaction from a financial point of view issued by an accounting, appraisal or investment banking firm of recognized industry standing.

           (b) The following items will not be deemed to be Affiliate Transactions and, therefore, shall not be subject to the provisions of Section 4.11(a) hereof:

     (1) any employment agreement, equity award, equity option or equity appreciation agreement or plan or any similar arrangement entered into by Regency Energy Partners or any of its Restricted Subsidiaries in the ordinary course of business and payments pursuant thereto;

     (2) transactions between or among Regency Energy Partners and/or its Restricted Subsidiaries;

     (3) transactions with a Person (other than an Unrestricted Subsidiary of Regency Energy Partners) that is an Affiliate of Regency Energy Partners solely because Regency Energy Partners owns, directly or through a Restricted Subsidiary, an Equity Interest in, or controls, such Person;

     (4) any issuance of Equity Interests (other than Disqualified Equity) of Regency Energy Partners to Affiliates of Regency Energy Partners;

     (5) Restricted Payments or Permitted Investments that do not violate Section 4.07 hereof;

     (6) customary compensation, indemnification and other benefits made available to officers, directors or employees of Regency Energy Partners, a Restricted Subsidiary of Regency Energy Partners or the General Partner, including reimbursement or advancement of out-of-pocket expenses and provisions of officers’ and directors’ liability insurance;

     (7) in the case of contracts for purchase, gathering, processing, sale, transportation and marketing of crude oil, natural gas, condensate and natural gas liquids, hedging agreements,

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and production handling, operating, construction, terminaling, storage, lease, platform use, or other operational contracts, any such contracts are entered into in the ordinary course of business on terms substantially similar to those contained in similar contracts entered into by Regency Energy Partners or any Restricted Subsidiary and third parties, or if neither Regency Energy Partners nor any Restricted Subsidiary has entered into a similar contract with a third party, that the terms are no less favorable than those available from third parties on an arm’s-length basis, as determined by the Board of Directors of the General Partner;

     (8) loans or advances to employees in the ordinary course of business not to exceed $1.0 million in the aggregate at any one time outstanding; and

     (9) the existence of, or the performance by Regency Energy Partners or any Restricted Subsidiary of its obligations under the terms of, any agreements that are described in the Offering Memorandum under the heading “Certain relationships and related party transactions” to which it is a party on the terms described in the Offering Memorandum and any amendments thereto and any similar agreements which it may enter into thereafter; provided, however, that the existence of, or the performance by Regency Energy Partners or any Restricted Subsidiary of its obligations under, any future amendment to such agreements or under any such similar agreements shall only be permitted by this clause (9) to the extent that the terms of any such amendment or new agreement, taken as a whole, are not less favorable to the Holders in any material respect as determined by the Board of Directors of the General Partner in its reasonable good faith judgment.

Section 4.12 Liens.

           Regency Energy Partners will not, and will not permit any of its Restricted Subsidiaries to, create, incur, assume or otherwise cause or suffer to exist or become effective any Lien of any kind (other than Permitted Liens) securing Indebtedness (including any Attributable Debt) upon any of their property or assets, now owned or hereafter acquired, unless all payments due under the Notes are secured on an equal and ratable basis or on a senior basis with the obligations so secured until such time as such obligations are no longer secured by a Lien (other than Permitted Liens).

Section 4.13 Business Activities.

           Regency Energy Partners shall not, and shall not permit any of its Restricted Subsidiaries to, engage in any business other than Permitted Businesses, except to such extent as would not be material to Regency Energy Partners and its Restricted Subsidiaries taken as a whole.

           Finance Corp. shall not hold any material assets, become liable for any material obligations or engage in any significant business activities; provided, that Finance Corp. may be a co-obligor or guarantor with respect to Indebtedness if Regency Energy Partners is an obligor on such Indebtedness and the net proceeds of such Indebtedness are received by Regency Energy Partners, Finance Corp. or one or more Guarantors. At any time after Regency Energy Partners is a corporation, Finance Corp. may consolidate or merge with or into Regency Energy Partners or any Restricted Subsidiary.

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Section 4.14 Corporate Existence.

           Subject to Article 5 hereof, Regency Energy Partners shall do or cause to be done all things necessary to preserve and keep in full force and effect:

     (1) its limited partnership existence, and the corporate, partnership or other existence of each of its Restricted Subsidiaries, in accordance with the respective organizational documents (as the same may be amended from time to time) of Regency Energy Partners or any such Restricted Subsidiary; and

     (2) the rights (charter and statutory), licenses and franchises of Regency Energy Partners and its Restricted Subsidiaries;

provided, however, that Regency Energy Partners shall not be required to preserve any such right, license or franchise, or the corporate, partnership or other existence of any of its Restricted Subsidiaries, if it shall determine that the preservation thereof is no longer desirable in the conduct of the business of Regency Energy Partners and its Restricted Subsidiaries, taken as a whole, and that the loss thereof is not adverse in any material respect to the Holders of the Notes.

Section 4.15 Offer to Repurchase Upon Change of Control.

           (a) Upon the occurrence of a Change of Control, Regency Energy Partners shall make an offer (a “Change of Control Offer”) to each Holder of Notes to repurchase all or any part (equal to $1,000 or an integral multiple of $1,000) of that Holder’s Notes at a purchase price in cash equal to 101% of the aggregate principal amount of Notes repurchased, plus accrued and unpaid interest and Liquidated Damages, if any, on the Notes repurchased to, but excluding, the date of purchase, subject to the rights of Holders of Notes on the relevant record date to receive interest due on an interest payment date that is prior to the purchase date (the “Change of Control Payment”). Within 30 days following any Change of Control, Regency Energy Partners will mail a notice to each Holder describing the transaction or transactions that constitute the Change of Control and stating:

     (1) that the Change of Control Offer is being made pursuant to this Section 4.15 and that all Notes tendered will be accepted for payment;

     (2) the purchase price and the purchase date, which shall be no earlier than 20 Business Days and no later than 60 days from the date such notice is mailed (the “Change of Control Payment Date”);

     (3) that any Note not tendered will continue to accrue interest and Liquidated Damages, if any;

     (4) that, unless Regency Energy Partners Default in the payment of the Change of Control Payment, all Notes accepted for payment pursuant to the Change of Control Offer will cease to accrue interest and Liquidated Damages, if any, after the Change of Control Payment Date;

     (5) that Holders electing to have any Notes purchased pursuant to a Change of Control Offer will be required to surrender the Notes, with the form entitled “Option of Holder to Elect Purchase” attached to the Notes completed, or transfer by book-entry transfer, to the Paying Agent at the address specified in the notice prior to the close of business on the third Business Day preceding the Change of Control Payment Date;

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     (6) that Holders will be entitled to withdraw their election if the Paying Agent receives, not later than the close of business on the second Business Day preceding the Change of Control Payment Date, a telegram, telex, facsimile transmission or letter setting forth the name of the Holder, the principal amount of Notes delivered for purchase, and a statement that such Holder is withdrawing his election to have the Notes purchased; and

     (7) that Holders whose Notes are being purchased only in part will be issued new Notes equal in principal amount to the unpurchased portion of the Notes surrendered, which unpurchased portion must be equal to $1,000 in principal amount or an integral multiple thereof.

           Regency Energy Partners shall comply with the requirements of Rule 14e-1 under the Exchange Act and any other securities laws and regulations. To the extent that the provisions of any securities laws or regulations conflict with the provisions of this Section 4.15, Regency Energy Partners shall comply with the applicable securities laws and regulations and will not be deemed to have breached its obligations under this Section 4.15 by virtue of such compliance.

     (b) On the Change of Control Payment Date, Regency Energy Partners shall, to the extent lawful:

     (1) accept for payment all Notes or portions of Notes properly tendered pursuant to the Change of Control Offer;

     (2) deposit with the Paying Agent an amount equal to the Change of Control Payment in respect of all Notes or portions of Notes properly tendered; and

     (3) deliver or cause to be delivered to the Trustee the Notes properly accepted together with an Officers’ Certificate stating the aggregate principal amount of Notes or portions of Notes being purchased by the Issuers.

           The Paying Agent shall promptly mail to each Holder of Notes properly tendered the Change of Control Payment for such Notes (or, to the extent the Notes are in global form, make such payment through the facilities of DTC), and the Trustee will promptly authenticate and mail (or cause to be transferred by book entry) to each Holder a new Note equal in principal amount to any unpurchased portion of the Notes surrendered; provided, that each new Note will be in a principal amount of $1,000 or an integral multiple of $1,000. Regency Energy Partners will publicly announce the results of the Change of Control Offer on or as soon as practicable after the Change of Control Payment Date.

           The provisions described above that require the Issuers to make a Change of Control Offer following a Change of Control will be applicable whether or not any other provisions of this Indenture are applicable.

          (c) Notwithstanding anything to the contrary in this Section 4.15, Regency Energy Partners will not be required to make a Change of Control Offer upon a Change of Control if (1) a third party makes the Change of Control Offer in the manner, at the times and otherwise in compliance with the requirements set forth in this Section 4.15 and purchases all Notes properly tendered and not withdrawn under the Change of Control Offer, or (2) notice of redemption has been given pursuant to Section 3.07 hereof, unless and until there is a default in payment of the applicable redemption price.

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Section 4.16 Limitation on Sale and Leaseback Transactions.

           Regency Energy Partners shall not, and shall not permit any of its Restricted Subsidiaries to, enter into any sale and leaseback transaction; provided that Regency Energy Partners or any Restricted Subsidiary may enter into a sale and leaseback transaction if the transfer of assets in that sale and leaseback transaction is permitted by, and Regency Energy Partners or such Restricted Subsidiary applies the proceeds of such transaction in compliance with, Section 4.10 hereof.

Section 4.17 Payments for Consent.

           Regency Energy Partners shall not, and shall not permit any of its Restricted Subsidiaries to, directly or indirectly, pay or cause to be paid any consideration to or for the benefit of any Holder of Notes for or as an inducement to any consent, waiver or amendment of any of the terms or provisions of this Indenture or the Notes unless such consideration is offered to be paid and is paid to all Holders of the Notes that consent, waive or agree to amend in the time frame set forth in the solicitation documents relating to such consent, waiver or agreement.

Section 4.18 Additional Guarantees.

           If, after the date of this Indenture, any Restricted Subsidiary of Regency Energy Partners that is not already a Guarantor guarantees any Indebtedness of either of the Issuers or any Indebtedness of any Guarantor, or any Domestic Subsidiary, if not then a Guarantor, incurs any Indebtedness under any Credit Facility, then in either case that Subsidiary will become a Guarantor by executing a supplemental indenture substantially in the form of Exhibit F hereto and delivering it to the Trustee within 20 Business Days of the date on which it guaranteed or incurred such Indebtedness, as the case may be; provided, however, that the preceding shall not apply to Subsidiaries of Regency Energy Partners that have been properly designated as Unrestricted Subsidiaries in accordance with this Indenture for so long as they continue to constitute Unrestricted Subsidiaries. Notwithstanding the preceding, any Note Guarantee of a Restricted Subsidiary that was incurred pursuant to this paragraph as a result of its guarantee of any Indebtedness shall provide by its terms that it shall be automatically and unconditionally released upon the release or discharge of the Guarantee that resulted in the creation of such Restricted Subsidiary’s Note Guarantee, except a discharge or release by, or as a result of payment under, such Guarantee.

Section 4.19 Designation of Restricted and Unrestricted Subsidiaries.

           The Board of Directors of the General Partner may designate any Restricted Subsidiary to be an Unrestricted Subsidiary if that designation would not cause a Default. If a Restricted Subsidiary is designated as an Unrestricted Subsidiary, the aggregate Fair Market Value of all outstanding Investments owned by Regency Energy Partners and its Restricted Subsidiaries in the Subsidiary designated as Unrestricted will be deemed to be either an Investment made as of the time of the designation that will reduce the amount available for Restricted Payments under Section 4.07 hereof or a Permitted Investment under one or more clauses of the definition of Permitted Investments, as determined by Regency Energy Partners; provided that any designation will only be permitted if the Investment would be permitted at that time and if the Restricted Subsidiary otherwise meets the definition of an Unrestricted Subsidiary.

           Any designation of a Subsidiary of Regency Energy Partners as an Unrestricted Subsidiary will be evidenced to the Trustee by filing with the Trustee a certified copy of a resolution of the Board of Directors of the General Partner giving effect to such designation and an Officers’ Certificate certifying that such designation complied with the preceding conditions and was permitted by Section 4.07 hereof. If, at any time, any Unrestricted Subsidiary would fail to meet the preceding requirements as an Unrestricted Subsidiary, it will thereafter cease to be an Unrestricted Subsidiary for purposes of this Indenture

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and any Indebtedness of such Subsidiary will be deemed to be incurred by a Restricted Subsidiary of Regency Energy Partners as of such date and, if such Indebtedness is not permitted to be incurred as of such date under Section 4.09 hereof, Regency Energy Partners will be in default of such covenant. The Board of Directors of the General Partner may at any time designate any Unrestricted Subsidiary to be a Restricted Subsidiary of Regency Energy Partners; provided that such designation will be deemed to be an incurrence of Indebtedness by a Restricted Subsidiary of Regency Energy Partners of any outstanding Indebtedness of such Unrestricted Subsidiary, and such designation will only be permitted if (1) such Indebtedness is permitted under Section 4.09 hereof, calculated on a pro forma basis as if such designation had occurred at the beginning of the four-quarter reference period; and (2) no Default or Event of Default would be in existence following such designation.

Section 4.20 Termination of Covenants.

           If at any time the Notes achieve an Investment Grade Rating from both of the Rating Agencies and no Default or Event of Default has occurred and is then continuing under this Indenture, Regency Energy Partners and its Restricted Subsidiaries will no longer be subject to the following provisions of this Indenture:

     (1) Section 4.10;

     (2) Section 4.07;

     (3) Section 4.08;

     (4) Section 4.09;

     (5) Section 4.11;

     (6) Section 4.13;

     (7) Section 4.19;

     (8) Section 5.01(a)(4); and

     (9) Section 4.16.

           Promptly after such termination, Regency Energy Partners shall deliver to the Trustee an Officers’ Certificate certifying to such termination.

ARTICLE 5

SUCCESSORS

Section 5.01 Merger, Consolidation, or Sale of Assets.

           (a) Neither of the Issuers may, directly or indirectly: (1) consolidate or merge with or into another Person (whether or not such Issuer is the surviving entity); or (2) sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of the properties or assets of Regency Energy Partners and its Subsidiaries, taken as a whole, in one or more related transactions, to another Person, unless:

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     (1) either:

     (A) such Issuer is the surviving entity; or

     (B) the Person formed by or surviving any such consolidation or merger (if other than such Issuer) or to which such sale, assignment, transfer, lease, conveyance or other disposition has been made is a Person organized or existing under the laws of the United States, any state of the United States or the District of Columbia; provided, however, that Finance Corp. may not consolidate or merge with or into any Person other than a corporation satisfying such requirement so long as Regency Energy Partners is not a corporation;

     (2) the Person formed by or surviving any such consolidation or merger (if other than such Issuer) or the Person to which such sale, assignment, transfer, lease, conveyance or other disposition has been made assumes all the obligations of such Issuer under the Notes, this Indenture and each Registration Rights Agreement pursuant to agreements reasonably satisfactory to the Trustee;

     (3) immediately after such transaction, no Default or Event of Default exists;

     (4) in the case of a transaction involving Regency Energy Partners and not Finance Corp., Regency Energy Partners or the Person formed by or surviving any such consolidation or merger (if other than Regency Energy Partners), or to which such sale, assignment, transfer, lease, conveyance or other disposition has been made, will, either:

     (A) be, on the date of such transaction after giving pro forma effect thereto and any related financing transactions as if the same had occurred at the beginning of the applicable four-quarter period, permitted to incur at least $1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in Section 4.09(a); or

     (B) have a Fixed Charge Coverage Ratio, on the date of such transaction and after giving pro forma effect thereto and any related financing transactions as if the same had occurred at the beginning of the applicable four-quarter period, not less than the Fixed Charge Coverage Ratio of Regency Energy Partners immediately prior to such transaction; and

     (5) such Issuer has delivered to the Trustee an Officers’ Certificate and an Opinion of Counsel, each stating that such consolidation, merger or disposition and such supplemental indenture (if any) comply with this Indenture and all conditions precedent therein relating to such transaction have been satisfied;

provided that clause (4) shall not apply to any sale of assets of a Restricted Subsidiary to Regency Energy Partners or another Restricted Subsidiary or the merger or consolidation of a Restricted Subsidiary into any Restricted Subsidiary or Regency Energy Partners.

           (b) Notwithstanding Section 5.01(a), Regency Energy Partners is permitted to reorganize as any other form of entity in accordance with the procedures established in this Indenture; provided that:

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     (1) the reorganization involves the conversion (by merger, sale, legal conversion, contribution or exchange of assets or otherwise) of Regency Energy Partners into a form of entity other than a limited partnership formed under Delaware law;

     (2) the entity so formed by or resulting from such reorganization is an entity organized or existing under the laws of the United States, any state thereof or the District of Columbia;

     (3) the entity so formed by or resulting from such reorganization assumes all the obligations of Regency Energy Partners under the Notes, this Indenture and each Registration Rights Agreement pursuant to agreements reasonably satisfactory to the Trustee;

     (4) immediately after such reorganization no Default or Event of Default exists; and

     (5) such reorganization is not materially adverse to the Holders of the Notes (for purposes of this clause (5) it is stipulated that such reorganization shall not be considered materially adverse to the Holders of the Notes solely because the successor or survivor of such reorganization (a) is subject to federal or state income taxation as an entity or (b) is considered to be an “includible corporation” of an affiliated group of corporations within the meaning of Section 1504(b)(i) of the Internal Revenue Code of 1986, as amended, or any similar state or local law).

           (c) A Guarantor may not sell or otherwise dispose of all or substantially all of its properties or assets to, or consolidate with or merge with or into (whether or not such Guarantor is the surviving Person), another Person, other than Regency Energy Partners or another Guarantor, except as permitted by Sections 10.04 and 10.05 hereof.

Section 5.02 Successor Person Substituted.

           Upon any consolidation or merger, or any sale, assignment, transfer, lease, conveyance or other disposition of all or substantially all of the properties or assets of Regency Energy Partners in a transaction that is subject to, and that complies with the provisions of, Section 5.01 hereof, the successor Person formed by such consolidation or into or with which Regency Energy Partners is merged or to which such sale, assignment, transfer, lease, conveyance or other disposition is made shall succeed to, and be substituted for (so that from and after the date of such consolidation, merger, sale, assignment, transfer, lease, conveyance or other disposition, the provisions of this Indenture referring to the “Regency Energy Partners” shall refer instead to the successor Person and not to Regency Energy Partners), and may exercise every right and power of Regency Energy Partners under this Indenture with the same effect as if such successor Person had been named as Regency Energy Partners herein.

ARTICLE 6

DEFAULTS AND REMEDIES

Section 6.01 Events of Default.

           Each of the following is an “Event of Default”:

     (1) default for 30 days in the payment when due of interest on, or Liquidated Damages, if any, with respect to, the Notes;

     (2) default in the payment when due (at stated maturity, upon redemption or otherwise) of the principal of, or premium, if any, on, the Notes;

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     (3) failure by the Issuers or the Guarantors to make a Change of Control Offer or an Asset Sale Offer within the timer periods set forth, or consummate a purchase of Notes when required pursuant to the terms described in Sections 4.15 or 4.10 or comply with the provisions of Section 5.01 hereof;

     (4) failure by Regency Energy Partners for 90 days after notice to comply with the provisions of Section 4.03 hereof;

     (5) failure by the Issuers or the Guarantors for 60 days after written notice to comply with any of the other agreements in this Indenture;

     (6) default under any mortgage, indenture or instrument under which there may be issued or by which there may be secured or evidenced any Indebtedness for money borrowed by Regency Energy Partners or any of its Restricted Subsidiaries (or the payment of which is guaranteed by Regency Energy Partners or any of its Restricted Subsidiaries), whether such indebtedness or Guarantee now exists, or is created after the date of this Indenture, if that default:

     (A) is caused by a failure to pay principal of, or interest or premium, if any, on, such Indebtedness prior to the expiration of the grace period provided in such Indebtedness on the date of such default (a “Payment Default”); or

     (B) results in the acceleration of such Indebtedness prior to its express maturity,

and, in each case, the principal amount of any such Indebtedness, together with the principal amount of any other such Indebtedness under which there has been a Payment Default or the maturity of which has been so accelerated, aggregates $20.0 million or more, provided, however, that if, prior to any acceleration of the Notes, (i) any such Payment Default is cured or waived, (ii) any such acceleration is rescinded, or (iii) such Indebtedness is repaid during the 10 Business Day period commencing upon the end of any applicable grace period for such Payment Default or the occurrence of such acceleration, as applicable, any Default or Event of Default (but not any acceleration) caused by such Payment Default or acceleration shall automatically be rescinded, so long as such rescission does not conflict with any judgment, decree or applicable law;

     (7) failure by an Issuer or any of Regency Energy Partners’ Restricted Subsidiaries to pay final judgments entered by a court or courts of competent jurisdiction aggregating in excess of $20.0 million, which judgments are not paid, discharged or stayed for a period of 60 days;

     (8) an Issuer or any of Regency Energy Partners’ Restricted Subsidiaries that is a Significant Subsidiary or any group of Restricted Subsidiaries of Regency Energy Partners that, taken together, would constitute a Significant Subsidiary pursuant to or within the meaning of Bankruptcy Law:

     (A) commences a voluntary case,

     (B) consents to the entry of an order for relief against it in an involuntary case,

     (C) consents to the appointment of a custodian of it or for all or substantially all of its property,

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     (D) makes a general assignment for the benefit of its creditors, or

     (E) generally is not paying its debts as they become due;

     (9) a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that:

     (A) is for relief against an Issuer or any of Regency Energy Partners’ Restricted Subsidiaries that is a Significant Subsidiary or any group of Restricted Subsidiaries of the Regency Energy Partners that, taken together, would constitute a Significant Subsidiary in an involuntary case;

     (B) appoints a custodian of an Issuer or any of Regency Energy Partners’ Restricted Subsidiaries that is a Significant Subsidiary or any group of Restricted Subsidiaries of Regency Energy Partners that, taken together, would constitute a Significant Subsidiary or for all or substantially all of the property of an Issuer or any of Regency Energy Partners’ Restricted Subsidiaries that is a Significant Subsidiary or any group of Restricted Subsidiaries of Regency Energy Partners that, taken together, would constitute a Significant Subsidiary; or

     (C) orders the liquidation of an Issuer or any of Regency Energy Partners’ Restricted Subsidiaries that is a Significant Subsidiary or any group of Restricted Subsidiaries of Regency Energy Partners that, taken together, would constitute a Significant Subsidiary;

and the order or decree remains unstayed and in effect for 60 consecutive days; and

     (10) except as permitted by this Indenture, any Note Guarantee is held in any judicial proceeding to be unenforceable or invalid or ceases for any reason to be in full force and effect, or any Guarantor, or any Person acting on behalf of any Guarantor, denies or disaffirms its Obligations under its Note Guarantee.

Section 6.02 Acceleration.

           In the case of an Event of Default specified in clause (8) or (9) of Section 6.01 hereof, with respect to Finance Corp., Regency Energy Partners or any Restricted Subsidiary of Regency Energy Partners that is a Significant Subsidiary or any group of Restricted Subsidiaries of Regency Energy Partners that, taken together, would constitute a Significant Subsidiary, all outstanding Notes will become due and payable immediately without further action or notice. If any other Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in aggregate principal amount of the then outstanding Notes may declare, by notice in writing to the Issuers, all the Notes to be due and payable immediately.

           Upon any such declaration, the Notes shall become due and payable immediately.

           The Holders of a majority in aggregate principal amount of the then outstanding Notes by notice to the Trustee may, on behalf of the Holders of all of the Notes, rescind an acceleration or waive any existing Default or Event of Default and its consequences under this Indenture except a continuing Default or Event of Default in the payment of interest or premium or Liquidated Damages, if any, on, or the principal of, the Notes.

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Section 6.03 Other Remedies.

           If an Event of Default occurs and is continuing, the Trustee may pursue any available remedy to collect the payment of principal, premium and Liquidated Damages, if any, and interest on the Notes or to enforce the performance of any provision of the Notes or this Indenture.

           The Trustee may maintain a proceeding even if it does not possess any of the Notes or does not produce any of them in the proceeding. A delay or omission by the Trustee or any Holder of a Note in exercising any right or remedy accruing upon an Event of Default shall not impair the right or remedy or constitute a waiver of or acquiescence in the Event of Default. All remedies are cumulative to the extent permitted by law.

Section 6.04 Waiver of Past Defaults.

           Holders of not less than a majority in aggregate principal amount of the then outstanding Notes by notice to the Trustee may on behalf of the Holders of all of the Notes waive an existing Default or Event of Default and its consequences hereunder, except a continuing Default or Event of Default in the payment of the principal of, premium and Liquidated Damages, if any, or interest on, the Notes (including in connection with an offer to purchase); provided, however, that the Holders of a majority in aggregate principal amount of the then outstanding Notes may rescind an acceleration and its consequences, including any related payment default that resulted from such acceleration. Upon any such waiver, such Default shall cease to exist, and any Event of Default arising therefrom shall be deemed to have been cured for every purpose of this Indenture; but no such waiver shall extend to any subsequent or other Default or impair any right consequent thereon.

Section 6.05 Control by Majority.

           Holders of a majority in aggregate principal amount of the then outstanding Notes may direct the time, method and place of conducting any proceeding for exercising any remedy available to the Trustee or exercising any trust or power conferred on it. However, the Trustee may refuse to follow any direction that conflicts with law or this Indenture that the Trustee determines may be unduly prejudicial to the rights of other Holders of Notes or that may involve the Trustee in personal liability.

Section 6.06 Limitation on Suits.

           A Holder may pursue a remedy with respect to this Indenture or the Notes only if:

     (1) such Holder gives to the Trustee written notice that an Event of Default is continuing;

     (2) Holders of at least 25% in aggregate principal amount of the then outstanding Notes make a written request to the Trustee to pursue the remedy;

     (3) such Holder or Holders offer and, if requested, provide to the Trustee security or indemnity reasonably satisfactory to the Trustee against any loss, liability or expense;

     (4) the Trustee does not comply with the request within 60 days after receipt of the request and the offer of security or indemnity; and

     (5) during such 60-day period, Holders of a majority in aggregate principal amount of the then outstanding Notes do not give the Trustee a direction inconsistent with such request.

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           A Holder of a Note may not use this Indenture to prejudice the rights of another Holder of a Note or to obtain a preference or priority over another Holder of a Note.

Section 6.07 Rights of Holders of Notes to Receive Payment.

           Notwithstanding any other provision of this Indenture, the right of any Holder of a Note to receive payment of principal, premium and Liquidated Damages, if any, and interest on the Note, on or after the respective due dates expressed in the Note (including in connection with an offer to purchase), or to bring suit for the enforcement of any such payment on or after such respective dates, shall not be impaired or affected without the consent of such Holder.

Section 6.08 Collection Suit by Trustee.

           If an Event of Default specified in Section 6.01(1) or (2) hereof occurs and is continuing, the Trustee is authorized to recover judgment in its own name and as trustee of an express trust against the Issuers for the whole amount of principal of, premium and Liquidated Damages, if any, and interest remaining unpaid on, the Notes and interest on overdue principal and, to the extent lawful, interest and such further amount as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel.

Section 6.09 Trustee May File Proofs of Claim.

           The Trustee is authorized to file such proofs of claim and other papers or documents as may be necessary or advisable in order to have the claims of the Trustee (including any claim for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel) and the Holders of the Notes allowed in any judicial proceedings relative to the Issuers (or any other obligor upon the Notes), their creditors or their property and shall be entitled and empowered to collect, receive and distribute any money or other property payable or deliverable on any such claims and any custodian in any such judicial proceeding is hereby authorized by each Holder to make such payments to the Trustee, and in the event that the Trustee shall consent to the making of such payments directly to the Holders, to pay to the Trustee any amount due to it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 7.07 hereof. To the extent that the payment of any such compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 7.07 hereof out of the estate in any such proceeding, shall be denied for any reason, payment of the same shall be secured by a Lien on, and shall be paid out of, any and all distributions, dividends, money, securities and other properties that the Holders may be entitled to receive in such proceeding whether in liquidation or under any plan of reorganization or arrangement or otherwise. Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Holder any plan of reorganization, arrangement, adjustment or composition affecting the Notes or the rights of any Holder, or to authorize the Trustee to vote in respect of the claim of any Holder in any such proceeding.

Section 6.10 Priorities.

           If the Trustee collects any money or property pursuant to this Article 6, it shall pay out the money or property in the following order:

     First: to the Trustee, its agents and attorneys for amounts due under Section 7.07 hereof, including payment of all compensation, expenses and liabilities incurred, and all advances made, by the Trustee and the costs and expenses of collection;

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     Second: to Holders of Notes for amounts due and unpaid on the Notes for principal, premium and Liquidated Damages, if any, and interest, ratably, without preference or priority of any kind, according to the amounts due and payable on the Notes for principal, premium and Liquidated Damages, if any, and interest, respectively; and

     Third: to the Issuers or to such party as a court of competent jurisdiction shall direct.

           The Trustee may fix a record date and payment date for any payment to Holders of Notes pursuant to this Section 6.10.

Section 6.11 Undertaking for Costs.

           In any suit for the enforcement of any right or remedy under this Indenture or in any suit against the Trustee for any action taken or omitted by it as a Trustee, a court in its discretion may require the filing by any party litigant in the suit of an undertaking to pay the costs of the suit, and the court in its discretion may assess reasonable costs, including reasonable attorneys’ fees, against any party litigant in the suit, having due regard to the merits and good faith of the claims or defenses made by the party litigant. This Section 6.11 does not apply to a suit by the Trustee, a suit by a Holder of a Note pursuant to Section 6.07 hereof, or a suit by Holders of more than 10% in aggregate principal amount of the then outstanding Notes.

Section 6.12 Willful Action or Inaction.

           In the case of any Event of Default occurring by reason of any willful action or inaction taken or not taken by or on behalf of an Issuer with the intention of avoiding payment of the premium that the Issuers would have had to pay if the Issuers then had elected to redeem the Notes on or after December 15, 2010 pursuant to Section 3.07, an equivalent premium will also become and be immediately due and payable to the extent permitted by law upon the acceleration of the Notes. If an Event of Default occurs prior to December 15, 2010 by reason of any willful action or inaction taken or not taken by or on behalf of an Issuer with the intention of avoiding the prohibition on redemption of the Notes prior to that date, then the applicable redemption price pursuant to Section 3.07 with respect to the first year that the Notes may be redeemed at the Issuers’ option (other than with the net cash proceeds of an Equity Offering or on a make-whole basis) will also become immediately due and payable to the extent permitted by law upon the acceleration of the Notes.

ARTICLE 7

TRUSTEE

Section 7.01 Duties of Trustee.

           (a) If an Event of Default has occurred and is continuing, the Trustee will exercise such of the rights and powers vested in it by this Indenture, and use the same degree of care and skill in its exercise, as a prudent person would exercise or use under the circumstances in the conduct of such person’s own affairs.

           (b) Except during the continuance of an Event of Default:

     (1) the duties of the Trustee will be determined solely by the express provisions of this Indenture and the Trustee need perform only those duties that are specifically set forth in this

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Indenture and no others, and no implied covenants or obligations shall be read into this Indenture against the Trustee; and

     (2) in the absence of bad faith on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture. However, the Trustee will examine the certificates and opinions to determine whether or not they conform to the requirements of this Indenture.

           (c) The Trustee may not be relieved from liabilities for its own negligent action, its own negligent failure to act, or its own willful misconduct, except that:

     (1) this paragraph does not limit the effect of paragraph (b) of this Section 7.01;

     (2) the Trustee will not be liable for any error of judgment made in good faith by a Responsible Officer, unless it is proved that the Trustee was negligent in ascertaining the pertinent facts; and

     (3) the Trustee will not be liable with respect to any action it takes or omits to take in good faith in accordance with a direction received by it pursuant to Section 6.05 hereof.

           (d) Whether or not therein expressly so provided, every provision of this Indenture that in any way relates to the Trustee is subject to paragraphs (a), (b), and (c) of this Section 7.01.

           (e) No provision of this Indenture will require the Trustee to expend or risk its own funds or incur any liability. The Trustee will be under no obligation to exercise any of its rights and powers under this Indenture at the request of any Holders, unless such Holder has offered to the Trustee security or indemnity reasonably satisfactory to it against any loss, liability or expense.

           (f) The Trustee will not be liable for interest on any money received by it except as the Trustee may agree in writing with the Issuers. Money held in trust by the Trustee need not be segregated from other funds except to the extent required by law.

Section 7.02 Rights of Trustee.

           (a) The Trustee may conclusively rely upon any document believed by it to be genuine and to have been signed or presented by the proper Person. The Trustee need not investigate any fact or matter stated in the document.

           (b) Before the Trustee acts or refrains from acting, it may require an Officers’ Certificate or an Opinion of Counsel or both. The Trustee will not be liable for any action it takes or omits to take in good faith in reliance on such Officers’ Certificate or Opinion of Counsel. The Trustee may consult with counsel and the written advice of such counsel or any Opinion of Counsel will be full and complete authorization and protection from liability in respect of any action taken, suffered or omitted by it hereunder in good faith and in reliance thereon.

           (c) The Trustee may act through its attorneys and agents and will not be responsible for the misconduct or negligence of any agent appointed with due care.

           (d) The Trustee will not be liable for any action it takes or omits to take in good faith that it believes to be authorized or within the rights or powers conferred upon it by this Indenture.

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           (e) Unless otherwise specifically provided in this Indenture, any demand, request, direction or notice from the Issuers will be sufficient if signed by an Officer of each of the Issuers.

           (f) The Trustee will be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request or direction of any of the Holders unless such Holders have offered to the Trustee reasonable indemnity or security against the losses, liabilities and expenses that might be incurred by it in compliance with such request or direction.

Section 7.03 Individual Rights of Trustee.

           The Trustee in its individual or any other capacity may become the owner or pledgee of Notes and may otherwise deal with the Issuers or any Affiliate of the Issuers with the same rights it would have if it were not Trustee. However, in the event that the Trustee acquires any conflicting interest (as defined in the TIA) after a Default has occurred and is continuing it must eliminate such conflict within 90 days, apply to the SEC for permission to continue as trustee (if this Indenture has been qualified under the TIA) or resign. Any Agent may do the same with like rights and duties. The Trustee is also subject to Sections 7.10 and 7.11 hereof.

Section 7.04 Trustee’s Disclaimer.

           The Trustee will not be responsible for and makes no representation as to the validity or adequacy of this Indenture or the Notes, it shall not be accountable for the Issuers’ use of the proceeds from the Notes or any money paid to the Issuers or upon the Issuers’ direction under any provision of this Indenture, it will not be responsible for the use or application of any money received by any Paying Agent other than the Trustee, and it will not be responsible for any statement or recital herein or any statement in the Notes or any other document in connection with the sale of the Notes or pursuant to this Indenture other than its certificate of authentication.

Section 7.05 Notice of Defaults.

           If a Default or Event of Default occurs and is continuing and if it is known to the Trustee, the Trustee will mail to Holders of Notes a notice of the Default or Event of Default within 90 days after it occurs. Except in the case of a Default or Event of Default in payment of principal of, premium or Liquidated Damages, if any, or interest on, any Note, the Trustee may withhold the notice if and so long as a committee of its Responsible Officers in good faith determines that withholding the notice is in the interests of the Holders of the Notes.

Section 7.06 Reports by Trustee to Holders of the Notes.

           (a) Within 60 days after each May 15 beginning with the May 15 following the date of this Indenture, and for so long as Notes remain outstanding, the Trustee will mail to the Holders of the Notes a brief report dated as of such reporting date that complies with TIA § 313(a) (but if no event described in TIA § 313(a) has occurred within the twelve months preceding the reporting date, no report need be transmitted). The Trustee also will comply with TIA § 313(b)(2). The Trustee will also transmit by mail all reports as required by TIA § 313(c).

           (b) A copy of each report at the time of its mailing to the Holders of Notes will be mailed by the Trustee to the Issuers and filed by the Trustee with the SEC and each stock exchange on which the Notes are listed in accordance with TIA § 313(d). The Issuers will promptly notify the Trustee when the Notes are listed on any stock exchange.

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Section 7.07 Compensation and Indemnity.

           (a) The Issuers will pay to the Trustee from time to time reasonable compensation for its acceptance of this Indenture and services hereunder. The Trustee’s compensation will not be limited by any law on compensation of a trustee of an express trust. The Issuers will reimburse the Trustee promptly upon request for all reasonable disbursements, advances and expenses incurred or made by it in addition to the compensation for its services. Such expenses will include the reasonable compensation, disbursements and expenses of the Trustee’s agents and counsel.

           (b) The Issuers and the Guarantors will indemnify the Trustee against any and all losses, liabilities or expenses incurred by it arising out of or in connection with the acceptance or administration of its duties under this Indenture, including the costs and expenses of enforcing this Indenture against the Issuers and the Guarantors (including this Section 7.07) and defending itself against any claim (whether asserted by the Issuers, the Guarantors, any Holder or any other Person) or liability in connection with the exercise or performance of any of its powers or duties hereunder, except to the extent any such loss, liability or expense may be attributable to its negligence or bad faith. The Trustee will notify the Issuers promptly of any claim for which it may seek indemnity. Failure by the Trustee to so notify the Issuers will not relieve the Issuers or any of the Guarantors of their obligations hereunder. The Issuers or such Guarantor will defend the claim and the Trustee will cooperate in the defense. The Trustee may have separate counsel and the Issuers will pay the reasonable fees and expenses of such counsel. Neither the Issuers nor any Guarantor need pay for any settlement made without its consent, which consent will not be unreasonably withheld.

           (c) The obligations of the Issuers and the Guarantors under this Section 7.07 will survive the satisfaction and discharge of this Indenture.

           (d) To secure the Issuers’ and the Guarantors’ payment obligations in this Section 7.07, the Trustee will have a Lien prior to the Notes on all money or property held or collected by the Trustee, except that held in trust to pay principal, premium, if any, Liquidated Damages, if any, and interest on particular Notes. Such Lien will survive the satisfaction and discharge of this Indenture.

           (e) When the Trustee incurs expenses or renders services after an Event of Default specified in Section 6.01(8) or (9) hereof occurs, the expenses and the compensation for the services (including the fees and expenses of its agents and counsel) are intended to constitute expenses of administration under any Bankruptcy Law.

           (f) The Trustee will comply with the provisions of TIA § 313(b)(2) to the extent applicable.

Section 7.08 Replacement of Trustee.

           (a) A resignation or removal of the Trustee and appointment of a successor Trustee will become effective only upon the successor Trustee’s acceptance of appointment as provided in this Section 7.08.

           (b) The Trustee may resign in writing at any time and be discharged from the trust hereby created by so notifying the Issuers. The Holders of a majority in aggregate principal amount of the then outstanding Notes may remove the Trustee by so notifying the Trustee and the Issuers in writing. The Issuers may remove the Trustee if:

     (1) the Trustee fails to comply with Section 7.10 hereof;

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     (2) the Trustee is adjudged a bankrupt or an insolvent or an order for relief is entered with respect to the Trustee under any Bankruptcy Law;

     (3) a custodian or public officer takes charge of the Trustee or its property; or

     (4) the Trustee becomes incapable of acting.

           (c) If the Trustee resigns or is removed or if a vacancy exists in the office of Trustee for any reason, the Issuers will promptly appoint a successor Trustee. Within one year after the successor Trustee takes office, the Holders of a majority in aggregate principal amount of the then outstanding Notes may appoint a successor Trustee to replace the successor Trustee appointed by the Issuers.

           (d) If a successor Trustee does not take office within 60 days after the retiring Trustee resigns or is removed, the retiring Trustee, the Issuers, or the Holders of at least 10% in aggregate principal amount of the then outstanding Notes may petition any court of competent jurisdiction for the appointment of a successor Trustee.

           (e) If the Trustee, after written request by any Holder who has been a Holder for at least six months, fails to comply with Section 7.10 hereof, such Holder may petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee.

           (f) A successor Trustee will deliver a written acceptance of its appointment to the retiring Trustee and to the Issuers. Thereupon, the resignation or removal of the retiring Trustee will become effective, and the successor Trustee will have all the rights, powers and duties of the Trustee under this Indenture. The successor Trustee will mail a notice of its succession to Holders. The retiring Trustee will promptly transfer all property held by it as Trustee to the successor Trustee; provided all sums owing to the Trustee hereunder have been paid and subject to the Lien provided for in Section 7.07 hereof. Notwithstanding replacement of the Trustee pursuant to this Section 7.08, the Issuers’ obligations under Section 7.07 hereof will continue for the benefit of the retiring Trustee.

Section 7.09 Successor Trustee by Merger, etc.

           If the Trustee consolidates, merges or converts into, or transfers all or substantially all of its corporate trust business to, another corporation, the successor corporation without any further act will be the successor Trustee.

Section 7.10 Eligibility; Disqualification.

           There will at all times be a Trustee hereunder that is a corporation organized and doing business under the laws of the United States of America or of any state thereof that is authorized under such laws to exercise corporate trustee power, that is subject to supervision or examination by federal or state authorities and that has a combined capital and surplus of at least $100.0 million as set forth in its most recent published annual report of condition.

           This Indenture will always have a Trustee who satisfies the requirements of TIA § 310(a)(1), (2) and (5). The Trustee is subject to TIA § 310(b).

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Section 7.11 Preferential Collection of Claims Against the Issuers.

           The Trustee is subject to TIA § 311(a), excluding any creditor relationship listed in TIA § 311(b). A Trustee who has resigned or been removed shall be subject to TIA § 311(a) to the extent indicated therein.

ARTICLE 8

LEGAL DEFEASANCE AND COVENANT DEFEASANCE

Section 8.01 Option to Effect Legal Defeasance or Covenant Defeasance.

           The Issuers may, at their option and at any time, elect to have either Section 8.02 or 8.03 hereof be applied to all outstanding Notes and Note Guarantees upon compliance with the conditions set forth below in this Article 8.

Section 8.02 Legal Defeasance and Discharge.

           Upon the Issuers’ exercise under Section 8.01 hereof of the option applicable to this Section 8.02, the Issuers and each of the Guarantors will, subject to the satisfaction of the conditions set forth in Section 8.04 hereof, be deemed to have been discharged from their obligations with respect to all outstanding Notes (including the Note Guarantees) on the date the conditions set forth below are satisfied (hereinafter, “Legal Defeasance”). For this purpose, Legal Defeasance means that the Issuers and the Guarantors will be deemed to have paid and discharged the entire Indebtedness represented by the outstanding Notes (including the Note Guarantees), which will thereafter be deemed to be “outstanding” only for the purposes of Section 8.05 hereof and the other Sections of this Indenture referred to in clauses (1) and (2) below, and to have satisfied all their other obligations under such Notes, the Note Guarantees and this Indenture (and the Trustee, on demand of and at the expense of the Issuers, shall execute proper instruments acknowledging the same), except for the following provisions which will survive until otherwise terminated or discharged hereunder:

     (1) the rights of Holders of outstanding Notes to receive payments in respect of the principal of, or interest or premium and Liquidated Damages, if any, on, such Notes when such payments are due from the trust referred to in Section 8.04 hereof;

     (2) the Issuers’ obligations with respect to the Notes concerning issuing temporary Notes, registration of Notes, mutilated, destroyed, lost or stolen Notes and the maintenance of an office or agency for payment and money for security payments held in trust;

     (3) the rights, powers, trusts, duties and immunities of the Trustee hereunder and the Issuers’ and the Guarantors’ obligations in connection therewith; and

     (4) this Article 8.

           Subject to compliance with this Article 8, the Issuers may exercise their option under this Section 8.02 notwithstanding the prior exercise of its option under Section 8.03 hereof.

Section 8.03 Covenant Defeasance.

           Upon the Issuers’ exercise under Section 8.01 hereof of the option applicable to this Section 8.03, the Issuers and each of the Guarantors will, subject to the satisfaction of the conditions set forth

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in Section 8.04 hereof, be released from each of their obligations under the covenants contained in Sections 3.09, 4.03, 4.04 (except for paragraph (a) thereof to the extent required by the TIA), 4.05, 4.07, 4.08, 4.09, 4.10, 4.11, 4.12, 4.13, 4.15, 4.16, 4.17, 4.18 and 4.19 hereof and clause (4) of Section 5.01 hereof with respect to the outstanding Notes, and the Guarantors will be released from their obligations with respect to the Note Guarantees, on and after the date the conditions set forth in Section 8.04 hereof are satisfied (hereinafter, “Covenant Defeasance”), and the Notes will thereafter be deemed not “outstanding” for the purposes of any direction, waiver, consent or declaration or act of Holders (and the consequences of any thereof) in connection with such covenants, but will continue to be deemed “outstanding” for all other purposes hereunder (it being understood that such Notes will not be deemed outstanding for accounting purposes to the extent permitted by GAAP). For this purpose, Covenant Defeasance means that, with respect to the outstanding Notes and Note Guarantees, the Issuers and the Guarantors may omit to comply with and will have no liability in respect of any term, condition or limitation set forth in any such covenant, whether directly or indirectly, by reason of any reference elsewhere herein to any such covenant or by reason of any reference in any such covenant to any other provision herein or in any other document and such omission to comply will not constitute a Default or an Event of Default under Section 6.01 hereof, but, except as specified above, the remainder of this Indenture and such Notes and Note Guarantees will be unaffected thereby. In addition, upon the Issuers’ exercise under Section 8.01 hereof of the option applicable to this Section 8.03, subject to the satisfaction of the conditions set forth in Section 8.04 hereof, Sections 6.01(3) through 6.01(7) inclusive hereof will not constitute Events of Default.

Section 8.04 Conditions to Legal or Covenant Defeasance.

           In order to exercise either Legal Defeasance or Covenant Defeasance under either Section 8.02 or 8.03 hereof:

     (1) the Issuers must irrevocably deposit with the Trustee, in trust, for the benefit of the Holders of the Notes, cash in U.S. dollars, non-callable Government Securities, or a combination of cash in U.S. dollars and non-callable Government Securities, in amounts as will be sufficient, in the opinion of a nationally recognized investment bank, appraisal firm or firm of independent public accountants, to pay the principal of, or interest and premium and Liquidated Damages, if any, on the outstanding Notes on the stated date for payment thereof or on the applicable Redemption Date, as the case may be, and the Issuers must specify whether the Notes are being defeased to such stated date for payment or to a particular Redemption Date;

     (2) in the case of an election under Section 8.02 hereof, the Issuers must deliver to the Trustee an Opinion of Counsel reasonably acceptable to the Trustee confirming that:

     (A) the Issuers have received from, or there has been published by, the Internal Revenue Service a ruling; or

     (B) since the date of this Indenture, there has been a change in the applicable federal income tax law,

in either case to the effect that, and based thereon such Opinion of Counsel shall confirm that, the Holders of the outstanding Notes will not recognize income, gain or loss for federal income tax purposes as a result of such Legal Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Legal Defeasance had not occurred;

     (3) in the case of an election under Section 8.03 hereof, the Issuers must deliver to the Trustee an Opinion of Counsel reasonably acceptable to the Trustee confirming that the Hold-

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ers of the outstanding Notes will not recognize income, gain or loss for federal income tax purposes as a result of such Covenant Defeasance and will be subject to federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Covenant Defeasance had not occurred;

     (4) no Default or Event of Default shall have occurred and be continuing on the date of such deposit (other than a Default or Event of Default resulting from the borrowing of funds to be applied to such deposit);

     (5) such Legal Defeasance or Covenant Defeasance will not result in a breach or violation of, or constitute a default under, any material agreement or instrument (other than this Indenture) to which Regency Energy Partners or any of its Subsidiaries is a party or by which Regency Energy Partners or any of its Subsidiaries is bound;

     (6) the Issuers must deliver to the Trustee an Officers’ Certificate stating that the deposit was not made by the Issuers with the intent of preferring the Holders of Notes over the other creditors of the Issuers with the intent of defeating, hindering, delaying or defrauding any creditors of the Issuers or others; and

     (7) the Issuers must deliver to the Trustee an Officers’ Certificate and an Opinion of Counsel, each stating that all conditions precedent relating to the Legal Defeasance or the Covenant Defeasance have been complied with.

Section 8.05 Deposited Money and Government Securities to be Held in Trust; Other Miscellaneous Provisions.

           Subject to Section 8.06 hereof, all money and non-callable Government Securities (including the proceeds thereof) deposited with the Trustee (or other qualifying trustee, collectively for purposes of this Section 8.05, the “Trustee”) pursuant to Section 8.04 hereof in respect of the outstanding Notes will be held in trust and applied by the Trustee, in accordance with the provisions of such Notes and this Indenture, to the payment, either directly or through any Paying Agent (including either Issuer acting as Paying Agent) as the Trustee may determine, to the Holders of such Notes of all sums due and to become due thereon in respect of principal, premium and Liquidated Damages, if any, and interest, but such money need not be segregated from other funds except to the extent required by law.

           The Issuers will pay and indemnify the Trustee against any tax, fee or other charge imposed on or assessed against the cash or non-callable Government Securities deposited pursuant to Section 8.04 hereof or the principal and interest received in respect thereof other than any such tax, fee or other charge which by law is for the account of the Holders of the outstanding Notes.

           Notwithstanding anything in this Article 8 to the contrary, the Trustee will deliver or pay to the Issuers from time to time upon the request of the Issuers any money or non-callable Government Securities held by it as provided in Section 8.04 hereof which, in the opinion of a nationally recognized investment bank, appraisal firm or firm of independent public accountants expressed in a written certification thereof delivered to the Trustee (which may be the opinion delivered under Section 8.04(1) hereof), are in excess of the amount thereof that would then be required to be deposited to effect an equivalent Legal Defeasance or Covenant Defeasance.

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Section 8.06 Repayment to the Issuers.

           Any money deposited with the Trustee or any Paying Agent, or then held by the Issuers, in trust for the payment of the principal of, premium or Liquidated Damages, if any, or interest on, any Note and remaining unclaimed for two years after such principal, premium or Liquidated Damages, if any, or interest has become due and payable shall be paid to the Issuers on their request or (if then held by the Issuers) will be discharged from such trust; and the Holder of such Note will thereafter be permitted to look only to the Issuers for payment thereof, and all liability of the Trustee or such Paying Agent with respect to such trust money, and all liability of the Issuers as trustee thereof, will thereupon cease; provided, however, that, if any Notes then outstanding are in definitive form, the Trustee or such Paying Agent, before being required to make any such repayment, may at the expense of the Issuers cause to be published once, in The New York Times and The Wall Street Journal (national edition), notice that such money remains unclaimed and that, after a date specified therein, which will not be less than 30 days from the date of such notification or publication, any unclaimed balance of such money then remaining will be repaid to the Issuers.

Section 8.07 Reinstatement.

           If the Trustee or Paying Agent is unable to apply any U.S. dollars or non-callable Government Securities in accordance with Section 8.02 or 8.03 hereof, as the case may be, by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, then the Issuers’ and the Guarantors’ obligations under this Indenture and the Notes and the Note Guarantees will be revived and reinstated as though no deposit had occurred pursuant to Section 8.02 or 8.03 hereof until such time as the Trustee or Paying Agent is permitted to apply all such money in accordance with Section 8.02 or 8.03 hereof, as the case may be; provided, however, that, if the Issuers make any payment of principal of, premium or Liquidated Damages, if any, or interest on, any Note following the reinstatement of its obligations, the Issuers will be subrogated to the rights of the Holders of such Notes to receive such payment from the money held by the Trustee or Paying Agent.

ARTICLE 9

AMENDMENT, SUPPLEMENT AND WAIVER

Section 9.01 Without Consent of Holders of Notes.

           Notwithstanding Section 9.02 of this Indenture, the Issuers, the Guarantors and the Trustee may amend or supplement this Indenture or the Notes or the Note Guarantees without the consent of any Holder of Notes:

     (1) to cure any ambiguity, defect or inconsistency;

     (2) to provide for uncertificated Notes in addition to or in place of certificated Notes;

     (3) to provide for the assumption of the Issuers’ or a Guarantor’s obligations to the Holders of the Notes and Note Guarantees in the case of a merger or consolidation or sale of all or substantially all of the Issuers’ or such Guarantors’ properties or assets, as applicable;

     (4) to make any change that would provide any additional rights or benefits to the Holders of the Notes or that does not adversely affect the legal rights hereunder of any such Holder;

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     (5) to comply with requirements of the SEC in order to effect or maintain the qualification of this Indenture under the TIA;

     (6) to conform the text of this Indenture or the Note Guarantees to any provision of the “Description of Notes” section of the Issuers’ Offering Memorandum to the extent that such text of this Indenture or the Note Guarantees was intended to reflect such provision of the “Description of Notes”;

     (7) to provide for the issuance of Additional Notes in accordance with the limitations set forth in this Indenture as of the date hereof;

     (8) to allow any Guarantor to execute a supplemental indenture and/or a notation of Note Guarantee with respect to the Notes or to reflect the addition or release of a Note Guarantee in accordance with this Indenture;

     (9) to secure the Notes and/or the Note Guarantees; or

     (10) to provide for the reorganization of Regency Energy Partners as any other form of entity, in accordance with Section 5.01(b).

           Upon the request of the Issuers accompanied by resolutions of their Boards of Directors authorizing the execution of any such amended or supplemental indenture, and upon receipt by the Trustee of the documents described in Section 9.06 hereof, the Trustee will join with the Issuers and the Guarantors in the execution of any amended or supplemental indenture authorized or permitted by the terms of this Indenture and to make any further appropriate agreements and stipulations that may be therein contained, but the Trustee will not be obligated to enter into such amended or supplemental indenture that affects its own rights, duties or immunities under this Indenture or otherwise.

Section 9.02 With Consent of Holders of Notes.

           Except as provided below in this Section 9.02, the Issuers, the Guarantors and the Trustee may amend or supplement this Indenture (including Sections 3.09, 4.10 and 4.15 hereof) and the Notes and the Note Guarantees with the consent of the Holders of at least a majority in aggregate principal amount of the then outstanding Notes (including Additional Notes, if any) voting as a single class (including, without limitation, consents obtained in connection with a tender offer or exchange offer for, or purchase of, the Notes), and, subject to Sections 6.04 and 6.07 hereof, any existing Default or Event of Default or compliance with any provision of this Indenture or the Notes or the Note Guarantees may be waived with the consent of the Holders of a majority in aggregate principal amount of the then outstanding Notes (including, without limitation, Additional Notes, if any) voting as a single class (including, without limitation, consents obtained in connection with a tender offer or exchange offer for, or purchase of, the Notes). Section 2.08 hereof shall determine which Notes are considered to be “outstanding” for purposes of this Section 9.02.

           Upon the request of the Issuers accompanied by resolutions of their Boards of Directors authorizing the execution of any such amended or supplemental indenture, and upon the filing with the Trustee of evidence satisfactory to the Trustee of the consent of the Holders of Notes as aforesaid, and upon receipt by the Trustee of the documents described in Section 9.06 hereof, the Trustee will join with the Issuers and the Guarantors in the execution of such amended or supplemental indenture unless such amended or supplemental indenture directly affects the Trustee’s own rights, duties or immunities under this Indenture or otherwise, in which case the Trustee may in its discretion, but will not be obligated to, enter into such amended or supplemental Indenture.

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           It is not necessary for the consent of the Holders of Notes under this Section 9.02 to approve the particular form of any proposed amendment, supplement or waiver, but it is sufficient if such consent approves the substance thereof.

           After an amendment, supplement or waiver under this Section 9.02 becomes effective, the Issuers will mail to the Holders of Notes affected thereby a notice briefly describing the amendment, supplement or waiver. Any failure of the Issuers to mail such notice, or any defect therein, will not, however, in any way impair or affect the validity of any such amended or supplemental indenture or waiver.

           However, without the consent of each Holder affected, an amendment, supplement or waiver under this Section 9.02 may not (with respect to any Notes held by a non-consenting Holder):

     (1) reduce the principal amount of Notes whose Holders must consent to an amendment, supplement or waiver;

     (2) reduce the principal of or change the fixed maturity of any Note or alter the provisions with respect to the redemption or repurchase of the Notes (other than provisions relating to Sections 3.09, 4.10 or 4.15 hereof);

     (3) reduce the rate of or change the time for payment of interest, including default interest, on any Note;

     (4) waive a Default or Event of Default in the payment of principal of, or interest or premium or Liquidated Damages, if any, on the Notes (except a rescission of acceleration of the Notes by the Holders of at least a majority in aggregate principal amount of the then outstanding Notes and a waiver of the payment default that resulted from such acceleration);

     (5) make any Note payable in money other than that stated in the Notes;

     (6) make any change in the provisions of this Indenture relating to waivers of past Defaults or the rights of Holders of Notes to receive payments of, principal of, or interest or premium or Liquidated Damages, if any, on, the Notes (other than as permitted by clause (7) below);

     (7) waive a redemption or repurchase payment with respect to any Note (other than a payment required by Sections 4.10 or 4.15 hereof);

     (8) release any Guarantor from any of its obligations under its Note Guarantee or this Indenture, except in accordance with the terms of this Indenture; or

     (9) make any change in the preceding amendment, supplement and waiver provisions.

Section 9.03 Compliance with Trust Indenture Act.

           Every amendment or supplement to this Indenture or the Notes will be set forth in an amended or supplemental indenture that complies with the TIA as then in effect.

Section 9.04 Revocation and Effect of Consents.

           Until an amendment, supplement or waiver becomes effective, a consent to it by a Holder of a Note is a continuing consent by the Holder of a Note and every subsequent Holder of a Note or por-

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tion of a Note that evidences the same debt as the consenting Holder’s Note, even if notation of the consent is not made on any Note. However, any such Holder of a Note or subsequent Holder of a Note may revoke the consent as to its Note if the Trustee receives written notice of revocation before the date the amendment, supplement or waiver becomes effective. An amendment, supplement or waiver becomes effective in accordance with its terms and thereafter binds every Holder; except as provided in the last paragraph of Section 9.02.

Section 9.05 Notation on or Exchange of Notes.

           The Trustee may place an appropriate notation about an amendment, supplement or waiver on any Note thereafter authenticated. The Issuers in exchange for all Notes may issue and the Trustee shall, upon receipt of a Company Order, authenticate new Notes that reflect the amendment, supplement or waiver.

           Failure to make the appropriate notation or issue a new Note will not affect the validity and effect of such amendment, supplement or waiver.

Section 9.06 Trustee to Sign Amendments, etc.

           The Trustee will sign any amended or supplemental indenture authorized pursuant to this Article 9 if the amendment or supplement does not adversely affect the rights, duties, liabilities or immunities of the Trustee. The Issuers may not sign an amended or supplemental indenture until the Boards of Directors of each of the Issuers approves it. In executing any amended or supplemental indenture, the Trustee will be entitled to receive and (subject to Section 7.01 hereof) will be fully protected in relying upon, in addition to the documents required by Section 12.04 hereof, an Officers’ Certificate and an Opinion of Counsel stating that the execution of such amended or supplemental indenture is authorized or permitted by this Indenture. In the case of any amendment or supplement pursuant to Section 9.01(6) hereof, such Officers’ Certificate shall include a certification that the conforming change being made to this Indenture reflects the intent of the Issuers and the Initial Purchasers.

ARTICLE 10

NOTE GUARANTEES

Section 10.01 Guarantee.

           (a) Subject to this Article 10, each of the Guarantors hereby, jointly and severally, unconditionally guarantees to each Holder of a Note authenticated and delivered by the Trustee and to the Trustee and its successors and assigns, irrespective of the validity and enforceability of this Indenture, the Notes or the obligations of the Issuers hereunder or thereunder, that:

     (1) the principal of, premium and Liquidated Damages, if any, and interest on, the Notes will be promptly paid in full when due, whether at stated maturity, by acceleration, redemption or otherwise, and interest on the overdue principal of and interest on the Notes, if any, if lawful, and all other obligations of the Issuers to the Holders or the Trustee hereunder or thereunder will be promptly paid in full or performed, all in accordance with the terms hereof and thereof; and

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     (2) in case of any extension of time of payment or renewal of any Notes or any of such other obligations, that same will be promptly paid in full when due or performed in accordance with the terms of the extension or renewal, whether at stated maturity, by acceleration or otherwise.

           Failing payment when due of any amount so guaranteed or any performance so guaranteed for whatever reason, the Guarantors will be jointly and severally obligated to pay the same immediately. Each Guarantor agrees that this is a guarantee of payment and not a guarantee of collection.

           (b) The Guarantors hereby agree that their obligations hereunder are unconditional, irrespective of the validity, regularity or enforceability of the Notes or this Indenture, the absence of any action to enforce the same, any waiver or consent by any Holder of the Notes with respect to any provisions hereof or thereof, the recovery of any judgment against the Issuers, any action to enforce the same or any other circumstance which might otherwise constitute a legal or equitable discharge or defense of a guarantor. Each Guarantor hereby waives diligence, presentment, demand of payment, filing of claims with a court in the event of insolvency or bankruptcy of the Issuers, any right to require a proceeding first against the Issuers, protest, notice and all demands whatsoever and covenant that this Note Guarantee will not be discharged except by complete performance of the obligations contained in the Notes and this Indenture.

           (c) If any Holder or the Trustee is required by any court or otherwise to return to the Issuers, the Guarantors or any custodian, trustee, liquidator or other similar official acting in relation to either the Issuers or the Guarantors, any amount paid by either to the Trustee or such Holder, this Note Guarantee, to the extent theretofore discharged, will be reinstated in full force and effect.

           (d) Each Guarantor agrees that it will not be entitled to any right of subrogation in relation to the Holders in respect of any obligations guaranteed hereby until payment in full of all obligations guaranteed hereby. Each Guarantor further agrees that, as between the Guarantors, on the one hand, and the Holders and the Trustee, on the other hand, (1) the maturity of the obligations guaranteed hereby may be accelerated as provided in Article 6 hereof for the purposes of this Note Guarantee, notwithstanding any stay, injunction or other prohibition preventing such acceleration in respect of the obligations guaranteed hereby, and (2) in the event of any declaration of acceleration of such obligations as provided in Article 6 hereof, such obligations (whether or not due and payable) will forthwith become due and payable by the Guarantors for the purpose of this Note Guarantee. The Guarantors will have the right to seek contribution from any non-paying Guarantor so long as the exercise of such right does not impair the rights of the Holders under the Note Guarantee.

Section 10.02 Limitation on Guarantor Liability.

           Each Guarantor, and by its acceptance of Notes, each Holder, hereby confirms that it is the intention of all such parties that the Note Guarantee of such Guarantor not constitute a fraudulent transfer or conveyance for purposes of Bankruptcy Law, the Uniform Fraudulent Conveyance Act, the Uniform Fraudulent Transfer Act or any similar federal or state law to the extent applicable to any Note Guarantee. To effectuate the foregoing intention, the Trustee, the Holders and the Guarantors hereby irrevocably agree that the obligations of such Guarantor will be limited to the maximum amount that will, after giving effect to such maximum amount and all other contingent and fixed liabilities of such Guarantor that are relevant under such laws, and after giving effect to any collections from, rights to receive contribution from or payments made by or on behalf of any other Guarantor in respect of the obligations of such other Guarantor under this Article 10, result in the obligations of such Guarantor under its Note Guarantee not constituting a fraudulent transfer or conveyance.

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Section 10.03 Execution and Delivery of Note Guarantee.

           To evidence its Note Guarantee set forth in Section 10.01 hereof, each Guarantor hereby agrees that a notation of such Note Guarantee substantially in the form attached as Exhibit E hereto will be endorsed by an Officer of such Guarantor on each Note authenticated and delivered by the Trustee and that this Indenture will be executed on behalf of such Guarantor by one of its Officers.

           Each Guarantor hereby agrees that its Note Guarantee set forth in Section 10.01 hereof will remain in full force and effect notwithstanding any failure to endorse on each Note a notation of such Note Guarantee.

           If an Officer whose signature is on this Indenture or on the notation of Note Guarantee no longer holds that office at the time the Trustee authenticates the Note on which a notation of Note Guarantee is endorsed, the Note Guarantee will be valid nevertheless.

           The delivery of any Note by the Trustee, after the authentication thereof hereunder, will constitute due delivery of the Note Guarantee set forth in this Indenture on behalf of the Guarantors.

           In the event that the Issuers or any of Regency Energy Partners’ Restricted Subsidiaries creates or acquires any Domestic Subsidiary after the date of this Indenture, if required by Section 4.18 hereof, the Issuers will cause such Domestic Subsidiary to comply with the provisions of Section 4.18 hereof and this Article 10, to the extent applicable.

Section 10.04 Guarantors May Consolidate, etc., on Certain Terms.

           Except as otherwise provided in Section 10.05 hereof, no Guarantor may sell or otherwise dispose of all or substantially all of its properties or assets to, or consolidate with or merge with or into (whether or not such Guarantor is the surviving Person) another Person, other than Regency Energy Partners or another Guarantor, unless:

     (1) immediately after giving effect to such transaction, no Default or Event of Default exists; and

     (2) either:

     (a) subject to Section 10.05 hereof, the Person acquiring the properties or assets in any such sale or other disposition or the Person formed by or surviving any such consolidation or merger (other than the Guarantor) unconditionally assumes all the obligations of that Guarantor under this Indenture, its Note Guarantee and each Registration Rights Agreement on the terms set forth herein or therein, pursuant to a supplemental indenture substantially in the form of Exhibit F hereto; or

     (b) the Net Proceeds of such sale or other disposition are applied in accordance with the applicable provisions of this Indenture, including without limitation, Section 4.10 hereof.

           In case of any such consolidation, merger, sale or conveyance and upon the assumption by the successor Person, by supplemental indenture, executed and delivered to the Trustee, of such obligations, such successor Person will succeed to and be substituted for the Guarantor with the same effect as if it had been named herein as a Guarantor. Such successor Person thereupon may cause to be signed any or all of the notations of Note Guarantees to be endorsed upon all of the Notes issuable hereunder which

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theretofore shall not have been signed by the Issuers and delivered to the Trustee. All the Note Guarantees so issued will in all respects have the same legal rank and benefit under this Indenture as the Note Guarantees theretofore and thereafter issued in accordance with the terms of this Indenture as though all of such Note Guarantees had been issued at the date of the execution hereof.

Section 10.05 Releases.

           (a) In the event of any sale or other disposition of all or substantially all of the properties or assets of any Guarantor, by way of merger, consolidation or otherwise, or a sale or other disposition of all of the Capital Stock of any Guarantor, in each case to a Person that is not (either before or after giving effect to such transactions) Regency Energy Partners or a Restricted Subsidiary of Regency Energy Partners, then such Guarantor (in the event of a sale or other disposition, by way of merger, consolidation or otherwise, of all of the Capital Stock of such Guarantor) or the Person acquiring the properties or assets (in the event of a sale or other disposition of all or substantially all of the properties or assets of such Guarantor) will be released and relieved of any obligations under its Note Guarantee; provided that the Net Proceeds of such sale or other disposition are applied in accordance with the applicable provisions of this Indenture, including without limitation Section 4.10 hereof. Upon delivery by the Issuers to the Trustee of an Officers’ Certificate and an Opinion of Counsel to the effect that such sale or other disposition was made by the Issuers in accordance with the provisions of this Indenture, including without limitation Section 4.10 hereof, the Trustee will execute any documents reasonably required in order to evidence the release of any Guarantor from its obligations under its Note Guarantee.

           (b) Upon designation of any Guarantor as an Unrestricted Subsidiary in accordance with the terms of this Indenture, such Guarantor will be released and relieved of any obligations under its Note Guarantee.

           (c) At such time as any Guarantor ceases to guarantee any other Indebtedness of an Issuer or another Guarantor, provided that, if it is also a Domestic Subsidiary, it is no longer an obligor with respect to any Indebtedness under any Credit Facility; provided, however, that if, at any time following such release, that Guarantor incurs a Guarantee under a Credit Facility, then such Guarantor shall be required to provide a Note Guarantee at such time.

           (d) Upon Legal or Covenant Defeasance in accordance with Article 8 hereof or satisfaction and discharge of this Indenture in accordance with Article 11 hereof, each Guarantor will be released and relieved of any obligations under its Note Guarantee.

           Any Guarantor not released from its obligations under its Note Guarantee as provided in this Section 10.05 will remain liable for the full amount of principal of and interest and premium and Liquidated Damages, if any, on the Notes and for the other obligations of any Guarantor under this Indenture as provided in this Article 10.

ARTICLE 11

SATISFACTION AND DISCHARGE

Section 11.01 Satisfaction and Discharge.

           This Indenture will be discharged and will cease to be of further effect as to all Notes issued hereunder, when:

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     (1) either:

     (a) all Notes that have been authenticated, except lost, stolen or destroyed Notes that have been replaced or paid and Notes for whose payment money has theretofore been deposited in trust and thereafter repaid to the Issuers, have been delivered to the Trustee for cancellation; or

     (b) all Notes that have not been delivered to the Trustee for cancellation have become due and payable or will become due and payable within one year by reason of the mailing of a notice of redemption or otherwise and the Issuers or any Guarantor has irrevocably deposited or caused to be deposited with the Trustee as trust funds in trust solely for the benefit of the Holders, cash in U.S. dollars, non-callable Government Securities, or a combination of cash in U.S. dollars and non-callable Government Securities, in amounts as will be sufficient, without consideration of any reinvestment of interest, to pay and discharge the entire Indebtedness on the Notes not delivered to the Trustee for cancellation for principal, premium and Liquidated Damages, if any, and accrued interest to the date of fixed maturity or redemption;

     (2) no Default or Event of Default has occurred and is continuing on the date of such deposit (other than a Default or Event of Default resulting from the borrowing of funds to be applied to such deposit) and the deposit will not result in a breach or violation of, or constitute a default under, any other instrument to which Regency Energy Partners or any Guarantor is a party or by which Regency Energy Partners or any Guarantor is bound;

     (3) the Issuers or any Guarantor has paid or caused to be paid all sums payable by it under this Indenture; and

     (4) the Issuers have delivered irrevocable instructions to the Trustee under this Indenture to apply the deposited money toward the payment of the Notes at fixed maturity or on the Redemption Date, as the case may be.

           In addition, the Issuers must deliver an Officers’ Certificate and an Opinion of Counsel to the Trustee stating that all conditions precedent to satisfaction and discharge have been satisfied.

           Notwithstanding the satisfaction and discharge of this Indenture, if money has been deposited with the Trustee pursuant to subclause (b) of clause (1) of this Section 11.01, the provisions of Sections 11.02 and 8.06 hereof will survive. In addition, nothing in this Section 11.01 will be deemed to discharge those provisions of Section 7.07 hereof, that, by their terms, survive the satisfaction and discharge of this Indenture.

Section 11.02 Application of Trust Money.

           Subject to the provisions of Section 8.06 hereof, all money deposited with the Trustee pursuant to Section 11.01 hereof shall be held in trust and applied by it, in accordance with the provisions of the Notes and this Indenture, to the payment, either directly or through any Paying Agent (including either Issuer acting as Paying Agent) as the Trustee may determine, to the Persons entitled thereto, of the principal (and premium and Liquidated Damages, if any) and interest for whose payment such money has been deposited with the Trustee; but such money need not be segregated from other funds except to the extent required by law.

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           If the Trustee or Paying Agent is unable to apply any money or Government Securities in accordance with Section 11.01 hereof by reason of any legal proceeding or by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, the Issuers’ and any Guarantor’s obligations under this Indenture and the Notes shall be revived and reinstated as though no deposit had occurred pursuant to Section 11.01 hereof, provided that if the Issuers have made any payment of principal of, premium or Liquidated Damages, if any, or interest on, any Notes because of the reinstatement of its obligations, the Issuers shall be subrogated to the rights of the Holders of such Notes to receive such payment from the money or Government Securities held by the Trustee or Paying Agent.

ARTICLE 12

MISCELLANEOUS

Section 12.01 Trust Indenture Act Controls.

           If any provision of this Indenture limits, qualifies or conflicts with the duties imposed by TIA § 318(c), the imposed duties will control.

Section 12.02 Notices.

           Any notice or communication by the Issuers, any Guarantor or the Trustee to the others is duly given if in writing in the English language and delivered in Person or by first class mail (registered or certified, return receipt requested), facsimile transmission or overnight air courier guaranteeing next day delivery, to the others’ address:

           If to the Issuers and/or any Guarantor:

Regency Energy Partners LP
Regency Energy Finance Corp.
1700 Pacific Avenue, Suite 2900
Dallas, Texas 75201
Facsimile No.: (214) 750-1749
Attention: Chief Legal Officer

           With a copy to:

Vinson & Elkins L.L.P.
1001 Fannin, Suite 2500
Houston, Texas 77002
Facsimile No.: (713) 615-5306
Attention: C. Michael Harrington

           If to the Trustee:

Wells Fargo Bank, National Association
Corporate Trust Services
213 Court Street, Suite 703
Middletown, Connecticut 06457
Facsimile No.: (860) 704-6219
Attention: Corporate Trust Services-Regency Energy Administrator

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           The Issuers, any Guarantor or the Trustee, by notice to the others, may designate additional or different addresses for subsequent notices or communications.

           All notices and communications (other than those sent to Holders) will be deemed to have been duly given: at the time delivered by hand, if personally delivered; five Business Days after being deposited in the mail, postage prepaid, if mailed; when receipt acknowledged, if transmitted by facsimile; and the next Business Day after timely delivery to the courier, if sent by overnight air courier guaranteeing next day delivery.

           Any notice or communication to a Holder will be mailed by first class mail, certified or registered, return receipt requested, or by overnight air courier guaranteeing next day delivery to its address shown on the register kept by the Registrar. Any notice or communication will also be so mailed to any Person described in TIA § 313(c), to the extent required by the TIA. Failure to mail a notice or communication to a Holder or any defect in it will not affect its sufficiency with respect to other Holders.

           If a notice or communication is mailed in the manner provided above within the time prescribed, it is duly given, whether or not the addressee receives it.

           If the Issuers mail a notice or communication to Holders, they will mail a copy to the Trustee and each Agent at the same time.

Section 12.03 Communication by Holders of Notes with Other Holders of Notes.

           Holders may communicate pursuant to TIA § 312(b) with other Holders with respect to their rights under this Indenture or the Notes. The Issuers, the Trustee, the Registrar and anyone else shall have the protection of TIA § 312(c).

Section 12.04 Certificate and Opinion as to Conditions Precedent.

           Upon any request or application by the Issuers to the Trustee to take any action under this Indenture, the Issuers shall furnish to the Trustee:

     (1) an Officers’ Certificate in form and substance reasonably satisfactory to the Trustee (which must include the statements set forth in Section 12.05 hereof) stating that, in the opinion of the signers, all conditions precedent and covenants, if any, provided for in this Indenture relating to the proposed action have been satisfied; and

     (2) an Opinion of Counsel in form and substance reasonably satisfactory to the Trustee (which must include the statements set forth in Section 12.05 hereof) stating that, in the opinion of such counsel, all such conditions precedent and covenants have been satisfied.

Section 12.05 Statements Required in Certificate or Opinion.

           Each certificate or opinion with respect to compliance with a condition or covenant provided for in this Indenture (other than a certificate provided pursuant to TIA § 314(a)(4)) must comply with the provisions of TIA § 314(e) and must include:

     (1) a statement that the person making such certificate or opinion has read such covenant or condition;

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     (2) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based;

     (3) a statement that, in the opinion of such person, he or she has made such examination or investigation as is necessary to enable him or her to express an informed opinion as to whether or not such covenant or condition has been satisfied; and

     (4) a statement as to whether or not, in the opinion of such person, such condition or covenant has been satisfied.

Section 12.06 Rules by Trustee and Agents.

           The Trustee may make reasonable rules for action by or at a meeting of Holders. The Registrar or Paying Agent may make reasonable rules and set reasonable requirements for its functions.

Section 12.07 No Personal Liability of Directors, Officers, Employees and Stockholders.

           Neither the General Partner nor any past, present or future director, officer, partner, member, employee, incorporator, manager or unit holder or other owner of Equity Interest of the Issuers or any Guarantor, as such, will have any liability for any obligations of the Issuers or the Guarantors under the Notes, this Indenture, the Note Guarantees or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder of Notes by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for issuance of the Notes and the Note Guarantees. The waiver may not be effective to waive liabilities under the federal securities laws.

Section 12.08 Governing Law.

           THE LAW OF THE STATE OF NEW YORK WILL GOVERN AND BE USED TO CONSTRUE THIS INDENTURE, THE NOTES AND THE NOTE GUARANTEES.

Section 12.09 No Adverse Interpretation of Other Agreements.

           This Indenture may not be used to interpret any other indenture, loan or debt agreement of Regency Energy Partners or its Subsidiaries or of any other Person. Any such indenture, loan or debt agreement may not be used to interpret this Indenture.

Section 12.10 Successors.

           All agreements of the Issuers in this Indenture and the Notes will bind their successors. All agreements of the Trustee in this Indenture will bind its successors. All agreements of each Guarantor in this Indenture will bind its successors, except as otherwise provided in Section 10.05 hereof.

Section 12.11 Severability.

           In case any provision in this Indenture or in the Notes is invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions will not in any way be affected or impaired thereby.

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Section 12.12 Counterpart Originals.

           The parties may sign any number of copies of this Indenture. Each signed copy will be an original, but all of them together represent the same agreement.

Section 12.13 Table of Contents, Headings, etc.

           The Table of Contents, Cross-Reference Table and headings of the Articles and Sections of this Indenture have been inserted for convenience of reference only, are not to be considered a part of this Indenture and will in no way modify or restrict any of the terms or provisions hereof.

[Signatures on following page]

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SIGNATURES

           Dated as of the date first written above.

REGENCY ENERGY PARTNERS LP
By:	Regency GP LP,
	its general partner
By:	Regency GP LLC, its
	general partner
By:
	Name:	Stephen L. Arata
	Title:	Executive Vice President and Chief Financial Officer
REGENCY ENERGY FINANCE CORP.
By:
	Name:	Stephen L. Arata
	Title:	Vice President

GUARANTORS: REGENCY GAS SERVICES LP
By:	Regency OLP GP LLC, its general partner
By:
	Stephen L. Arata
	Vice President

REGENCY WAHA LP, LLC REGENCY NGL GP, LLC REGENCY GAS MARKETING GP, LLC REGENCY WAHA GP, LLC REGENCY INTRASTATE GAS LLC REGENCY MIDCON GAS LLC REGENCY LIQUIDS PIPELINE LLC REGENCY GAS GATHERING AND PROCESSING LLC GULF STATES TRANSMISSION CORPORATION
REGENCY NGL MARKETING LP
	By:	Regency NGL GP, LLC,
		its General Partner
REGENCY GAS MARKETING LP
	By:	Regency Gas Marketing GP, LLC,
		its General Partner
REGENCY GAS SERVICES WAHA, LP
	By:	Regency Waha GP, LLC,
		its General Partner
By:
	Stephen L. Arata
	Vice President

REGENCY TS GP LLC REGENCY FIELD SERVICES LP
	By:	Regency TS GP LLC,
		its General Partner
REGENCY GUARANTOR GP LLC REGENCY GUARANTOR LP
	By:	Regency Guarantor GP LLC,
		its General Partner
REGENCY OPERATING GP LLC REGENCY EASTEX NEWLINE LP
	By:	Regency Operating GP LLC,
		its General Partner
REGENCY OPERATING LP
	By:	Regency Operating GP LLC,
		its General Partner
REGENCY EASTEX PROTREAT I LP
	By:	Regency Operating GP LLC,
		its General Partner
REGENCY EASTEX PROTREAT II LP
	By:	Regency Operating GP LLC,
		its General Partner
REGENCY GU GP LLC REGENCY GAS UTILITY LP
	By:	Regency GU GP LLC,
		its General Partner
REGENCY FS GP LLC REGENCY FS LP
	By:	Regency FS GP LLC,
		its General Partner
REGENCY TS ACQUISITION GP LLC REGENCY TS ACQUISITION LP
	By:	Regency TS Acquisition GP LLC,
		its General Partner
REGENCY FN GP LLC REGENCY FRIO NEWLINE LP
	By:	REGENCY FN GP LLC,
		its General Partner
REGENCY TGG LLC
By:
	Stephen L. Arata
	Vice President

WELLS FARGO BANK, NATIONAL ASSOCIATION, as Trustee
By:
	Name:
	Title:

EXHIBIT A

[Face of Note]

CUSIP [75886AAA6]¹

8 3/8% Senior Notes due 2013

No. ___ $___

REGENCY ENERGY PARTNERS LP
and
REGENCY ENERGY FINANCE CORP.

promise to pay to                     , or registered assigns,

the principal sum of                                          DOLLARS on December 15, 2013.

Interest Payment Dates: June 15 and December 15

Record Dates: June 1 and December 1

Dated:                     , 20___

REGENCY ENERGY PARTNERS LP
By:	Regency GP LP,
	its general partner
By:	Regency GP LLC,
	its general partner
By:
	Name: Stephen L. Arata
	Title: Executive Vice President and
	Chief Financial Officer
REGENCY ENERGY FINANCE CORP.
By:
	Name: Stephen L. Arata
	Title: Vice President

This is one of the Notes referred to
in the within-mentioned Indenture:
WELLS FARGO BANK, NATIONAL ASSOCIATION,
as Trustee
By:
	Authorized Signatory

¹The CUSIP No. is USU75857AA72 for the Regulation S Note

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[Back of Note]

8 3/8% Senior Notes due 2013

[Insert the Global Note Legend, if applicable pursuant to the provisions of the Indenture]

[Insert the Private Placement Legend, if applicable pursuant to the provisions of the Indenture]

     Capitalized terms used herein have the meanings assigned to them in the Indenture referred to below unless otherwise indicated.

     (1) Interest. Regency Energy Partners LP, a Delaware limited partnership (“Regency Energy Partners”), and Regency Energy Finance Corp., a Delaware corporation (“Finance Corp.” and, together with Regency Energy Partners, the “Issuers”), promise to pay interest on the principal amount of this Note at 8 3/8% per annum from December 12, 2006 until maturity and shall pay the Liquidated Damages, if any, payable pursuant to Section 4 of the Registration Rights Agreement referred to below. The Issuers will pay interest and Liquidated Damages, if any, semi-annually in arrears on June 15 and December 15 of each year, or if any such day is not a Business Day, on the next succeeding Business Day (each, an “Interest Payment Date”). Interest on the Notes will accrue from the most recent date to which interest has been paid or, if no interest has been paid, from the date of issuance; provided that if there is no existing Default in the payment of interest, and if this Note is authenticated between a record date referred to on the face hereof and the next succeeding Interest Payment Date, interest shall accrue from such next succeeding Interest Payment Date; provided further that the first Interest Payment Date shall be June 15, 2007. The Issuers will pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue principal and premium, if any, from time to time on demand at the rate then in effect to the extent lawful; they will pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue installments of interest and Liquidated Damages, if any (without regard to any applicable grace periods), from time to time on demand at the same rate to the extent lawful. Interest will be computed on the basis of a 360-day year of twelve 30-day months.

     (2) Method of Payment. The Issuers will pay interest on the Notes (except defaulted interest) and Liquidated Damages, if any, to the Persons who are registered Holders of Notes at the close of business on the June 1 or December 1 next preceding the Interest Payment Date, even if such Notes are canceled after such record date and on or before such Interest Payment Date, except as provided in Section 2.12 of the Indenture with respect to defaulted interest. Holders of Definitive Notes must surrender their Notes to the Paying Agent to collect payments of principal and premium, if any, due at maturity. The Notes will be payable as to principal, premium, if any, and Liquidated Damages, if any, and interest at the office or agency of the Issuers maintained for such purpose within the continental United States, or, at the option of the Issuers, payment of interest and Liquidated Damages, if any, may be made by check mailed to the Holders at their addresses set forth in the register of Holders; provided that payment by wire transfer of immediately available funds will be required with respect to principal of and interest, premium and Liquidated Damages, if any, on, all Global Notes and all other Notes the Holders of which will have provided wire transfer instructions to the Issuers or the Paying Agent. Such payment will be in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts.

     (3) Paying Agent and Registrar. Initially, Wells Fargo Bank, National Association, the Trustee under the Indenture, will act as Paying Agent and Registrar. The Issuers may change any Paying Agent or Registrar without notice to any Holder. Regency Energy Partners or any of its Subsidiaries may act in any such capacity.

     (4) Indenture. The Issuers issued the Notes under an Indenture dated as of December 12, 2006 (the “Indenture”) among the Issuers, the Guarantors and the Trustee. The terms of the Notes include those stated in the Indenture and those made part of the Indenture by reference to the TIA. The Notes are subject to all such terms, and Holders are referred to the Indenture and such Act for a statement of such terms. To the extent any provision of this Note conflicts with the express provisions of the Indenture, the provisions of the Indenture shall govern and be controlling. The Notes are unsecured obligations of the Issuers. The Indenture does not limit the aggregate principal amount of Notes that may be issued thereunder.

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     (5) Optional Redemption.

     (a) Except as set forth in subparagraphs (b) and (c) of this Paragraph 5, the Issuers will not have the option to redeem the Notes prior to December 15, 2010. On or after December 15, 2010, the Issuers may redeem all or a part of the Notes upon not less than 30 nor more than 60 days’ notice, at the redemption prices (expressed as percentages of principal amount) set forth below plus accrued and unpaid interest and Liquidated Damages, if any, on the Notes redeemed, to the applicable Redemption Date, if redeemed during the twelve-month period beginning on December 15 of each year indicated below, subject to the rights of Holders of Notes on the relevant record date to receive interest on an Interest Payment Date that is on or prior to the Redemption Date:

Year	Percentage
2010		104.188	%
2011		102.094	%
2012 and thereafter		100.000	%

     (b) Notwithstanding the provisions of subparagraph (a) of this Paragraph 5, at any time prior to December 15, 2009, the Issuers may on any one or more occasions redeem up to 35% of the aggregate principal amount of Notes (including any Additional Notes) issued under the Indenture upon not less than 30 nor more than 60 days’ notice, at a redemption price of 108.375% of the principal amount, plus accrued and unpaid interest and Liquidated Damages, if any, to the Redemption Date (subject to the right of Holders of record on the relevant record date to receive interest due on an Interest Payment Date that is on or prior to the Redemption Date), with the net cash proceeds of one or more Equity Offerings by Regency Energy Partners; provided that at least 65% of the aggregate principal amount of Notes (including any Additional Notes) issued under the Indenture (excluding Notes held by Regency Energy Partners and its Subsidiaries) remains outstanding immediately after the occurrence of such redemption and the redemption occurs within 90 days of the date of the closing of such Equity Offering.

     (c) Notwithstanding the provisions of subparagraph (a) of this Paragraph 5, at any time prior to December 15, 2010, the Issuers may also redeem all or a part of the Notes, upon not less than 30 nor more than 60 days’ prior notice, at a redemption price equal to 100% of the principal amount of Notes redeemed plus the Applicable Premium as of, and accrued and unpaid interest and Liquidated Damages, if any, to the Redemption Date, subject to the rights of Holders on the relevant record date to receive interest due on an Interest Payment Date that is prior to the Redemption Date.

     For purposes of subparagraph (c) of this Paragraph 5, “Applicable Premium” means, with respect to any Note on any Redemption Date, the greater of (1) 1.0% of the principal amount of the Note or (2) the excess of: (a) the present value at such Redemption Date of (i) the redemption price of the Note at December 15, 2010 (such redemption price being set forth in the table appearing in subparagraph (a)) plus (ii) all required interest payments due on the Note through December 15, 2010 (excluding accrued but unpaid interest to the Redemption Date), computed using a discount rate equal to the Treasury Rate as of such Redemption Date plus 50 basis points; over (b) the principal amount of the Note, if greater. In addition, for purposes of subparagraph (c) of this Paragraph 5, “Treasury Rate” means, as of any Redemption Date, the yield to maturity as of the time of computation of United States Treasury securities with a constant maturity (as compiled and published in the most recent Federal Reserve Statistical Release H.15 (519) that has become publicly available at least two business days prior to the Redemption Date (or, if such Statistical Release is no longer published, any publicly available source of similar market data)) most nearly equal to the period from the Redemption Date to December 15, 2010; provided, however, that if such period is not equal to the constant maturity of a United States Treasury security for which a weekly average yield is given, Regency Energy Partners shall obtain the Treasury Rate by linear interpolation (calculated to the nearest one twelfth of a year) from the weekly average yields of United States Treasury securities for which such yields are given, except that if the period from the Redemption Date to December 15, 2010, is less than one year, the weekly average yield on actually traded United States Treasury securities adjusted to a constant maturity of one year will be used.

     (d) Unless the Issuers default in the payment of the redemption price, interest and Liquidated Damages, if any, will cease to accrue on the Notes or portions thereof called for redemption on the applicable Redemption Date.

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     (6) Mandatory Redemption.

     Except as set forth below, the Issuers are not required to make mandatory redemption or sinking fund payments with respect to the Notes.

     (7) Repurchase at the Option of Holder.

     (a) If there is a Change of Control, the Issuers will be required to make an offer (a “Change of Control Offer”) to each Holder to repurchase all or any part (equal to $1,000 or an integral multiple thereof) of each Holder’s Notes at a purchase price in cash equal to 101% of the aggregate principal amount thereof plus accrued and unpaid interest and Liquidated Damages, if any, to the date of purchase, subject to the rights of Holders on the relevant record date to receive interest due on the relevant Interest Payment Date (the “Change of Control Payment”). Within 30 days following any Change of Control, the Issuers will mail a notice to each Holder setting forth the procedures governing the Change of Control Offer as required by the Indenture.

     (b) If the Issuers or a Restricted Subsidiary of Regency Energy Partners consummates any Asset Sales, within five days of each date on which the aggregate amount of Excess Proceeds exceeds $20.0 million, the Issuers will commence an offer to all Holders of Notes and all holders of other Indebtedness that is pari passu with the Notes containing provisions similar to those set forth in the Indenture with respect to offers to purchase or redeem with the proceeds of sales of assets (an “Asset Sale Offer”) pursuant to Section 3.09 of the Indenture to purchase the maximum principal amount of Notes and such other pari passu Indebtedness that may be purchased out of the Excess Proceeds at an offer price in cash in an amount equal to 100% of the principal amount plus accrued and unpaid interest and Liquidated Damages, if any, to the date of purchase, in accordance with the procedures set forth in the Indenture. To the extent that the aggregate amount of Notes and other pari passu Indebtedness tendered pursuant to an Asset Sale Offer is less than the Excess Proceeds, the Regency Energy Partners (or such Restricted Subsidiary) may use such deficiency for any purpose not otherwise prohibited by the Indenture. If the aggregate principal amount of Notes and other pari passu Indebtedness tendered into such Asset Sale Offer exceeds the amount of Excess Proceeds, then the Notes and such other pari passu Indebtedness shall be purchased on a pro rata basis. Holders of Definitive Notes that are the subject of an offer to purchase will receive an Asset Sale Offer may elect to have such Notes purchased by completing the form entitled “Option of Holder to Elect Purchase” attached to the Notes.

     (8) Notice of Redemption. Notice of redemption will be mailed at least 30 days but not more than 60 days before the Redemption Date to each Holder whose Notes are to be redeemed at its registered address, except that redemption notices may be mailed more than 60 days prior to a Redemption Date if the notice is issued in connection with a defeasance of the Notes or a satisfaction or discharge of the Indenture. Notes in denominations larger than $1,000 may be redeemed in part but only in whole multiples of $1,000, unless all of the Notes held by a Holder are to be redeemed.

     (9) Denominations, Transfer, Exchange. The Notes are in registered form without coupons in denominations of $1,000 and integral multiples of $1,000. The transfer of Notes may be registered and Notes may be exchanged as provided in the Indenture. The Registrar and the Trustee may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and the Issuers may require a Holder to pay any taxes and fees required by law or permitted by the Indenture. The Issuers need not exchange or register the transfer of any Note or portion of a Note selected for redemption, except for the unredeemed portion of any Note being redeemed in part. Also, the Issuers need not exchange or register the transfer of any Notes for a period of 15 days before a selection of Notes to be redeemed or during the period between a record date and the corresponding Interest Payment Date.

     (10) Persons Deemed Owners. The registered Holder of a Note may be treated as its owner for all purposes.

     (11) Amendment, Supplement and Waiver. Subject to certain exceptions, the Indenture or the Notes or the Note Guarantees may be amended or supplemented with the consent of the Holders of at least a majority in aggregate principal amount of the then outstanding Notes including Additional Notes, if any, voting as a single class, and any existing Default or Event of Default or compliance with any provision of the Indenture or the Notes or the

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Note Guarantees may be waived with the consent of the Holders of a majority in aggregate principal amount of the then outstanding Notes including Additional Notes, if any, voting as a single class. Without the consent of any Holder of a Note, the Indenture or the Notes or the Note Guarantees may be amended or supplemented to cure any ambiguity, defect or inconsistency, to provide for uncertificated Notes in addition to or in place of certificated Notes, to provide for the assumption of the Issuers’ or a Guarantor’s obligations to Holders of the Notes and Note Guarantees in the case of a merger or consolidation or sale of all or substantially all of the Issuers’ or such Guarantor’s assets, as applicable, to make any change that would provide any additional rights or benefits to the Holders of Notes or that does not adversely affect the legal rights under the Indenture of any such Holder, to comply with the requirements of the SEC in order to effect or maintain the qualification of the Indenture under the TIA, to conform the text of the Indenture or the Note Guarantees to any provision of the “Description of Notes” section of the Issuers’ Offering Memorandum to the extent that such text of the Indenture or the Notes Guarantees was intended to reflect such provision of the “Description of Notes”, to provide for the issuance of Additional Notes in accordance with the limitations set forth in the Indenture as of the date of the Indenture, to allow any Guarantor to execute a supplemental indenture, to secure the Notes and/or the Note Guarantees, or to provide for the reorganization of Regency Energy Partners as any other form of entity, in accordance with Section 5.01 of the Indenture.

     (12) Defaults and Remedies. Events of Default include: (i) default for 30 days in the payment when due of interest on, or Liquidated Damages, if any, with respect to the Notes; (ii) default in the payment when due (at stated maturity, upon redemption or otherwise) of the principal of, or premium, if any, on the Notes; (iii) failure by Regency Energy Partners or any of its Restricted Subsidiaries to timely consummate repurchase offers under Section 4.10 or 4.15 of the Indenture or to comply with Section 5.01 of the Indenture; (iv) failure by Regency Energy Partners for 90 days after notice to comply with Section 4.03 of the Indenture; (v) failure by Regency Energy Partners or any of its Restricted Subsidiaries for 60 days after written notice to comply with any of the other agreements in the Indenture; (vi) default under certain other agreements relating to Indebtedness of Regency Energy Partners or any of its Restricted Subsidiaries, which default results in the acceleration of such Indebtedness prior to its express maturity; (vii) certain final judgments for the payment of money that remain undischarged for a period of 60 days; (viii) certain events of bankruptcy or insolvency with respect to the Issuers or any of Regency Energy Partners’ Restricted Subsidiaries that is a Significant Subsidiary or any group of Restricted Subsidiaries that, taken together, would constitute a Significant Subsidiary; and (ix) except as permitted by the Indenture, any Note Guarantee is held in any judicial proceeding to be unenforceable or invalid or ceases for any reason to be in full force and effect or any Guarantor or any Person acting on its behalf denies or disaffirms its obligations under such Guarantor’s Note Guarantee. If any Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in aggregate principal amount of the then outstanding Notes may declare all the Notes to be due and payable immediately. Notwithstanding the foregoing, in the case of an Event of Default arising from certain events of bankruptcy or insolvency, with respect to Finance Corp., Regency Energy Partners or any Restricted Subsidiary of Regency Energy Partners that is a Significant Subsidiary or any group of Restricted Subsidiaries of Regency Energy Partners that, taken together, would constitute a Significant Subsidiary, all outstanding Notes will become due and payable immediately without further action or notice. Holders may not enforce the Indenture or the Notes except as provided in the Indenture. Subject to certain limitations, Holders of a majority in aggregate principal amount of the then outstanding Notes may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Holders of the Notes notice of any continuing Default or Event of Default if it determines that withholding notice is in their interest, except a Default or Event of Default relating to the payment of principal, interest or premium or Liquidated Damages, if any. The Holders of a majority in aggregate principal amount of the then outstanding Notes by notice to the Trustee may, on behalf of the Holders of all of the Notes, rescind an acceleration or waive any existing Default or Event of Default and its consequences under the Indenture except a continuing Default or Event of Default in the payment of interest or premium or Liquidated Damages, if any, on, or the principal of, the Notes. The Issuers and the Guarantors are required to deliver to the Trustee annually a statement regarding compliance with the Indenture, and the Issuers and the Guarantors are required, upon becoming aware of any Default or Event of Default, to deliver to the Trustee a statement specifying such Default or Event of Default.

     (13) Trustee Dealings with the Issuers. The Trustee, in its individual or any other capacity, may make loans to, accept deposits from, and perform services for the Issuers or their Affiliates, and may otherwise deal with the Issuers or their Affiliates, as if it were not the Trustee.

     (14) No Recourse Against Others. Neither the General Partner nor any director, officer, partner, member, employee, incorporator, manager or unit holder or other owner of Equity Interest of the Issuers or any Guaran-

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tor, as such, will have any liability for any obligations of the Issuers or the Guarantors under the Notes, the Indenture, the Note Guarantees or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder of Notes by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for the issuance of the Notes and the Note Guarantees. The waiver may not be effective to waive liabilities under the federal securities laws.

     (15) Authentication. This Note will not be valid until authenticated by the manual signature of the Trustee or an authenticating agent.

     (16) Abbreviations. Customary abbreviations may be used in the name of a Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the entireties), JT TEN (= joint tenants with right of survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts to Minors Act).

     (17) Additional Rights of Holders of Restricted Global Notes and Restricted Definitive Notes. In addition to the rights provided to Holders of Notes under the Indenture, Holders of Restricted Global Notes and Restricted Definitive Notes will have all the rights set forth in the Registration Rights Agreement dated as of December 12, 2006, among the Issuers, the Guarantors and the other parties named on the signature pages thereof or, in the case of Additional Notes, Holders of Restricted Global Notes and Restricted Definitive Notes will have the rights set forth in one or more registration rights agreements, if any, among the Issuers, the Guarantors and the other parties thereto, relating to rights given by the Issuers and the Guarantors to the purchasers of any Additional Notes (collectively, the “Registration Rights Agreement”).

     (18) CUSIP Numbers. Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures, the Issuers have caused CUSIP numbers to be printed on the Notes, and the Trustee may use CUSIP numbers in notices of redemption as a convenience to Holders. No representation is made as to the accuracy of such numbers either as printed on the Notes or as contained in any notice of redemption, and reliance may be placed only on the other identification numbers placed thereon.

     (19) GOVERNING LAW. THE LAW OF THE STATE OF NEW YORK WILL GOVERN AND BE USED TO CONSTRUE THE INDENTURE, THIS NOTE AND THE NOTE GUARANTEES.

     The Issuers will furnish to any Holder upon written request and without charge a copy of the Indenture and/or the Registration Rights Agreement. Requests may be made to:

Regency Energy Partners LP
Regency Energy Finance Corp.
1700 Pacific Avenue, Suite 2900
Dallas, TX 75201
Attention: Chief Financial Officer

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Assignment Form

To assign this Note, fill in the form below:

(I) or (we) assign and transfer this Note to: (Insert assignee’s legal name)

(Insert assignee’s soc. sec. or tax I.D. no.)

(Print or type assignee’s name, address and zip code)

and irrevocably appoint                                                                                                                                                      ;                                                                         

to transfer this Note on the books of the Issuers. The agent substitute another to act for him.

Date:                                         

Your Signature:                                                                                 

(Sign exactly as your name appears on the face of this Note)

Signature Guarantee*:                                                             

     • Participant in a recognized Signature Guarantee Medallion Program (or other signature guarantor acceptable to the Trustee).

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Option of Holder to Elect Purchase

     If you want to elect to have this Note purchased by the Issuers pursuant to Section 4.10 or 4.15 of the Indenture, check the appropriate box below:

o Section 4.10                                                                                                    o Section 4.15

     If you want to elect to have only part of the Note purchased by the Issuers pursuant to Section 4.10 or Section 4.15 of the Indenture, state the amount you elect to have purchased:

$                                        

Date:                                         

Your Signature:                                                                                 

(Sign exactly as your name appears on the face of this Note)

Tax Identification No.:                                                                      

Signature Guarantee*:                                                             

* Participant in a recognized Signature Guarantee Medallion Program (or other signature guarantor acceptable to the Trustee).

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Schedule of Exchanges of Interests in the Global Note *

     The following exchanges of a part of this Global Note for an interest in another Global Note or for a Definitive Note, or exchanges of a part of another Global Note or Definitive Note for an interest in this Global Note, have been made:

			Principal Amount of this
	Amount of decrease	Amount of increase	Global Note	Signature of
	in Principal Amount	in Principal Amount	following such	authorized officer
	of	of	decrease	of Trustee or
Date of Exchange	this Global Note	this Global Note	(or increase)	Custodian

* This schedule should be included only if the Note is issued in global form.

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EXHIBIT B

FORM OF CERTIFICATE OF TRANSFER

Regency Energy Partners LP
Regency Energy Finance Corp.
1700 Pacific Avenue, Suite 2900
Dallas, TX 75201

Wells Fargo Bank, National Association
Corporate Trust Services
213 Court Street, Suite 703
Middletown, CT 06457

     Re: 8 3/8% Senior Notes due 2013

     Reference is hereby made to the Indenture, dated as of December 12, 2006 (the “Indenture”), among Regency Energy Partners LP, a Delaware limited partnership (“Regency Energy Partners”), and Regency Energy Finance Corp., a Delaware corporation (“Finance Corp.” and, together with Regency Energy Partners, the “Issuers”), the Guarantors party thereto and Wells Fargo Bank, National Association, as trustee. Capitalized terms used but not defined herein shall have the meanings given to them in the Indenture.

     _________(the “Transferor”) owns and proposes to transfer the Note[s] or interest in such Note[s] specified in Annex A hereto, in the principal amount of $___in such Note[s] or interests (the “Transfer”), to ___(the “Transferee”), as further specified in Annex A hereto. In connection with the Transfer, the Transferor hereby certifies that:

[CHECK ALL THAT APPLY]

     1. o Check if Transferee will take delivery of a beneficial interest in the 144A Global Note or a Restricted Definitive Note pursuant to Rule 144A. The Transfer is being effected pursuant to and in accordance with Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”), and, accordingly, the Transferor hereby further certifies that the beneficial interest or Definitive Note is being transferred to a Person that the Transferor reasonably believes is purchasing the beneficial interest or Definitive Note for its own account, or for one or more accounts with respect to which such Person exercises sole investment discretion, and such Person and each such account is a “qualified institutional buyer” within the meaning of Rule 144A in a transaction meeting the requirements of Rule 144A, and such Transfer is in compliance with any applicable blue sky securities laws of any state of the United States. Upon consummation of the proposed Transfer in accordance with the terms of the Indenture, the transferred beneficial interest or Definitive Note will be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the 144A Global Note and/or the Restricted Definitive Note and in the Indenture and the Securities Act.

     2. o Check if Transferee will take delivery of a beneficial interest in the Regulation S Global Note or a Restricted Definitive Note pursuant to Regulation S. The Transfer is being effected pursuant to and in accordance with Rule 903 or Rule 904 under the Securities Act and, accordingly, the Transferor hereby further certifies that (i) the Transfer is not being made to a Person in the United States and (x) at the time the buy order was originated, the Transferee was outside the United States or such Transferor and any Person acting on its behalf reasonably believed and believes that the Transferee was outside the United States or (y) the transaction was executed in, on or through the facilities of a designated offshore securities market and neither such Transferor nor any Person acting on its behalf knows that the transaction was prearranged with a buyer in the United States, (ii) no directed selling efforts have been made in contravention of the requirements of Rule 903(b) or Rule 904(b) of Regulation S under the Securities Act and (iii) the transaction is not part of a plan or scheme to evade the registration requirements of the Securities Act. Upon consummation of the proposed transfer in accordance with the terms of the Indenture, the transferred beneficial interest or Definitive Note will be subject to the restrictions on Transfer enumer-

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ated in the Private Placement Legend printed on the Regulation S Global Note and/or the Restricted Definitive Note and in the Indenture and the Securities Act.

     3. o Check and complete if Transferee will take delivery of a beneficial interest in a Restricted Global Note or a Restricted Definitive Note pursuant to any provision of the Securities Act other than Rule 144A or Regulation S. The Transfer is being effected in compliance with the transfer restrictions applicable to beneficial interests in Restricted Global Notes and Restricted Definitive Notes and pursuant to and in accordance with the Securities Act and any applicable blue sky securities laws of any state of the United States, and accordingly the Transferor hereby further certifies that (check one):

          (a) o such Transfer is being effected pursuant to and in accordance with Rule 144 under the Securities Act;

or

          (b) o such Transfer is being effected to the Issuers or a subsidiary thereof;

or

          (c) o such Transfer is being effected pursuant to an effective registration statement under the Securities Act and in compliance with the prospectus delivery requirements of the Securities Act;

or

          (d) o such Transfer is being effected to an Institutional Accredited Investor and pursuant to an exemption from the registration requirements of the Securities Act other than Rule 144A, Rule 144, Rule 903 or Rule 904, and the Transferor hereby further certifies that it has not engaged in any general solicitation within the meaning of Regulation D under the Securities Act and the Transfer complies with the transfer restrictions applicable to beneficial interests in a Restricted Global Note or Restricted Definitive Notes and the requirements of the exemption claimed, which certification is supported by (1) a certificate executed by the Transferee in the form of Exhibit D to the Indenture and (2) if such Transfer is in respect of a principal amount of Notes at the time of transfer of less than $250,000, an Opinion of Counsel provided by the Transferor or the Transferee (a copy of which the Transferor has attached to this certification), to the effect that such Transfer is in compliance with the Securities Act. Upon consummation of the proposed transfer in accordance with the terms of the Indenture, the transferred beneficial interest or Definitive Note will be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on a Restricted Global Note and/or the Restricted Definitive Notes and in the Indenture and the Securities Act.

     4. o Check if Transferee will take delivery of a beneficial interest in an Unrestricted Global Note or of an Unrestricted Definitive Note.

          (a) o Check if Transfer is pursuant to Rule 144. (i) The Transfer is being effected pursuant to and in accordance with Rule 144 under the Securities Act and in compliance with the transfer restrictions contained in the Indenture and any applicable blue sky securities laws of any state of the United States and (ii) the restrictions on transfer contained in the Indenture and the Private Placement Legend are not required in order to maintain compliance with the Securities Act. Upon consummation of the proposed Transfer in accordance with the terms of the Indenture, the transferred beneficial interest or Definitive Note will no longer be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the Restricted Global Notes, on Restricted Definitive Notes and in the Indenture.

          (b) o Check if Transfer is Pursuant to Regulation S. (i) The Transfer is being effected pursuant to and in accordance with Rule 903 or Rule 904 under the Securities Act and in compliance with the transfer restrictions contained in the Indenture and any applicable blue sky securities laws of any state of the United States and (ii) the restrictions on transfer contained in the Indenture and the Private Placement Legend are not required in order to maintain compliance with the Securities Act. Upon consummation of

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the proposed Transfer in accordance with the terms of the Indenture, the transferred beneficial interest or Definitive Note will no longer be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the Restricted Global Notes, on Restricted Definitive Notes and in the Indenture.

          (c) o Check if Transfer is Pursuant to Other Exemption. (i) The Transfer is being effected pursuant to and in compliance with an exemption from the registration requirements of the Securities Act other than Rule 144, Rule 903 or Rule 904 and in compliance with the transfer restrictions contained in the Indenture and any applicable blue sky securities laws of any State of the United States and (ii) the restrictions on transfer contained in the Indenture and the Private Placement Legend are not required in order to maintain compliance with the Securities Act. Upon consummation of the proposed Transfer in accordance with the terms of the Indenture, the transferred beneficial interest or Definitive Note will not be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the Restricted Global Notes or Restricted Definitive Notes and in the Indenture.

     This certificate and the statements contained herein are made for your benefit and the benefit of the Issuers.

	[Insert Name of Transferor]
	By:
		Name:
		Title:
Dated:

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ANNEX A TO CERTIFICATE OF TRANSFER

     1. The Transferor owns and proposes to transfer the following:

[CHECK ONE OF (a) OR (b)]

(a) o a beneficial interest in the:
	(i)	o144A Global Note (CUSIP ___), or
	(ii)	oRegulation S Global Note (CUSIP ___), or
	(iii)	oIAI Global Note (CUSIP ___); or

     2. After the Transfer the Transferee will hold:

[CHECK ONE OF]

(a) o a beneficial interest in the:
	(i)	o144A Global Note (CUSIP ___), or
	(ii)	oRegulation S Global Note (CUSIP ___), or
	(iii)	oIAI Global Note (CUSIP ___); or
	(iii)	oUnrestricted Global Note (CUSIP ___); or
(b) a Restricted Definitive Note; or
(c) an Unrestricted Definitive Note,

in accordance with the terms of the Indenture.

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EXHIBIT C

FORM OF CERTIFICATE OF EXCHANGE

Regency Energy Partners LP
Regency Energy Finance Corp.
1700 Pacific Avenue, Suite 2900
Dallas, TX 75201

Wells Fargo Bank, National Association
Corporate Trust Services
213 Court Street, Suite 703

Middletown, CT 06457

     Re: 8 3/8% Senior Notes due 2013

(CUSIP                     )

     Reference is hereby made to the Indenture, dated as of December 12, 2006 (the “Indenture”), among Regency Energy Partners LP, a Delaware limited partnership (“Regency Energy Partners”), and Regency Energy Finance Corp., a Delaware corporation (“Finance Corp.” and, together with Regency Energy Partners, the “Issuers”), the Guarantors party thereto and Wells Fargo Bank, National Association, as trustee. Capitalized terms used but not defined herein shall have the meanings given to them in the Indenture.

                                              (the “Owner”) owns and proposes to exchange the Note[s] or interest in such Note[s] specified herein, in the principal amount of $___in such Note[s] or interests (the “Exchange”). In connection with the Exchange, the Owner hereby certifies that:

     1. Exchange of Restricted Definitive Notes or Beneficial Interests in a Restricted Global Note for Unrestricted Definitive Notes or Beneficial Interests in an Unrestricted Global Note

     (a) o Check if Exchange is from beneficial interest in a Restricted Global Note to beneficial interest in an Unrestricted Global Note. In connection with the Exchange of the Owner’s beneficial interest in a Restricted Global Note for a beneficial interest in an Unrestricted Global Note in an equal principal amount, the Owner hereby certifies (i) the beneficial interest is being acquired for the Owner’s own account without transfer, (ii) such Exchange has been effected in compliance with the transfer restrictions applicable to the Global Notes and pursuant to and in accordance with the Securities Act of 1933, as amended (the “Securities Act”), (iii) the restrictions on transfer contained in the Indenture and the Private Placement Legend are not required in order to maintain compliance with the Securities Act and (iv) the beneficial interest in an Unrestricted Global Note is being acquired in compliance with any applicable blue sky securities laws of any state of the United States.

     (b) o Check if Exchange is from beneficial interest in a Restricted Global Note to Unrestricted Definitive Note. In connection with the Exchange of the Owner’s beneficial interest in a Restricted Global Note for an Unrestricted Definitive Note, the Owner hereby certifies (i) the Definitive Note is being acquired for the Owner’s own account without transfer, (ii) such Exchange has been effected in compliance with the transfer restrictions applicable to the Restricted Global Notes and pursuant to and in accordance with the Securities Act, (iii) the restrictions on transfer contained in the Indenture and the Private Placement Legend are not required in order to maintain compliance with the Securities Act and (iv) the Definitive Note is being acquired in compliance with any applicable blue sky securities laws of any state of the United States.

     (c) [Reserved]

     (d) o Check if Exchange is from Restricted Definitive Note to Unrestricted Definitive Note. In connection with the Owner’s Exchange of a Restricted Definitive Note for an Unrestricted Definitive Note, the Owner

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hereby certifies (i) the Unrestricted Definitive Note is being acquired for the Owner’s own account without transfer, (ii) such Exchange has been effected in compliance with the transfer restrictions applicable to Restricted Definitive Notes and pursuant to and in accordance with the Securities Act, (iii) the restrictions on transfer contained in the Indenture and the Private Placement Legend are not required in order to maintain compliance with the Securities Act and (iv) the Unrestricted Definitive Note is being acquired in compliance with any applicable blue sky securities laws of any state of the United States.

     2. Exchange of Restricted Definitive Notes or Beneficial Interests in Restricted Global Notes for Restricted Definitive Notes or Beneficial Interests in Restricted Global Notes

     (a) o Check if Exchange is from beneficial interest in a Restricted Global Note to Restricted Definitive Note. In connection with the Exchange of the Owner’s beneficial interest in a Restricted Global Note for a Restricted Definitive Note with an equal principal amount, the Owner hereby certifies that the Restricted Definitive Note is being acquired for the Owner’s own account without transfer. Upon consummation of the proposed Exchange in accordance with the terms of the Indenture, the Restricted Definitive Note issued will continue to be subject to the restrictions on transfer enumerated in the Private Placement Legend printed on the Restricted Definitive Note and in the Indenture and the Securities Act.

     This certificate and the statements contained herein are made for your benefit and the benefit of the Issuers.

	[Insert Name of Transferor]
	By:
		Name:
		Title:
Dated:

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EXHIBIT D

FORM OF CERTIFICATE FROM

ACQUIRING INSTITUTIONAL ACCREDITED INVESTOR

Regency Energy Partners LP
Regency Energy Finance Corp.
1700 Pacific Avenue, Suite 2900
Dallas, TX 75201

Wells Fargo Bank, National Association
Corporate Trust Services
213 Court Street, Suite 703
Middletown, CT 06457

     Re: 8 3/8% Senior Notes due 2013

     Reference is hereby made to the Indenture, dated as of December 12, 2006 (the “Indenture”), among Regency Energy Partners LP, a Delaware limited partnership (“Regency Energy Partners”), and Regency Energy Finance Corp., a Delaware corporation (“Finance Corp.” and, together with Regency Energy Partners, the “Issuers”), the Guarantors party thereto and Wells Fargo Bank, National Association, as trustee. Capitalized terms used but not defined herein shall have the meanings given to them in the Indenture.

     In connection with our proposed purchase of $___aggregate principal amount of:

     (a) o a beneficial interest in a Global Note, or

     (b) o a Definitive Note,

     we confirm that:

     1. We understand that any subsequent transfer of the Notes or any interest therein is subject to certain restrictions and conditions set forth in the Indenture and the undersigned agrees to be bound by, and not to resell, pledge or otherwise transfer the Notes or any interest therein except in compliance with, such restrictions and conditions and the Securities Act of 1933, as amended (the “Securities Act”).

     2. We understand that the offer and sale of the Notes have not been registered under the Securities Act, and that the Notes and any interest therein may not be offered or sold except as permitted in the following sentence. We agree, on our own behalf and on behalf of any accounts for which we are acting as hereinafter stated, that if we should sell the Notes or any interest therein, we will do so only (A) to Regency Energy Partners or any subsidiary thereof, (B) in accordance with Rule 144A under the Securities Act to a “qualified institutional buyer” (as defined therein), (C) to an institutional “accredited investor” (as defined below) that, prior to such transfer, furnishes (or has furnished on its behalf by a U.S. broker-dealer) to you and to the Issuers a signed letter substantially in the form of this letter and, if such transfer is in respect of a principal amount of Notes, at the time of transfer of less than $250,000, an Opinion of Counsel in form reasonably acceptable to the Issuers to the effect that such transfer is in compliance with the Securities Act, (D) outside the United States in accordance with Rule 904 of Regulation S under the Securities Act, (E) pursuant to the provisions of Rule 144(k) under the Securities Act or (F) pursuant to an effective registration statement under the Securities Act, and we further agree to provide to any Person purchasing the Definitive Note or beneficial interest in a Global Note from us in a transaction meeting the requirements of clauses (A) through (E) of this paragraph a notice advising such purchaser that resales thereof are restricted as stated herein.

     3. We understand that, on any proposed resale of the Notes or beneficial interest therein, we will be required to furnish to you and the Issuers such certifications, legal opinions and other information as you and the

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Issuers may reasonably require to confirm that the proposed sale complies with the foregoing restrictions. We further understand that the Notes purchased by us will bear a legend to the foregoing effect.

     4. We are an institutional “accredited investor” (as defined in Rule 501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act) and have such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of our investment in the Notes, and we and any accounts for which we are acting are each able to bear the economic risk of our or its investment.

     5. We are acquiring the Notes or beneficial interest therein purchased by us for our own account or for one or more accounts (each of which is an institutional “accredited investor”) as to each of which we exercise sole investment discretion.

     You and the Issuers are entitled to rely upon this letter and are irrevocably authorized to produce this letter or a copy hereof to any interested party in any administrative or legal proceedings or official inquiry with respect to the matters covered hereby.

	[Insert Name of Accredited Investor]
	By:
		Name:
		Title:
Dated:

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EXHIBIT E

[FORM OF NOTATION OF GUARANTEE]

     For value received, each Guarantor (which term includes any successor Person under the Indenture) has, jointly and severally, unconditionally guaranteed, to the extent set forth in the Indenture and subject to the provisions in the Indenture, dated as of December 12, 2006 (the “Indenture”), among Regency Energy Partners LP, a Delaware limited partnership (“Regency Energy Partners”), and Regency Energy Finance Corp., a Delaware corporation (“Finance Corp.” and, together with Regency Energy Partners, the “Issuers”), the Guarantors party thereto and Wells Fargo Bank, National Association, as trustee (the “Trustee”), (a) the due and punctual payment of the principal of, premium, if any, and Liquidated Damages, if any, and interest on, the Notes, whether at stated maturity, by acceleration, redemption or otherwise, the due and punctual payment of interest on overdue principal of, premium if any, interest and Liquidated Damages, if any, on the Notes, if any, if lawful, and the due and punctual performance of all other obligations of the Issuers to the Holders or the Trustee all in accordance with the terms of the Indenture and (b) in case of any extension of time of payment or renewal of any Notes or any of such other obligations, that the same will be promptly paid in full when due or performed in accordance with the terms of the extension or renewal, whether at stated maturity, by acceleration or otherwise. The obligations of the Guarantors to the Holders of Notes and to the Trustee pursuant to the Note Guarantee and the Indenture are expressly set forth in Article 10 of the Indenture and reference is hereby made to the Indenture for the precise terms of the Note Guarantee. Each Holder of a Note, by accepting the same, (a) agrees to and shall be bound by such provisions (b) authorizes and directs the Trustee, on behalf of such Holder, to take such action as may be necessary or appropriate to effectuate the subordination as provided in the Indenture and (c) appoints the Trustee attorney-in-fact of such Holder for such purpose.

     Capitalized terms used but not defined herein have the meanings given to them in the Indenture.

	[Name of Guarantor(s)]
	By:
		Name:
		Title:
Dated:

E-1

EXHIBIT F

[FORM OF SUPPLEMENTAL INDENTURE

TO BE DELIVERED BY SUBSEQUENT GUARANTORS]

     Supplemental Indenture (this “Supplemental Indenture”), dated as of ___, 200___, among ___(the “Guaranteeing Subsidiary”), Regency Energy Partners LP, a Delaware limited partnership (“Regency Energy Partners”), and Regency Energy Finance Corp. (“Finance Corp.” and, together with Regency Energy Partners, the “Issuers”), the other Guarantors (as defined in the Indenture referred to herein) and Wells Fargo Bank, National Association, as trustee under the Indenture referred to below (the “Trustee”).

W I T N E S S E T H

     WHEREAS, the Issuers have heretofore executed and delivered to the Trustee an indenture (the “Indenture”), dated as of December 12, 2006 providing for the issuance of 8 3/8% Senior Notes due 2013 (the “Notes”);

     WHEREAS, the Indenture provides that under certain circumstances the Guaranteeing Subsidiary shall execute and deliver to the Trustee a supplemental indenture pursuant to which the Guaranteeing Subsidiary shall unconditionally guarantee all of the Issuers’ Obligations under the Notes and the Indenture on the terms and conditions set forth herein (the “Note Guarantee”); and

     WHEREAS, pursuant to Section 9.01 of the Indenture, the Trustee is authorized to execute and deliver this Supplemental Indenture.

     NOW, THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt of which is hereby acknowledged, the Guaranteeing Subsidiary and the Trustee mutually covenant and agree for the equal and ratable benefit of the Holders of the Notes as follows:

     1. Capitalized Terms. Capitalized terms used herein without definition shall have the meanings assigned to them in the Indenture.

     2. Agreement to Guarantee. The Guaranteeing Subsidiary hereby agrees to provide an unconditional Guarantee on the terms and subject to the conditions set forth in the Note Guarantee and in the Indenture including but not limited to Article 10 thereof.

     3. No Recourse Against Others. No past, present or future director, officer, employee, incorporator, stockholder or agent of the Guaranteeing Subsidiary, as such, shall have any liability for any obligations of the Issuers or any Guaranteeing Subsidiary under the Notes, any Note Guarantees, the Indenture or this Supplemental Indenture or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder of the Notes by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for issuance of the Notes. Such waiver may not be effective to waive liabilities under the federal securities laws and it is the view of the SEC that such a waiver is against public policy.

     4. NEW YORK LAW TO GOVERN. THE LAW OF THE STATE OF NEW YORK SHALL GOVERN AND BE USED TO CONSTRUE THIS SUPPLEMENTAL INDENTURE.

     5. Counterparts. The parties may sign any number of copies of this Supplemental Indenture. Each signed copy shall be an original, but all of them together represent the same agreement.

     6. Effect of Headings. The Section headings herein are for convenience only and shall not affect the construction hereof.

     7. The Trustee. The Trustee shall not be responsible in any manner whatsoever for or in respect of the validity or sufficiency of this Supplemental Indenture or for or in respect of the recitals contained herein, all of which recitals are made solely by the Guaranteeing Subsidiary and the Issuers.

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     IN WITNESS WHEREOF, the parties hereto have caused this Supplemental Indenture to be duly executed and attested, all as of the date first above written.

Dated: _________, 20___

[Guaranteeing Subsidiary]
By:
	Name:
	Title:
REGENCY ENERGY PARTNERS LP
By:	Regency GP LP,
	its general partner
By:	Regency GP LLC,
	its general partner
By:
	Name:
	Title:
REGENCY ENERGY FINANCE CORP.
By:
	Name:
	Title:
[Existing Guarantors]
By:
	Name:
	Title:
WELLS FARGO BANK, NATIONAL ASSOCIATION,
as Trustee
By:
	Authorized Signatory

F-2

[Face of Note]

CUSIP 75886AAA6

8 3/8% Senior Notes due 2013

No. 1 $500,000,000

REGENCY ENERGY PARTNERS LP
and
REGENCY ENERGY FINANCE CORP.

promise to pay to Cede & Co., or registered assigns,

the principal sum of FIVE HUNDRED MILLION DOLLARS on December 15, 2013.

Interest Payment Dates: June 15 and December 15

Record Dates: June 1 and December 1

Dated: December 12, 2006

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REGENCY ENERGY PARTNERS LP
By:	Regency GP LP, its general partner
By:	Regency GP LLC, its general partner
By:
	Name:	Stephen L. Arata
	Title:	Executive Vice President and Chief Financial Officer
REGENCY ENERGY FINANCE CORP.
By:
	Name:	Stephen L. Arata
	Title:	Vice President

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This is one of the Notes referred to
in the within-mentioned Indenture:

WELLS FARGO BANK, NATIONAL ASSOCIATION, as Trustee
By:
	Authorized Signatory

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[Back of Note]
8 3/8% Senior Notes due 2013

THIS GLOBAL NOTE IS HELD BY THE DEPOSITARY (AS DEFINED IN THE INDENTURE GOVERNING THIS NOTE) OR ITS NOMINEE IN CUSTODY FOR THE BENEFIT OF THE BENEFICIAL OWNERS HEREOF, AND IS NOT TRANSFERABLE TO ANY PERSON UNDER ANY CIRCUMSTANCES EXCEPT THAT (1) THE TRUSTEE MAY MAKE SUCH NOTATIONS HEREON AS MAY BE REQUIRED PURSUANT TO SECTION 2.06 OF THE INDENTURE, (2) THIS GLOBAL NOTE MAY BE EXCHANGED IN WHOLE BUT NOT IN PART PURSUANT TO SECTION 2.06(a) OF THE INDENTURE, (3) THIS GLOBAL NOTE MAY BE DELIVERED TO THE TRUSTEE FOR CANCELLATION PURSUANT TO SECTION 2.11 OF THE INDENTURE AND (4) THIS GLOBAL NOTE MAY BE TRANSFERRED TO A SUCCESSOR DEPOSITARY WITH THE PRIOR WRITTEN CONSENT OF THE ISSUERS.

UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR NOTES IN DEFINITIVE FORM, THIS NOTE MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITARY TO A NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR ANOTHER NOMINEE OF THE DEPOSITARY OR BY THE DEPOSITARY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITARY. UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (55 WATER STREET, NEW YORK, NEW YORK) (“DTC”), TO THE ISSUERS OR THEIR AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS MAY BE REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR SUCH OTHER ENTITY AS MAY BE REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.

THE NOTE (OR ITS PREDECESSOR) EVIDENCED HEREBY WAS ORIGINALLY ISSUED IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER SECTION 5 OF THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED, AND THE NOTE EVIDENCED HEREBY MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM. EACH PURCHASER OF THE NOTE EVIDENCED HEREBY IS HEREBY NOTIFIED THAT THE SELLER MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER OR ANOTHER EXEMPTION UNDER THE SECURITIES ACT. THE HOLDER OF THE NOTE EVIDENCED HEREBY AGREES FOR THE BENEFIT OF THE ISSUERS THAT (A) SUCH NOTE MAY BE OFFERED, RESOLD, PLEDGED OR OTHERWISE TRANSFERRED ONLY (l)(A) TO A PERSON WHO THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT), PURCHASING FOR ITS OWN ACCOUNT IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A UNDER THE SECURITIES ACT, (B) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144 OF THE SECURITIES ACT, (C) OUTSIDE THE UNITED STATES TO A FOREIGN PERSON IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 904 OF REGULATION S UNDER THE SECURITIES ACT, (D) TO AN “ACCREDITED INVESTOR” WITHIN THE MEANING OF RULE 50l(A)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT (AN “INSTITUTIONAL ACCREDITED INVESTOR”) THAT IS PURCHASING AT LEAST $250,000 OF NOTES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF AN INSTITUTIONAL ACCREDITED INVESTOR OR (E) IN ACCORDANCE WITH ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT; PROVIDED THAT IN THE CASE OF A TRANSFER UNDER CLAUSE (E) SUCH TRANSFER IS SUBJECT TO THE RECEIPT BY THE TRUSTEE OF A CERTIFICATION OF THE TRANSFEROR AND AN OPINION OF COUNSEL TO THE EFFECT THAT SUCH TRANSFER IS IN COMPLIANCE WITH THE SECURITIES ACT, (2) TO THE ISSUERS OR THEIR RESPECTIVE SUBSIDIARIES OR (3) UNDER AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND, IN EACH CASE, IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY OTHER APPLICABLE JURISDICTION AND THE INDENTURE

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GOVERNING THE NOTES AND (B) THE HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER FROM IT OF THE NOTE EVIDENCED HEREBY OF THE RESALE RESTRICTIONS SET FORTH IN (A) ABOVE. IF ANY RESALE OR OTHER TRANSFER OF ANY NOTE IS PROPOSED TO BE MADE UNDER CLAUSE (A)(1)(D) ABOVE WHILE THESE TRANSFER RESTRICTIONS ARE IN FORCE THEN THE TRANSFEROR SHALL DELIVER A LETTER FROM THE TRANSFEREE TO THE TRUSTEE WHICH SHALL PROVIDE, AMONG OTHER THINGS, THAT THE TRANSFEREE IS AN INSTITUTIONAL ACCREDITED INVESTOR AND THAT IT IS ACQUIRING THE SECURITIES FOR INVESTMENT PURPOSES AND NOT FOR DISTRIBUTION IN VIOLATION OF THE SECURITIES ACT.

     Capitalized terms used herein have the meanings assigned to them in the Indenture referred to below unless otherwise indicated.

     (1) Interest. Regency Energy Partners LP, a Delaware limited partnership (“Regency Energy Partners”), and Regency Energy Finance Corp., a Delaware corporation (“Finance Corp.” and, together with Regency Energy Partners, the “Issuers”), promise to pay interest on the principal amount of this Note at 8 3/8% per annum from December 12, 2006 until maturity and shall pay the Liquidated Damages, if any, payable pursuant to Section 4 of the Registration Rights Agreement referred to below. The Issuers will pay interest and Liquidated Damages, if any, semi-annually in arrears on June 15 and December 15 of each year, or if any such day is not a Business Day, on the next succeeding Business Day (each, an “Interest Payment Date”). Interest on the Notes will accrue from the most recent date to which interest has been paid or, if no interest has been paid, from the date of issuance; provided that if there is no existing Default in the payment of interest, and if this Note is authenticated between a record date referred to on the face hereof and the next succeeding Interest Payment Date, interest shall accrue from such next succeeding Interest Payment Date; provided further that the first Interest Payment Date shall be June 15, 2007. The Issuers will pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue principal and premium, if any, from time to time on demand at the rate then in effect to the extent lawful; they will pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue installments of interest and Liquidated Damages, if any (without regard to any applicable grace periods), from time to time on demand at the same rate to the extent lawful. Interest will be computed on the basis of a 360-day year of twelve 30-day months.

     (2) Method of Payment. The Issuers will pay interest on the Notes (except defaulted interest) and Liquidated Damages, if any, to the Persons who are registered Holders of Notes at the close of business on the June 1 or December 1 next preceding the Interest Payment Date, even if such Notes are canceled after such record date and on or before such Interest Payment Date, except as provided in Section 2.12 of the Indenture with respect to defaulted interest. Holders of Definitive Notes must surrender their Notes to the Paying Agent to collect payments of principal and premium, if any, due at maturity. The Notes will be payable as to principal, premium, if any, and Liquidated Damages, if any, and interest at the office or agency of the Issuers maintained for such purpose within the continental United States, or, at the option of the Issuers, payment of interest and Liquidated Damages, if any, may be made by check mailed to the Holders at their addresses set forth in the register of Holders; provided that payment by wire transfer of immediately available funds will be required with respect to principal of and interest, premium and Liquidated Damages, if any, on, all Global Notes and all other Notes the Holders of which will have provided wire transfer instructions to the Issuers or the Paying Agent. Such payment will be in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts.

     (3) Paying Agent and Registrar. Initially, Wells Fargo Bank, National Association, the Trustee under the Indenture, will act as Paying Agent and Registrar. The Issuers may change any Paying Agent or Registrar without notice to any Holder. Regency Energy Partners or any of its Subsidiaries may act in any such capacity.

     (4) Indenture. The Issuers issued the Notes under an Indenture dated as of December 12, 2006 (the “Indenture”) among the Issuers, the Guarantors and the Trustee. The terms of the Notes include those stated in the Indenture and those made part of the Indenture by reference to the TIA. The Notes are subject to all such terms, and Holders are referred to the Indenture and such Act for a statement of such terms. To the extent any provision of this Note conflicts with the express provisions of the Indenture, the provisions of the Indenture shall govern and be con-

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trolling. The Notes are unsecured obligations of the Issuers. The Indenture does not limit the aggregate principal amount of Notes that may be issued thereunder.

     (5) Optional Redemption.

     (a) Except as set forth in subparagraphs (b) and (c) of this Paragraph 5, the Issuers will not have the option to redeem the Notes prior to December 15, 2010. On or after December 15, 2010, the Issuers may redeem all or a part of the Notes upon not less than 30 nor more than 60 days’ notice, at the redemption prices (expressed as percentages of principal amount) set forth below plus accrued and unpaid interest and Liquidated Damages, if any, on the Notes redeemed, to the applicable Redemption Date, if redeemed during the twelve-month period beginning on December 15 of each year indicated below, subject to the rights of Holders of Notes on the relevant record date to receive interest on an Interest Payment Date that is on or prior to the Redemption Date:

Year	Percentage
2010		104.188	%
2011		102.094	%
2012 and thereafter		100.000	%

     (b) Notwithstanding the provisions of subparagraph (a) of this Paragraph 5, at any time prior to December 15, 2009, the Issuers may on any one or more occasions redeem up to 35% of the aggregate principal amount of Notes (including any Additional Notes) issued under the Indenture upon not less than 30 nor more than 60 days’ notice, at a redemption price of 108.375% of the principal amount, plus accrued and unpaid interest and Liquidated Damages, if any, to the Redemption Date (subject to the right of Holders of record on the relevant record date to receive interest due on an Interest Payment Date that is on or prior to the Redemption Date), with the net cash proceeds of one or more Equity Offerings by Regency Energy Partners; provided that at least 65% of the aggregate principal amount of Notes (including any Additional Notes) issued under the Indenture (excluding Notes held by Regency Energy Partners and its Subsidiaries) remains outstanding immediately after the occurrence of such redemption and the redemption occurs within 90 days of the date of the closing of such Equity Offering.

     (c) Notwithstanding the provisions of subparagraph (a) of this Paragraph 5, at any time prior to December 15, 2010, the Issuers may also redeem all or a part of the Notes, upon not less than 30 nor more than 60 days’ prior notice, at a redemption price equal to 100% of the principal amount of Notes redeemed plus the Applicable Premium as of, and accrued and unpaid interest and Liquidated Damages, if any, to the Redemption Date, subject to the rights of Holders on the relevant record date to receive interest due on an Interest Payment Date that is prior to the Redemption Date.

     For purposes of subparagraph (c) of this Paragraph 5, “Applicable Premium” means, with respect to any Note on any Redemption Date, the greater of (1) 1.0% of the principal amount of the Note or (2) the excess of: (a) the present value at such Redemption Date of (i) the redemption price of the Note at December 15, 2010 (such redemption price being set forth in the table appearing in subparagraph (a)) plus (ii) all required interest payments due on the Note through December 15, 2010 (excluding accrued but unpaid interest to the Redemption Date), computed using a discount rate equal to the Treasury Rate as of such Redemption Date plus 50 basis points; over (b) the principal amount of the Note, if greater. In addition, for purposes of subparagraph (c) of this Paragraph 5, “Treasury Rate” means, as of any Redemption Date, the yield to maturity as of the time of computation of United States Treasury securities with a constant maturity (as compiled and published in the most recent Federal Reserve Statistical Release H.15 (519) that has become publicly available at least two business days prior to the Redemption Date (or, if such Statistical Release is no longer published, any publicly available source of similar market data)) most nearly equal to the period from the Redemption Date to December 15, 2010; provided, however, that if such period is not equal to the constant maturity of a United States Treasury security for which a weekly average yield is given, Regency Energy Partners shall obtain the Treasury Rate by linear interpolation (calculated to the nearest one twelfth of a year) from the weekly average yields of United States Treasury securities for which such yields are given, except that if the period from the Redemption Date to December 15, 2010, is less than one year, the weekly average yield on actually traded United States Treasury securities adjusted to a constant maturity of one year will be used.

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     (d) Unless the Issuers default in the payment of the redemption price, interest and Liquidated Damages, if any, will cease to accrue on the Notes or portions thereof called for redemption on the applicable Redemption Date.

     (6) Mandatory Redemption.

     Except as set forth below, the Issuers are not required to make mandatory redemption or sinking fund payments with respect to the Notes.

     (7) Repurchase at the Option of Holder.

     (a) If there is a Change of Control, the Issuers will be required to make an offer (a “Change of Control Offer”) to each Holder to repurchase all or any part (equal to $1,000 or an integral multiple thereof) of each Holder’s Notes at a purchase price in cash equal to 101% of the aggregate principal amount thereof plus accrued and unpaid interest and Liquidated Damages, if any, to the date of purchase, subject to the rights of Holders on the relevant record date to receive interest due on the relevant Interest Payment Date (the “Change of Control Payment”). Within 30 days following any Change of Control, the Issuers will mail a notice to each Holder setting forth the procedures governing the Change of Control Offer as required by the Indenture.

     (b) If the Issuers or a Restricted Subsidiary of Regency Energy Partners consummates any Asset Sales, within five days of each date on which the aggregate amount of Excess Proceeds exceeds $20.0 million, the Issuers will commence an offer to all Holders of Notes and all holders of other Indebtedness that is pari passu with the Notes containing provisions similar to those set forth in the Indenture with respect to offers to purchase or redeem with the proceeds of sales of assets (an “Asset Sale Offer”) pursuant to Section 3.09 of the Indenture to purchase the maximum principal amount of Notes and such other pari passu Indebtedness that may be purchased out of the Excess Proceeds at an offer price in cash in an amount equal to 100% of the principal amount plus accrued and unpaid interest and Liquidated Damages, if any, to the date of purchase, in accordance with the procedures set forth in the Indenture. To the extent that the aggregate amount of Notes and other pari passu Indebtedness tendered pursuant to an Asset Sale Offer is less than the Excess Proceeds, the Regency Energy Partners (or such Restricted Subsidiary) may use such deficiency for any purpose not otherwise prohibited by the Indenture. If the aggregate principal amount of Notes and other pari passu Indebtedness tendered into such Asset Sale Offer exceeds the amount of Excess Proceeds, then the Notes and such other pari passu Indebtedness shall be purchased on a pro rata basis. Holders of Definitive Notes that are the subject of an offer to purchase will receive an Asset Sale Offer may elect to have such Notes purchased by completing the form entitled “Option of Holder to Elect Purchase” attached to the Notes.

     (8) Notice of Redemption. Notice of redemption will be mailed at least 30 days but not more than 60 days before the Redemption Date to each Holder whose Notes are to be redeemed at its registered address, except that redemption notices may be mailed more than 60 days prior to a Redemption Date if the notice is issued in connection with a defeasance of the Notes or a satisfaction or discharge of the Indenture. Notes in denominations larger than $1,000 may be redeemed in part but only in whole multiples of $1,000, unless all of the Notes held by a Holder are to be redeemed.

     (9) Denominations, Transfer, Exchange. The Notes are in registered form without coupons in denominations of $1,000 and integral multiples of $1,000. The transfer of Notes may be registered and Notes may be exchanged as provided in the Indenture. The Registrar and the Trustee may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and the Issuers may require a Holder to pay any taxes and fees required by law or permitted by the Indenture. The Issuers need not exchange or register the transfer of any Note or portion of a Note selected for redemption, except for the unredeemed portion of any Note being redeemed in part. Also, the Issuers need not exchange or register the transfer of any Notes for a period of 15 days before a selection of Notes to be redeemed or during the period between a record date and the corresponding Interest Payment Date.

     (10) Persons Deemed Owners. The registered Holder of a Note may be treated as its owner for all purposes.

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     (11) Amendment, Supplement and Waiver. Subject to certain exceptions, the Indenture or the Notes or the Note Guarantees may be amended or supplemented with the consent of the Holders of at least a majority in aggregate principal amount of the then outstanding Notes including Additional Notes, if any, voting as a single class, and any existing Default or Event of Default or compliance with any provision of the Indenture or the Notes or the Note Guarantees may be waived with the consent of the Holders of a majority in aggregate principal amount of the then outstanding Notes including Additional Notes, if any, voting as a single class. Without the consent of any Holder of a Note, the Indenture or the Notes or the Note Guarantees may be amended or supplemented to cure any ambiguity, defect or inconsistency, to provide for uncertificated Notes in addition to or in place of certificated Notes, to provide for the assumption of the Issuers’ or a Guarantor’s obligations to Holders of the Notes and Note Guarantees in the case of a merger or consolidation or sale of all or substantially all of the Issuers’ or such Guarantor’s assets, as applicable, to make any change that would provide any additional rights or benefits to the Holders of Notes or that does not adversely affect the legal rights under the Indenture of any such Holder, to comply with the requirements of the SEC in order to effect or maintain the qualification of the Indenture under the TIA, to conform the text of the Indenture or the Note Guarantees to any provision of the “Description of Notes” section of the Issuers’ Offering Memorandum to the extent that such text of the Indenture or the Notes Guarantees was intended to reflect such provision of the “Description of Notes”, to provide for the issuance of Additional Notes in accordance with the limitations set forth in the Indenture as of the date of the Indenture, to allow any Guarantor to execute a supplemental indenture, to secure the Notes and/or the Note Guarantees, or to provide for the reorganization of Regency Energy Partners as any other form of entity, in accordance with Section 5.01 of the Indenture.

     (12) Defaults and Remedies. Events of Default include: (i) default for 30 days in the payment when due of interest on, or Liquidated Damages, if any, with respect to the Notes; (ii) default in the payment when due (at stated maturity, upon redemption or otherwise) of the principal of, or premium, if any, on the Notes; (iii) failure by Regency Energy Partners or any of its Restricted Subsidiaries to timely consummate repurchase offers under Section 4.10 or 4.15 of the Indenture or to comply with Section 5.01 of the Indenture; (iv) failure by Regency Energy Partners for 90 days after notice to comply with Section 4.03 of the Indenture; (v) failure by Regency Energy Partners or any of its Restricted Subsidiaries for 60 days after written notice to comply with any of the other agreements in the Indenture; (vi) default under certain other agreements relating to Indebtedness of Regency Energy Partners or any of its Restricted Subsidiaries, which default results in the acceleration of such Indebtedness prior to its express maturity; (vii) certain final judgments for the payment of money that remain undischarged for a period of 60 days; (viii) certain events of bankruptcy or insolvency with respect to the Issuers or any of Regency Energy Partners’ Restricted Subsidiaries that is a Significant Subsidiary or any group of Restricted Subsidiaries that, taken together, would constitute a Significant Subsidiary; and (ix) except as permitted by the Indenture, any Note Guarantee is held in any judicial proceeding to be unenforceable or invalid or ceases for any reason to be in full force and effect or any Guarantor or any Person acting on its behalf denies or disaffirms its obligations under such Guarantor’s Note Guarantee. If any Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in aggregate principal amount of the then outstanding Notes may declare all the Notes to be due and payable immediately. Notwithstanding the foregoing, in the case of an Event of Default arising from certain events of bankruptcy or insolvency, with respect to Finance Corp., Regency Energy Partners or any Restricted Subsidiary of Regency Energy Partners that is a Significant Subsidiary or any group of Restricted Subsidiaries of Regency Energy Partners that, taken together, would constitute a Significant Subsidiary, all outstanding Notes will become due and payable immediately without further action or notice. Holders may not enforce the Indenture or the Notes except as provided in the Indenture. Subject to certain limitations, Holders of a majority in aggregate principal amount of the then outstanding Notes may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Holders of the Notes notice of any continuing Default or Event of Default if it determines that withholding notice is in their interest, except a Default or Event of Default relating to the payment of principal, interest or premium or Liquidated Damages, if any. The Holders of a majority in aggregate principal amount of the then outstanding Notes by notice to the Trustee may, on behalf of the Holders of all of the Notes, rescind an acceleration or waive any existing Default or Event of Default and its consequences under the Indenture except a continuing Default or Event of Default in the payment of interest or premium or Liquidated Damages, if any, on, or the principal of, the Notes. The Issuers and the Guarantors are required to deliver to the Trustee annually a statement regarding compliance with the Indenture, and the Issuers and the Guarantors are required, upon becoming aware of any Default or Event of Default, to deliver to the Trustee a statement specifying such Default or Event of Default.

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     (13) Trustee Dealings with the Issuers. The Trustee, in its individual or any other capacity, may make loans to, accept deposits from, and perform services for the Issuers or their Affiliates, and may otherwise deal with the Issuers or their Affiliates, as if it were not the Trustee.

     (14) No Recourse Against Others. Neither the General Partner nor any director, officer, partner, member, employee, incorporator, manager or unit holder or other owner of Equity Interest of the Issuers or any Guarantor, as such, will have any liability for any obligations of the Issuers or the Guarantors under the Notes, the Indenture, the Note Guarantees or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder of Notes by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for the issuance of the Notes and the Note Guarantees. The waiver may not be effective to waive liabilities under the federal securities laws.

     (15) Authentication. This Note will not be valid until authenticated by the manual signature of the Trustee or an authenticating agent.

     (16) Abbreviations. Customary abbreviations may be used in the name of a Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the entireties), JT TEN (= joint tenants with right of survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts to Minors Act).

     (17) Additional Rights of Holders of Restricted Global Notes and Restricted Definitive Notes. In addition to the rights provided to Holders of Notes under the Indenture, Holders of Restricted Global Notes and Restricted Definitive Notes will have all the rights set forth in the Registration Rights Agreement dated as of December 12, 2006, among the Issuers, the Guarantors and the other parties named on the signature pages thereof or, in the case of Additional Notes, Holders of Restricted Global Notes and Restricted Definitive Notes will have the rights set forth in one or more registration rights agreements, if any, among the Issuers, the Guarantors and the other parties thereto, relating to rights given by the Issuers and the Guarantors to the purchasers of any Additional Notes (collectively, the “Registration Rights Agreement”).

     (18) CUSIP Numbers. Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures, the Issuers have caused CUSIP numbers to be printed on the Notes, and the Trustee may use CUSIP numbers in notices of redemption as a convenience to Holders. No representation is made as to the accuracy of such numbers either as printed on the Notes or as contained in any notice of redemption, and reliance may be placed only on the other identification numbers placed thereon.

     (19) GOVERNING LAW. THE LAW OF THE STATE OF NEW YORK WILL GOVERN AND BE USED TO CONSTRUE THE INDENTURE, THIS NOTE AND THE NOTE GUARANTEES.

     The Issuers will furnish to any Holder upon written request and without charge a copy of the Indenture and/or the Registration Rights Agreement. Requests may be made to:

Regency Energy Partners LP
Regency Energy Finance Corp.
1700 Pacific Avenue, Suite 2900
Dallas, TX 75201
Attention: Chief Financial Officer

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Assignment Form

To assign this Note, fill in the form below:

(I) or (we) assign and transfer this Note to: (Insert assignee’s legal name)

(Insert assignee’s soc. sec. or tax I.D. no.)

(Print or type assignee’s name, address and zip code)

and irrevocably appoint

to transfer this Note on the books of the Issuers. The agent substitute another to act for him.

Date:                                         

Your Signature:

(Sign exactly as your name appears on the face of this Note)

Signature Guarantee*:                                                             

* Participant in a recognized Signature Guarantee Medallion Program (or other signature guarantor acceptable to the Trustee).

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Option of Holder to Elect Purchase

     If you want to elect to have this Note purchased by the Issuers pursuant to Section 4.10 or 4.15 of the Indenture, check the appropriate box below:

o Section 4.10 o Section 4.15

     If you want to elect to have only part of the Note purchased by the Issuers pursuant to Section 4.10 or Section 4.15 of the Indenture, state the amount you elect to have purchased:

$                                        

Date:                                         

Your Signature:

(Sign exactly as your name appears on the face of this Note)

Tax Identification No.:

Signature Guarantee*:                                                             

* Participant in a recognized Signature Guarantee Medallion Program (or other signature guarantor acceptable to the Trustee).

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Schedule of Exchanges of Interests in the Global Note *

     The following exchanges of a part of this Global Note for an interest in another Global Note or for a Definitive Note, or exchanges of a part of another Global Note or Definitive Note for an interest in this Global Note, have been made:

			Principal Amount of this
	Amount of decrease	Amount of increase	Global Note	Signature of
	in Principal Amount	in Principal Amount	following such	authorized officer
	of	of	decrease	of Trustee or
Date of Exchange	this Global Note	this Global Note	(or increase)	Custodian

* This schedule should be included only if the Note is issued in global form.

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NOTATION OF GUARANTEE

     For value received, each Guarantor (which term includes any successor Person under the Indenture) has, jointly and severally, unconditionally guaranteed, to the extent set forth in the Indenture and subject to the provisions in the Indenture, dated as of December 12, 2006 (the “Indenture”), among Regency Energy Partners LP, a Delaware limited partnership (“Regency Energy Partners”), and Regency Energy Finance Corp., a Delaware corporation (“Finance Corp.” and, together with Regency Energy Partners, the “Issuers”), the Guarantors party thereto and Wells Fargo Bank, National Association, as trustee (the “Trustee”), (a) the due and punctual payment of the principal of, premium, if any, and Liquidated Damages, if any, and interest on, the Notes, whether at stated maturity, by acceleration, redemption or otherwise, the due and punctual payment of interest on overdue principal of, premium if any, interest and Liquidated Damages, if any, on the Notes, if any, if lawful, and the due and punctual performance of all other obligations of the Issuers to the Holders or the Trustee all in accordance with the terms of the Indenture and (b) in case of any extension of time of payment or renewal of any Notes or any of such other obligations, that the same will be promptly paid in full when due or performed in accordance with the terms of the extension or renewal, whether at stated maturity, by acceleration or otherwise. The obligations of the Guarantors to the Holders of Notes and to the Trustee pursuant to the Note Guarantee and the Indenture are expressly set forth in Article 10 of the Indenture and reference is hereby made to the Indenture for the precise terms of the Note Guarantee. Each Holder of a Note, by accepting the same, (a) agrees to and shall be bound by such provisions (b) authorizes and directs the Trustee, on behalf of such Holder, to take such action as may be necessary or appropriate to effectuate the subordination as provided in the Indenture and (c) appoints the Trustee attorney-in-fact of such Holder for such purpose.

     Capitalized terms used but not defined herein have the meanings given to them in the Indenture.

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REGENCY GAS SERVICES LP By: Regency OLP GP, LLC, its General Partner
By:
	Stephen L. Arata Vice President
REGENCY WAHA LP, LLC
REGENCY NGL GP, LLC
REGENCY GAS MARKETING GP, LLC
REGENCY WAHA GP, LLC
REGENCY INTRASTATE GAS LLC
REGENCY MIDCON GAS LLC
REGENCY LIQUIDS PIPELINE LLC
REGENCY GAS GATHERING AND PROCESSING LLC
GULF STATES TRANSMISSION CORPORATION
REGENCY NGL MARKETING LP
	By:	Regency NGL GP, LLC, its General Partner
REGENCY GAS MARKETING LP
	By:	Regency Gas Marketing GP, LLC, its General Partner
REGENCY GAS SERVICES WAHA, LP
	By:	Regency Waha GP, LLC,
		its General Partner
By:
	Stephen L. Arata Vice President

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REGENCY TS GP LLC
REGENCY FIELD SERVICES LP
	By:	Regency TS GP LLC, its General Partner
REGENCY GUARANTOR GP LLC
REGENCY GUARANTOR LP
	By:	Regency Guarantor GP LLC, its General Partner
REGENCY OPERATING GP LLC
REGENCY EASTEX NEWLINE LP
	By:	Regency Operating GP LLC, its General Partner
REGENCY OPERATING LP
	By:	Regency Operating GP LLC, its General Partner
REGENCY EASTEX PROTREAT I LP
	By:	Regency Operating GP LLC, its General Partner
REGENCY EASTEX PROTREAT II LP
	By:	Regency Operating GP LLC, its General Partner
REGENCY GU GP LLC
REGENCY GAS UTILITY LP
	By:	Regency GU GP LLC, its General Partner
REGENCY FS GP LLC
REGENCY FS LP
	By:	Regency FS GP LLC, its General Partner
REGENCY TS ACQUISITION GP LLC
REGENCY TS ACQUISITION LP
	By:	Regency TS Acquisition GP LLC, its General Partner
REGENCY FN GP LLC
REGENCY FRIO NEWLINE LP
	By:	REGENCY FN GP LLC, its General Partner
REGENCY TGG LLC
By:
	Stephen L. Arata Vice President

Dated:                                                             

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[Face of Note]

CUSIP 75886AAA6

8 3/8% Senior Notes due 2013

No. 2 $50,000,000

REGENCY ENERGY PARTNERS LP
and
REGENCY ENERGY FINANCE CORP.

promise to pay to Cede & Co., or registered assigns,

the principal sum of FIFTY MILLION DOLLARS on December 15, 2013.

Interest Payment Dates: June 15 and December 15

Record Dates: June 1 and December 1

Dated: December 12, 2006

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REGENCY ENERGY PARTNERS LP
By:	Regency GP LP,
	its general partner
By:	Regency GP LLC,
	its general partner
By:
	Name:	Stephen L. Arata
	Title:	Executive Vice President and Chief
		Financial Officer
REGENCY ENERGY FINANCE CORP.
By:
	Name:	Stephen L. Arata
	Title:	Vice President

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This is one of the Notes referred to
in the within-mentioned Indenture:

WELLS FARGO BANK, NATIONAL ASSOCIATION,
as Trustee
By:
	Authorized Signatory

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[Back of Note]
8 3/8% Senior Notes due 2013

THIS GLOBAL NOTE IS HELD BY THE DEPOSITARY (AS DEFINED IN THE INDENTURE GOVERNING THIS NOTE) OR ITS NOMINEE IN CUSTODY FOR THE BENEFIT OF THE BENEFICIAL OWNERS HEREOF, AND IS NOT TRANSFERABLE TO ANY PERSON UNDER ANY CIRCUMSTANCES EXCEPT THAT (1) THE TRUSTEE MAY MAKE SUCH NOTATIONS HEREON AS MAY BE REQUIRED PURSUANT TO SECTION 2.06 OF THE INDENTURE, (2) THIS GLOBAL NOTE MAY BE EXCHANGED IN WHOLE BUT NOT IN PART PURSUANT TO SECTION 2.06(a) OF THE INDENTURE, (3) THIS GLOBAL NOTE MAY BE DELIVERED TO THE TRUSTEE FOR CANCELLATION PURSUANT TO SECTION 2.11 OF THE INDENTURE AND (4) THIS GLOBAL NOTE MAY BE TRANSFERRED TO A SUCCESSOR DEPOSITARY WITH THE PRIOR WRITTEN CONSENT OF THE ISSUERS.

UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR NOTES IN DEFINITIVE FORM, THIS NOTE MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITARY TO A NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR ANOTHER NOMINEE OF THE DEPOSITARY OR BY THE DEPOSITARY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITARY. UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (55 WATER STREET, NEW YORK, NEW YORK) (“DTC”), TO THE ISSUERS OR THEIR AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS MAY BE REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR SUCH OTHER ENTITY AS MAY BE REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.

THE NOTE (OR ITS PREDECESSOR) EVIDENCED HEREBY WAS ORIGINALLY ISSUED IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER SECTION 5 OF THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED, AND THE NOTE EVIDENCED HEREBY MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM. EACH PURCHASER OF THE NOTE EVIDENCED HEREBY IS HEREBY NOTIFIED THAT THE SELLER MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER OR ANOTHER EXEMPTION UNDER THE SECURITIES ACT. THE HOLDER OF THE NOTE EVIDENCED HEREBY AGREES FOR THE BENEFIT OF THE ISSUERS THAT (A) SUCH NOTE MAY BE OFFERED, RESOLD, PLEDGED OR OTHERWISE TRANSFERRED ONLY (l)(A) TO A PERSON WHO THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT), PURCHASING FOR ITS OWN ACCOUNT IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A UNDER THE SECURITIES ACT, (B) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144 OF THE SECURITIES ACT, (C) OUTSIDE THE UNITED STATES TO A FOREIGN PERSON IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 904 OF REGULATION S UNDER THE SECURITIES ACT, (D) TO AN “ACCREDITED INVESTOR” WITHIN THE MEANING OF RULE 50l(A)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT (AN “INSTITUTIONAL ACCREDITED INVESTOR”) THAT IS PURCHASING AT LEAST $250,000 OF NOTES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF AN INSTITUTIONAL ACCREDITED INVESTOR OR (E) IN ACCORDANCE WITH ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT; PROVIDED THAT IN THE CASE OF A TRANSFER UNDER CLAUSE (E) SUCH TRANSFER IS SUBJECT TO THE RECEIPT BY THE TRUSTEE OF A CERTIFICATION OF THE TRANSFEROR AND AN OPINION OF COUNSEL TO THE EFFECT THAT SUCH TRANSFER IS IN COMPLIANCE WITH THE SECURITIES ACT, (2) TO THE ISSUERS OR THEIR RESPECTIVE SUBSIDIARIES OR (3) UNDER AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND, IN EACH CASE, IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY OTHER APPLICABLE JURISDICTION AND THE INDENTURE

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GOVERNING THE NOTES AND (B) THE HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER FROM IT OF THE NOTE EVIDENCED HEREBY OF THE RESALE RESTRICTIONS SET FORTH IN (A) ABOVE. IF ANY RESALE OR OTHER TRANSFER OF ANY NOTE IS PROPOSED TO BE MADE UNDER CLAUSE (A)(1)(D) ABOVE WHILE THESE TRANSFER RESTRICTIONS ARE IN FORCE THEN THE TRANSFEROR SHALL DELIVER A LETTER FROM THE TRANSFEREE TO THE TRUSTEE WHICH SHALL PROVIDE, AMONG OTHER THINGS, THAT THE TRANSFEREE IS AN INSTITUTIONAL ACCREDITED INVESTOR AND THAT IT IS ACQUIRING THE SECURITIES FOR INVESTMENT PURPOSES AND NOT FOR DISTRIBUTION IN VIOLATION OF THE SECURITIES ACT.

     Capitalized terms used herein have the meanings assigned to them in the Indenture referred to below unless otherwise indicated.

     (1) Interest. Regency Energy Partners LP, a Delaware limited partnership (“Regency Energy Partners”), and Regency Energy Finance Corp., a Delaware corporation (“Finance Corp.” and, together with Regency Energy Partners, the “Issuers”), promise to pay interest on the principal amount of this Note at 8 3/8% per annum from December 12, 2006 until maturity and shall pay the Liquidated Damages, if any, payable pursuant to Section 4 of the Registration Rights Agreement referred to below. The Issuers will pay interest and Liquidated Damages, if any, semi-annually in arrears on June 15 and December 15 of each year, or if any such day is not a Business Day, on the next succeeding Business Day (each, an “Interest Payment Date”). Interest on the Notes will accrue from the most recent date to which interest has been paid or, if no interest has been paid, from the date of issuance; provided that if there is no existing Default in the payment of interest, and if this Note is authenticated between a record date referred to on the face hereof and the next succeeding Interest Payment Date, interest shall accrue from such next succeeding Interest Payment Date; provided further that the first Interest Payment Date shall be June 15, 2007. The Issuers will pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue principal and premium, if any, from time to time on demand at the rate then in effect to the extent lawful; they will pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue installments of interest and Liquidated Damages, if any (without regard to any applicable grace periods), from time to time on demand at the same rate to the extent lawful. Interest will be computed on the basis of a 360-day year of twelve 30-day months.

     (2) Method of Payment. The Issuers will pay interest on the Notes (except defaulted interest) and Liquidated Damages, if any, to the Persons who are registered Holders of Notes at the close of business on the June 1 or December 1 next preceding the Interest Payment Date, even if such Notes are canceled after such record date and on or before such Interest Payment Date, except as provided in Section 2.12 of the Indenture with respect to defaulted interest. Holders of Definitive Notes must surrender their Notes to the Paying Agent to collect payments of principal and premium, if any, due at maturity. The Notes will be payable as to principal, premium, if any, and Liquidated Damages, if any, and interest at the office or agency of the Issuers maintained for such purpose within the continental United States, or, at the option of the Issuers, payment of interest and Liquidated Damages, if any, may be made by check mailed to the Holders at their addresses set forth in the register of Holders; provided that payment by wire transfer of immediately available funds will be required with respect to principal of and interest, premium and Liquidated Damages, if any, on, all Global Notes and all other Notes the Holders of which will have provided wire transfer instructions to the Issuers or the Paying Agent. Such payment will be in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts.

     (3) Paying Agent and Registrar. Initially, Wells Fargo Bank, National Association, the Trustee under the Indenture, will act as Paying Agent and Registrar. The Issuers may change any Paying Agent or Registrar without notice to any Holder. Regency Energy Partners or any of its Subsidiaries may act in any such capacity.

     (4) Indenture. The Issuers issued the Notes under an Indenture dated as of December 12, 2006 (the “Indenture”) among the Issuers, the Guarantors and the Trustee. The terms of the Notes include those stated in the Indenture and those made part of the Indenture by reference to the TIA. The Notes are subject to all such terms, and Holders are referred to the Indenture and such Act for a statement of such terms. To the extent any provision of this Note conflicts with the express provisions of the Indenture, the provisions of the Indenture shall govern and be con-

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trolling. The Notes are unsecured obligations of the Issuers. The Indenture does not limit the aggregate principal amount of Notes that may be issued thereunder.

     (5) Optional Redemption.

     (a) Except as set forth in subparagraphs (b) and (c) of this Paragraph 5, the Issuers will not have the option to redeem the Notes prior to December 15, 2010. On or after December 15, 2010, the Issuers may redeem all or a part of the Notes upon not less than 30 nor more than 60 days’ notice, at the redemption prices (expressed as percentages of principal amount) set forth below plus accrued and unpaid interest and Liquidated Damages, if any, on the Notes redeemed, to the applicable Redemption Date, if redeemed during the twelve-month period beginning on December 15 of each year indicated below, subject to the rights of Holders of Notes on the relevant record date to receive interest on an Interest Payment Date that is on or prior to the Redemption Date:

Year	Percentage
2010		104.188	%
2011		102.094	%
2012 and thereafter		100.000	%

     (b) Notwithstanding the provisions of subparagraph (a) of this Paragraph 5, at any time prior to December 15, 2009, the Issuers may on any one or more occasions redeem up to 35% of the aggregate principal amount of Notes (including any Additional Notes) issued under the Indenture upon not less than 30 nor more than 60 days’ notice, at a redemption price of 108.375% of the principal amount, plus accrued and unpaid interest and Liquidated Damages, if any, to the Redemption Date (subject to the right of Holders of record on the relevant record date to receive interest due on an Interest Payment Date that is on or prior to the Redemption Date), with the net cash proceeds of one or more Equity Offerings by Regency Energy Partners; provided that at least 65% of the aggregate principal amount of Notes (including any Additional Notes) issued under the Indenture (excluding Notes held by Regency Energy Partners and its Subsidiaries) remains outstanding immediately after the occurrence of such redemption and the redemption occurs within 90 days of the date of the closing of such Equity Offering.

     (c) Notwithstanding the provisions of subparagraph (a) of this Paragraph 5, at any time prior to December 15, 2010, the Issuers may also redeem all or a part of the Notes, upon not less than 30 nor more than 60 days’ prior notice, at a redemption price equal to 100% of the principal amount of Notes redeemed plus the Applicable Premium as of, and accrued and unpaid interest and Liquidated Damages, if any, to the Redemption Date, subject to the rights of Holders on the relevant record date to receive interest due on an Interest Payment Date that is prior to the Redemption Date.

     For purposes of subparagraph (c) of this Paragraph 5, “Applicable Premium” means, with respect to any Note on any Redemption Date, the greater of (1) 1.0% of the principal amount of the Note or (2) the excess of: (a) the present value at such Redemption Date of (i) the redemption price of the Note at December 15, 2010 (such redemption price being set forth in the table appearing in subparagraph (a)) plus (ii) all required interest payments due on the Note through December 15, 2010 (excluding accrued but unpaid interest to the Redemption Date), computed using a discount rate equal to the Treasury Rate as of such Redemption Date plus 50 basis points; over (b) the principal amount of the Note, if greater. In addition, for purposes of subparagraph (c) of this Paragraph 5, “Treasury Rate” means, as of any Redemption Date, the yield to maturity as of the time of computation of United States Treasury securities with a constant maturity (as compiled and published in the most recent Federal Reserve Statistical Release H.15 (519) that has become publicly available at least two business days prior to the Redemption Date (or, if such Statistical Release is no longer published, any publicly available source of similar market data)) most nearly equal to the period from the Redemption Date to December 15, 2010; provided, however, that if such period is not equal to the constant maturity of a United States Treasury security for which a weekly average yield is given, Regency Energy Partners shall obtain the Treasury Rate by linear interpolation (calculated to the nearest one twelfth of a year) from the weekly average yields of United States Treasury securities for which such yields are given, except that if the period from the Redemption Date to December 15, 2010, is less than one year, the weekly average yield on actually traded United States Treasury securities adjusted to a constant maturity of one year will be used.

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     (d) Unless the Issuers default in the payment of the redemption price, interest and Liquidated Damages, if any, will cease to accrue on the Notes or portions thereof called for redemption on the applicable Redemption Date.

     (6) Mandatory Redemption.

     Except as set forth below, the Issuers are not required to make mandatory redemption or sinking fund payments with respect to the Notes.

     (7) Repurchase at the Option of Holder.

     (a) If there is a Change of Control, the Issuers will be required to make an offer (a “Change of Control Offer”) to each Holder to repurchase all or any part (equal to $1,000 or an integral multiple thereof) of each Holder’s Notes at a purchase price in cash equal to 101% of the aggregate principal amount thereof plus accrued and unpaid interest and Liquidated Damages, if any, to the date of purchase, subject to the rights of Holders on the relevant record date to receive interest due on the relevant Interest Payment Date (the “Change of Control Payment”). Within 30 days following any Change of Control, the Issuers will mail a notice to each Holder setting forth the procedures governing the Change of Control Offer as required by the Indenture.

     (b) If the Issuers or a Restricted Subsidiary of Regency Energy Partners consummates any Asset Sales, within five days of each date on which the aggregate amount of Excess Proceeds exceeds $20.0 million, the Issuers will commence an offer to all Holders of Notes and all holders of other Indebtedness that is pari passu with the Notes containing provisions similar to those set forth in the Indenture with respect to offers to purchase or redeem with the proceeds of sales of assets (an “Asset Sale Offer”) pursuant to Section 3.09 of the Indenture to purchase the maximum principal amount of Notes and such other pari passu Indebtedness that may be purchased out of the Excess Proceeds at an offer price in cash in an amount equal to 100% of the principal amount plus accrued and unpaid interest and Liquidated Damages, if any, to the date of purchase, in accordance with the procedures set forth in the Indenture. To the extent that the aggregate amount of Notes and other pari passu Indebtedness tendered pursuant to an Asset Sale Offer is less than the Excess Proceeds, the Regency Energy Partners (or such Restricted Subsidiary) may use such deficiency for any purpose not otherwise prohibited by the Indenture. If the aggregate principal amount of Notes and other pari passu Indebtedness tendered into such Asset Sale Offer exceeds the amount of Excess Proceeds, then the Notes and such other pari passu Indebtedness shall be purchased on a pro rata basis. Holders of Definitive Notes that are the subject of an offer to purchase will receive an Asset Sale Offer may elect to have such Notes purchased by completing the form entitled “Option of Holder to Elect Purchase” attached to the Notes.

     (8) Notice of Redemption. Notice of redemption will be mailed at least 30 days but not more than 60 days before the Redemption Date to each Holder whose Notes are to be redeemed at its registered address, except that redemption notices may be mailed more than 60 days prior to a Redemption Date if the notice is issued in connection with a defeasance of the Notes or a satisfaction or discharge of the Indenture. Notes in denominations larger than $1,000 may be redeemed in part but only in whole multiples of $1,000, unless all of the Notes held by a Holder are to be redeemed.

     (9) Denominations, Transfer, Exchange. The Notes are in registered form without coupons in denominations of $1,000 and integral multiples of $1,000. The transfer of Notes may be registered and Notes may be exchanged as provided in the Indenture. The Registrar and the Trustee may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and the Issuers may require a Holder to pay any taxes and fees required by law or permitted by the Indenture. The Issuers need not exchange or register the transfer of any Note or portion of a Note selected for redemption, except for the unredeemed portion of any Note being redeemed in part. Also, the Issuers need not exchange or register the transfer of any Notes for a period of 15 days before a selection of Notes to be redeemed or during the period between a record date and the corresponding Interest Payment Date.

     (10) Persons Deemed Owners. The registered Holder of a Note may be treated as its owner for all purposes.

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     (11) Amendment, Supplement and Waiver. Subject to certain exceptions, the Indenture or the Notes or the Note Guarantees may be amended or supplemented with the consent of the Holders of at least a majority in aggregate principal amount of the then outstanding Notes including Additional Notes, if any, voting as a single class, and any existing Default or Event of Default or compliance with any provision of the Indenture or the Notes or the Note Guarantees may be waived with the consent of the Holders of a majority in aggregate principal amount of the then outstanding Notes including Additional Notes, if any, voting as a single class. Without the consent of any Holder of a Note, the Indenture or the Notes or the Note Guarantees may be amended or supplemented to cure any ambiguity, defect or inconsistency, to provide for uncertificated Notes in addition to or in place of certificated Notes, to provide for the assumption of the Issuers’ or a Guarantor’s obligations to Holders of the Notes and Note Guarantees in the case of a merger or consolidation or sale of all or substantially all of the Issuers’ or such Guarantor’s assets, as applicable, to make any change that would provide any additional rights or benefits to the Holders of Notes or that does not adversely affect the legal rights under the Indenture of any such Holder, to comply with the requirements of the SEC in order to effect or maintain the qualification of the Indenture under the TIA, to conform the text of the Indenture or the Note Guarantees to any provision of the “Description of Notes” section of the Issuers’ Offering Memorandum to the extent that such text of the Indenture or the Notes Guarantees was intended to reflect such provision of the “Description of Notes”, to provide for the issuance of Additional Notes in accordance with the limitations set forth in the Indenture as of the date of the Indenture, to allow any Guarantor to execute a supplemental indenture, to secure the Notes and/or the Note Guarantees, or to provide for the reorganization of Regency Energy Partners as any other form of entity, in accordance with Section 5.01 of the Indenture.

     (12) Defaults and Remedies. Events of Default include: (i) default for 30 days in the payment when due of interest on, or Liquidated Damages, if any, with respect to the Notes; (ii) default in the payment when due (at stated maturity, upon redemption or otherwise) of the principal of, or premium, if any, on the Notes; (iii) failure by Regency Energy Partners or any of its Restricted Subsidiaries to timely consummate repurchase offers under Section 4.10 or 4.15 of the Indenture or to comply with Section 5.01 of the Indenture; (iv) failure by Regency Energy Partners for 90 days after notice to comply with Section 4.03 of the Indenture; (v) failure by Regency Energy Partners or any of its Restricted Subsidiaries for 60 days after written notice to comply with any of the other agreements in the Indenture; (vi) default under certain other agreements relating to Indebtedness of Regency Energy Partners or any of its Restricted Subsidiaries, which default results in the acceleration of such Indebtedness prior to its express maturity; (vii) certain final judgments for the payment of money that remain undischarged for a period of 60 days; (viii) certain events of bankruptcy or insolvency with respect to the Issuers or any of Regency Energy Partners’ Restricted Subsidiaries that is a Significant Subsidiary or any group of Restricted Subsidiaries that, taken together, would constitute a Significant Subsidiary; and (ix) except as permitted by the Indenture, any Note Guarantee is held in any judicial proceeding to be unenforceable or invalid or ceases for any reason to be in full force and effect or any Guarantor or any Person acting on its behalf denies or disaffirms its obligations under such Guarantor’s Note Guarantee. If any Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in aggregate principal amount of the then outstanding Notes may declare all the Notes to be due and payable immediately. Notwithstanding the foregoing, in the case of an Event of Default arising from certain events of bankruptcy or insolvency, with respect to Finance Corp., Regency Energy Partners or any Restricted Subsidiary of Regency Energy Partners that is a Significant Subsidiary or any group of Restricted Subsidiaries of Regency Energy Partners that, taken together, would constitute a Significant Subsidiary, all outstanding Notes will become due and payable immediately without further action or notice. Holders may not enforce the Indenture or the Notes except as provided in the Indenture. Subject to certain limitations, Holders of a majority in aggregate principal amount of the then outstanding Notes may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Holders of the Notes notice of any continuing Default or Event of Default if it determines that withholding notice is in their interest, except a Default or Event of Default relating to the payment of principal, interest or premium or Liquidated Damages, if any. The Holders of a majority in aggregate principal amount of the then outstanding Notes by notice to the Trustee may, on behalf of the Holders of all of the Notes, rescind an acceleration or waive any existing Default or Event of Default and its consequences under the Indenture except a continuing Default or Event of Default in the payment of interest or premium or Liquidated Damages, if any, on, or the principal of, the Notes. The Issuers and the Guarantors are required to deliver to the Trustee annually a statement regarding compliance with the Indenture, and the Issuers and the Guarantors are required, upon becoming aware of any Default or Event of Default, to deliver to the Trustee a statement specifying such Default or Event of Default.

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     (13) Trustee Dealings with the Issuers. The Trustee, in its individual or any other capacity, may make loans to, accept deposits from, and perform services for the Issuers or their Affiliates, and may otherwise deal with the Issuers or their Affiliates, as if it were not the Trustee.

     (14) No Recourse Against Others. Neither the General Partner nor any director, officer, partner, member, employee, incorporator, manager or unit holder or other owner of Equity Interest of the Issuers or any Guarantor, as such, will have any liability for any obligations of the Issuers or the Guarantors under the Notes, the Indenture, the Note Guarantees or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder of Notes by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for the issuance of the Notes and the Note Guarantees. The waiver may not be effective to waive liabilities under the federal securities laws.

     (15) Authentication. This Note will not be valid until authenticated by the manual signature of the Trustee or an authenticating agent.

     (16) Abbreviations. Customary abbreviations may be used in the name of a Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the entireties), JT TEN (= joint tenants with right of survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts to Minors Act).

     (17) Additional Rights of Holders of Restricted Global Notes and Restricted Definitive Notes. In addition to the rights provided to Holders of Notes under the Indenture, Holders of Restricted Global Notes and Restricted Definitive Notes will have all the rights set forth in the Registration Rights Agreement dated as of December 12, 2006, among the Issuers, the Guarantors and the other parties named on the signature pages thereof or, in the case of Additional Notes, Holders of Restricted Global Notes and Restricted Definitive Notes will have the rights set forth in one or more registration rights agreements, if any, among the Issuers, the Guarantors and the other parties thereto, relating to rights given by the Issuers and the Guarantors to the purchasers of any Additional Notes (collectively, the “Registration Rights Agreement”).

     (18) CUSIP Numbers. Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures, the Issuers have caused CUSIP numbers to be printed on the Notes, and the Trustee may use CUSIP numbers in notices of redemption as a convenience to Holders. No representation is made as to the accuracy of such numbers either as printed on the Notes or as contained in any notice of redemption, and reliance may be placed only on the other identification numbers placed thereon.

     (19) GOVERNING LAW. THE LAW OF THE STATE OF NEW YORK WILL GOVERN AND BE USED TO CONSTRUE THE INDENTURE, THIS NOTE AND THE NOTE GUARANTEES.

     The Issuers will furnish to any Holder upon written request and without charge a copy of the Indenture and/or the Registration Rights Agreement. Requests may be made to:

Regency Energy Partners LP
Regency Energy Finance Corp.
1700 Pacific Avenue, Suite 2900
Dallas, TX 75201
Attention: Chief Financial Officer

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Assignment Form

To assign this Note, fill in the form below:

(I) or (we) assign and transfer this Note to: (Insert assignee’s legal name)

(Insert assignee’s soc. sec. or tax I.D. no.)

(Print or type assignee’s name, address and zip code)

and irrevocably appoint

to transfer this Note on the books of the Issuers. The agent substitute another to act for him.

Date:

Your Signature:

(Sign exactly as your name appears on the face of this Note)

Signature Guarantee*:

     • Participant in a recognized Signature Guarantee Medallion Program (or other signature guarantor acceptable to the Trustee).

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Option of Holder to Elect Purchase

     If you want to elect to have this Note purchased by the Issuers pursuant to Section 4.10 or 4.15 of the Indenture, check the appropriate box below:

o Section 4.10 o Section 4.15

     If you want to elect to have only part of the Note purchased by the Issuers pursuant to Section 4.10 or Section 4.15 of the Indenture, state the amount you elect to have purchased:

$                    

Date:

Your Signature:

(Sign exactly as your name appears on the face of this Note)

Tax Identification No.:

Signature Guarantee*:

     • Participant in a recognized Signature Guarantee Medallion Program (or other signature guarantor acceptable to the Trustee).

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Schedule of Exchanges of Interests in the Global Note *

     The following exchanges of a part of this Global Note for an interest in another Global Note or for a Definitive Note, or exchanges of a part of another Global Note or Definitive Note for an interest in this Global Note, have been made:

			Principal Amount of this
	Amount of decrease	Amount of increase	Global Note	Signature of
	in Principal Amount	in Principal Amount	following such	authorized officer
	of	of	decrease	of Trustee or
Date of Exchange	this Global Note	this Global Note	(or increase)	Custodian

* This schedule should be included only if the Note is issued in global form.

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NOTATION OF GUARANTEE

     For value received, each Guarantor (which term includes any successor Person under the Indenture) has, jointly and severally, unconditionally guaranteed, to the extent set forth in the Indenture and subject to the provisions in the Indenture, dated as of December 12, 2006 (the “Indenture”), among Regency Energy Partners LP, a Delaware limited partnership (“Regency Energy Partners”), and Regency Energy Finance Corp., a Delaware corporation (“Finance Corp.” and, together with Regency Energy Partners, the “Issuers”), the Guarantors party thereto and Wells Fargo Bank, National Association, as trustee (the “Trustee”), (a) the due and punctual payment of the principal of, premium, if any, and Liquidated Damages, if any, and interest on, the Notes, whether at stated maturity, by acceleration, redemption or otherwise, the due and punctual payment of interest on overdue principal of, premium if any, interest and Liquidated Damages, if any, on the Notes, if any, if lawful, and the due and punctual performance of all other obligations of the Issuers to the Holders or the Trustee all in accordance with the terms of the Indenture and (b) in case of any extension of time of payment or renewal of any Notes or any of such other obligations, that the same will be promptly paid in full when due or performed in accordance with the terms of the extension or renewal, whether at stated maturity, by acceleration or otherwise. The obligations of the Guarantors to the Holders of Notes and to the Trustee pursuant to the Note Guarantee and the Indenture are expressly set forth in Article 10 of the Indenture and reference is hereby made to the Indenture for the precise terms of the Note Guarantee. Each Holder of a Note, by accepting the same, (a) agrees to and shall be bound by such provisions (b) authorizes and directs the Trustee, on behalf of such Holder, to take such action as may be necessary or appropriate to effectuate the subordination as provided in the Indenture and (c) appoints the Trustee attorney-in-fact of such Holder for such purpose.

     Capitalized terms used but not defined herein have the meanings given to them in the Indenture.

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REGENCY GAS SERVICES LP
By: Regency OLP GP, LLC, its General Partner
By:
	Stephen L. Arata
	Vice President
REGENCY WAHA LP, LLC
REGENCY NGL GP, LLC
REGENCY GAS MARKETING GP, LLC
REGENCY WAHA GP, LLC
REGENCY INTRASTATE GAS LLC
REGENCY MIDCON GAS LLC
REGENCY LIQUIDS PIPELINE LLC
REGENCY GAS GATHERING AND PROCESSING LLC
GULF STATES TRANSMISSION CORPORATION
REGENCY NGL MARKETING LP
	By:	Regency NGL GP, LLC,
		its General Partner
REGENCY GAS MARKETING LP
	By:	Regency Gas Marketing GP, LLC,
		its General Partner
REGENCY GAS SERVICES WAHA, LP
	By:	Regency Waha GP, LLC,
		its General Partner
By:
	Stephen L. Arata
	Vice President

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REGENCY TS GP LLC
REGENCY FIELD SERVICES LP
	By:	Regency TS GP LLC,
		its General Partner
REGENCY GUARANTOR GP LLC
REGENCY GUARANTOR LP
	By:	Regency Guarantor GP LLC,
		its General Partner
REGENCY OPERATING GP LLC
REGENCY EASTEX NEWLINE LP
	By:	Regency Operating GP LLC,
		its General Partner
REGENCY OPERATING LP
	By:	Regency Operating GP LLC,
		its General Partner
REGENCY EASTEX PROTREAT I LP
	By:	Regency Operating GP LLC,
		its General Partner
REGENCY EASTEX PROTREAT II LP
	By:	Regency Operating GP LLC,
		its General Partner
REGENCY GU GP LLC
REGENCY GAS UTILITY LP
	By:	Regency GU GP LLC,
		its General Partner
REGENCY FS GP LLC
REGENCY FS LP
	By:	Regency FS GP LLC,
		its General Partner
REGENCY TS ACQUISITION GP LLC
REGENCY TS ACQUISITION LP
	By:	Regency TS Acquisition GP LLC,
		its General Partner
REGENCY FN GP LLC
REGENCY FRIO NEWLINE LP
	By:	REGENCY FN GP LLC,
		its General Partner
REGENCY TGG LLC
By:
	Stephen L. Arata
	Vice President

Dated:

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[Face of Note]

CUSIP USU75857AA72

8 3/8% Senior Notes due 2013

No. 3 $0

REGENCY ENERGY PARTNERS LP
and
REGENCY ENERGY FINANCE CORP.

promise to pay to Cede & Co., , or registered assigns,

the principal sum of ZERO DOLLARS on December 15, 2013.

Interest Payment Dates: June 15 and December 15

Record Dates: June 1 and December 1

Dated: December 12, 2006

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REGENCY ENERGY PARTNERS LP
By:	Regency GP LP,
	its general partner
By:	Regency GP LLC,
	its general partner
By:
	Name:	Stephen L. Arata
	Title:	Executive Vice President and
		Chief Financial Officer
REGENCY ENERGY FINANCE CORP.
By:
	Name:	Stephen L. Arata
	Title:	Vice President

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This is one of the Notes referred to
in the within-mentioned Indenture:
WELLS FARGO BANK, NATIONAL ASSOCIATION,
as Trustee
By:
	Authorized Signatory

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[Back of Note]
8 3/8% Senior Notes due 2013

THIS GLOBAL NOTE IS HELD BY THE DEPOSITARY (AS DEFINED IN THE INDENTURE GOVERNING THIS NOTE) OR ITS NOMINEE IN CUSTODY FOR THE BENEFIT OF THE BENEFICIAL OWNERS HEREOF, AND IS NOT TRANSFERABLE TO ANY PERSON UNDER ANY CIRCUMSTANCES EXCEPT THAT (1) THE TRUSTEE MAY MAKE SUCH NOTATIONS HEREON AS MAY BE REQUIRED PURSUANT TO SECTION 2.06 OF THE INDENTURE, (2) THIS GLOBAL NOTE MAY BE EXCHANGED IN WHOLE BUT NOT IN PART PURSUANT TO SECTION 2.06(a) OF THE INDENTURE, (3) THIS GLOBAL NOTE MAY BE DELIVERED TO THE TRUSTEE FOR CANCELLATION PURSUANT TO SECTION 2.11 OF THE INDENTURE AND (4) THIS GLOBAL NOTE MAY BE TRANSFERRED TO A SUCCESSOR DEPOSITARY WITH THE PRIOR WRITTEN CONSENT OF THE ISSUERS.

UNLESS AND UNTIL IT IS EXCHANGED IN WHOLE OR IN PART FOR NOTES IN DEFINITIVE FORM, THIS NOTE MAY NOT BE TRANSFERRED EXCEPT AS A WHOLE BY THE DEPOSITARY TO A NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR ANOTHER NOMINEE OF THE DEPOSITARY OR BY THE DEPOSITARY OR ANY SUCH NOMINEE TO A SUCCESSOR DEPOSITARY OR A NOMINEE OF SUCH SUCCESSOR DEPOSITARY. UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY (55 WATER STREET, NEW YORK, NEW YORK) (“DTC”), TO THE ISSUERS OR THEIR AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS MAY BE REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR SUCH OTHER ENTITY AS MAY BE REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.

THE NOTE (OR ITS PREDECESSOR) EVIDENCED HEREBY WAS ORIGINALLY ISSUED IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER SECTION 5 OF THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED, AND THE NOTE EVIDENCED HEREBY MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM. EACH PURCHASER OF THE NOTE EVIDENCED HEREBY IS HEREBY NOTIFIED THAT THE SELLER MAY BE RELYING ON THE EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE SECURITIES ACT PROVIDED BY RULE 144A THEREUNDER OR ANOTHER EXEMPTION UNDER THE SECURITIES ACT. THE HOLDER OF THE NOTE EVIDENCED HEREBY AGREES FOR THE BENEFIT OF THE ISSUERS THAT (A) SUCH NOTE MAY BE OFFERED, RESOLD, PLEDGED OR OTHERWISE TRANSFERRED ONLY (l)(A) TO A PERSON WHO THE SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT), PURCHASING FOR ITS OWN ACCOUNT IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A UNDER THE SECURITIES ACT, (B) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144 OF THE SECURITIES ACT, (C) OUTSIDE THE UNITED STATES TO A FOREIGN PERSON IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 904 OF REGULATION S UNDER THE SECURITIES ACT, (D) TO AN “ACCREDITED INVESTOR” WITHIN THE MEANING OF RULE 50l(A)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT (AN “INSTITUTIONAL ACCREDITED INVESTOR”) THAT IS PURCHASING AT LEAST $250,000 OF NOTES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF AN INSTITUTIONAL ACCREDITED INVESTOR OR (E) IN ACCORDANCE WITH ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT; PROVIDED THAT IN THE CASE OF A TRANSFER UNDER CLAUSE (E) SUCH TRANSFER IS SUBJECT TO THE RECEIPT BY THE TRUSTEE OF A CERTIFICATION OF THE TRANSFEROR AND AN OPINION OF COUNSEL TO THE EFFECT THAT SUCH TRANSFER IS IN COMPLIANCE WITH THE SECURITIES ACT, (2) TO THE ISSUERS OR THEIR RESPECTIVE SUBSIDIARIES OR (3) UNDER AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND, IN EACH CASE, IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY OTHER APPLICABLE JURISDICTION AND THE INDENTURE

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GOVERNING THE NOTES AND (B) THE HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER FROM IT OF THE NOTE EVIDENCED HEREBY OF THE RESALE RESTRICTIONS SET FORTH IN (A) ABOVE. IF ANY RESALE OR OTHER TRANSFER OF ANY NOTE IS PROPOSED TO BE MADE UNDER CLAUSE (A)(1)(D) ABOVE WHILE THESE TRANSFER RESTRICTIONS ARE IN FORCE THEN THE TRANSFEROR SHALL DELIVER A LETTER FROM THE TRANSFEREE TO THE TRUSTEE WHICH SHALL PROVIDE, AMONG OTHER THINGS, THAT THE TRANSFEREE IS AN INSTITUTIONAL ACCREDITED INVESTOR AND THAT IT IS ACQUIRING THE SECURITIES FOR INVESTMENT PURPOSES AND NOT FOR DISTRIBUTION IN VIOLATION OF THE SECURITIES ACT.

Capitalized terms used herein have the meanings assigned to them in the Indenture referred to below unless otherwise indicated.

     (1) Interest. Regency Energy Partners LP, a Delaware limited partnership (“Regency Energy Partners”), and Regency Energy Finance Corp., a Delaware corporation (“Finance Corp.” and, together with Regency Energy Partners, the “Issuers”), promise to pay interest on the principal amount of this Note at 8 3/8% per annum from December 12, 2006 until maturity and shall pay the Liquidated Damages, if any, payable pursuant to Section 4 of the Registration Rights Agreement referred to below. The Issuers will pay interest and Liquidated Damages, if any, semi-annually in arrears on June 15 and December 15 of each year, or if any such day is not a Business Day, on the next succeeding Business Day (each, an “Interest Payment Date”). Interest on the Notes will accrue from the most recent date to which interest has been paid or, if no interest has been paid, from the date of issuance; provided that if there is no existing Default in the payment of interest, and if this Note is authenticated between a record date referred to on the face hereof and the next succeeding Interest Payment Date, interest shall accrue from such next succeeding Interest Payment Date; provided further that the first Interest Payment Date shall be June 15, 2007. The Issuers will pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue principal and premium, if any, from time to time on demand at the rate then in effect to the extent lawful; they will pay interest (including post-petition interest in any proceeding under any Bankruptcy Law) on overdue installments of interest and Liquidated Damages, if any (without regard to any applicable grace periods), from time to time on demand at the same rate to the extent lawful. Interest will be computed on the basis of a 360-day year of twelve 30-day months.

     (2) Method of Payment. The Issuers will pay interest on the Notes (except defaulted interest) and Liquidated Damages, if any, to the Persons who are registered Holders of Notes at the close of business on the June 1 or December 1 next preceding the Interest Payment Date, even if such Notes are canceled after such record date and on or before such Interest Payment Date, except as provided in Section 2.12 of the Indenture with respect to defaulted interest. Holders of Definitive Notes must surrender their Notes to the Paying Agent to collect payments of principal and premium, if any, due at maturity. The Notes will be payable as to principal, premium, if any, and Liquidated Damages, if any, and interest at the office or agency of the Issuers maintained for such purpose within the continental United States, or, at the option of the Issuers, payment of interest and Liquidated Damages, if any, may be made by check mailed to the Holders at their addresses set forth in the register of Holders; provided that payment by wire transfer of immediately available funds will be required with respect to principal of and interest, premium and Liquidated Damages, if any, on, all Global Notes and all other Notes the Holders of which will have provided wire transfer instructions to the Issuers or the Paying Agent. Such payment will be in such coin or currency of the United States of America as at the time of payment is legal tender for payment of public and private debts.

     (3) Paying Agent and Registrar. Initially, Wells Fargo Bank, National Association, the Trustee under the Indenture, will act as Paying Agent and Registrar. The Issuers may change any Paying Agent or Registrar without notice to any Holder. Regency Energy Partners or any of its Subsidiaries may act in any such capacity.

     (4) Indenture. The Issuers issued the Notes under an Indenture dated as of December 12, 2006 (the “Indenture”) among the Issuers, the Guarantors and the Trustee. The terms of the Notes include those stated in the Indenture and those made part of the Indenture by reference to the TIA. The Notes are subject to all such terms, and Holders are referred to the Indenture and such Act for a statement of such terms. To the extent any provision of this Note conflicts with the express provisions of the Indenture, the provisions of the Indenture shall govern and be con-

2

trolling. The Notes are unsecured obligations of the Issuers. The Indenture does not limit the aggregate principal amount of Notes that may be issued thereunder.

     (5) Optional Redemption.

     (a) Except as set forth in subparagraphs (b) and (c) of this Paragraph 5, the Issuers will not have the option to redeem the Notes prior to December 15, 2010. On or after December 15, 2010, the Issuers may redeem all or a part of the Notes upon not less than 30 nor more than 60 days’ notice, at the redemption prices (expressed as percentages of principal amount) set forth below plus accrued and unpaid interest and Liquidated Damages, if any, on the Notes redeemed, to the applicable Redemption Date, if redeemed during the twelve-month period beginning on December 15 of each year indicated below, subject to the rights of Holders of Notes on the relevant record date to receive interest on an Interest Payment Date that is on or prior to the Redemption Date:

Year	Percentage
2010		104.188	%
2011		102.094	%
2012 and thereafter		100.000	%

     (b) Notwithstanding the provisions of subparagraph (a) of this Paragraph 5, at any time prior to December 15, 2009, the Issuers may on any one or more occasions redeem up to 35% of the aggregate principal amount of Notes (including any Additional Notes) issued under the Indenture upon not less than 30 nor more than 60 days’ notice, at a redemption price of 108.375% of the principal amount, plus accrued and unpaid interest and Liquidated Damages, if any, to the Redemption Date (subject to the right of Holders of record on the relevant record date to receive interest due on an Interest Payment Date that is on or prior to the Redemption Date), with the net cash proceeds of one or more Equity Offerings by Regency Energy Partners; provided that at least 65% of the aggregate principal amount of Notes (including any Additional Notes) issued under the Indenture (excluding Notes held by Regency Energy Partners and its Subsidiaries) remains outstanding immediately after the occurrence of such redemption and the redemption occurs within 90 days of the date of the closing of such Equity Offering.

     (c) Notwithstanding the provisions of subparagraph (a) of this Paragraph 5, at any time prior to December 15, 2010, the Issuers may also redeem all or a part of the Notes, upon not less than 30 nor more than 60 days’ prior notice, at a redemption price equal to 100% of the principal amount of Notes redeemed plus the Applicable Premium as of, and accrued and unpaid interest and Liquidated Damages, if any, to the Redemption Date, subject to the rights of Holders on the relevant record date to receive interest due on an Interest Payment Date that is prior to the Redemption Date.

     For purposes of subparagraph (c) of this Paragraph 5, “Applicable Premium” means, with respect to any Note on any Redemption Date, the greater of (1) 1.0% of the principal amount of the Note or (2) the excess of: (a) the present value at such Redemption Date of (i) the redemption price of the Note at December 15, 2010 (such redemption price being set forth in the table appearing in subparagraph (a)) plus (ii) all required interest payments due on the Note through December 15, 2010 (excluding accrued but unpaid interest to the Redemption Date), computed using a discount rate equal to the Treasury Rate as of such Redemption Date plus 50 basis points; over (b) the principal amount of the Note, if greater. In addition, for purposes of subparagraph (c) of this Paragraph 5, “Treasury Rate” means, as of any Redemption Date, the yield to maturity as of the time of computation of United States Treasury securities with a constant maturity (as compiled and published in the most recent Federal Reserve Statistical Release H.15 (519) that has become publicly available at least two business days prior to the Redemption Date (or, if such Statistical Release is no longer published, any publicly available source of similar market data)) most nearly equal to the period from the Redemption Date to December 15, 2010; provided, however, that if such period is not equal to the constant maturity of a United States Treasury security for which a weekly average yield is given, Regency Energy Partners shall obtain the Treasury Rate by linear interpolation (calculated to the nearest one twelfth of a year) from the weekly average yields of United States Treasury securities for which such yields are given, except that if the period from the Redemption Date to December 15, 2010, is less than one year, the weekly average yield on actually traded United States Treasury securities adjusted to a constant maturity of one year will be used.

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     (d) Unless the Issuers default in the payment of the redemption price, interest and Liquidated Damages, if any, will cease to accrue on the Notes or portions thereof called for redemption on the applicable Redemption Date.

     (6) Mandatory Redemption.

     Except as set forth below, the Issuers are not required to make mandatory redemption or sinking fund payments with respect to the Notes.

     (7) Repurchase at the Option of Holder.

     (a) If there is a Change of Control, the Issuers will be required to make an offer (a “Change of Control Offer”) to each Holder to repurchase all or any part (equal to $1,000 or an integral multiple thereof) of each Holder’s Notes at a purchase price in cash equal to 101% of the aggregate principal amount thereof plus accrued and unpaid interest and Liquidated Damages, if any, to the date of purchase, subject to the rights of Holders on the relevant record date to receive interest due on the relevant Interest Payment Date (the “Change of Control Payment”). Within 30 days following any Change of Control, the Issuers will mail a notice to each Holder setting forth the procedures governing the Change of Control Offer as required by the Indenture.

     (b) If the Issuers or a Restricted Subsidiary of Regency Energy Partners consummates any Asset Sales, within five days of each date on which the aggregate amount of Excess Proceeds exceeds $20.0 million, the Issuers will commence an offer to all Holders of Notes and all holders of other Indebtedness that is pari passu with the Notes containing provisions similar to those set forth in the Indenture with respect to offers to purchase or redeem with the proceeds of sales of assets (an “Asset Sale Offer”) pursuant to Section 3.09 of the Indenture to purchase the maximum principal amount of Notes and such other pari passu Indebtedness that may be purchased out of the Excess Proceeds at an offer price in cash in an amount equal to 100% of the principal amount plus accrued and unpaid interest and Liquidated Damages, if any, to the date of purchase, in accordance with the procedures set forth in the Indenture. To the extent that the aggregate amount of Notes and other pari passu Indebtedness tendered pursuant to an Asset Sale Offer is less than the Excess Proceeds, the Regency Energy Partners (or such Restricted Subsidiary) may use such deficiency for any purpose not otherwise prohibited by the Indenture. If the aggregate principal amount of Notes and other pari passu Indebtedness tendered into such Asset Sale Offer exceeds the amount of Excess Proceeds, then the Notes and such other pari passu Indebtedness shall be purchased on a pro rata basis. Holders of Definitive Notes that are the subject of an offer to purchase will receive an Asset Sale Offer may elect to have such Notes purchased by completing the form entitled “Option of Holder to Elect Purchase” attached to the Notes.

     (8) Notice of Redemption. Notice of redemption will be mailed at least 30 days but not more than 60 days before the Redemption Date to each Holder whose Notes are to be redeemed at its registered address, except that redemption notices may be mailed more than 60 days prior to a Redemption Date if the notice is issued in connection with a defeasance of the Notes or a satisfaction or discharge of the Indenture. Notes in denominations larger than $1,000 may be redeemed in part but only in whole multiples of $1,000, unless all of the Notes held by a Holder are to be redeemed.

     (9) Denominations, Transfer, Exchange. The Notes are in registered form without coupons in denominations of $1,000 and integral multiples of $1,000. The transfer of Notes may be registered and Notes may be exchanged as provided in the Indenture. The Registrar and the Trustee may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and the Issuers may require a Holder to pay any taxes and fees required by law or permitted by the Indenture. The Issuers need not exchange or register the transfer of any Note or portion of a Note selected for redemption, except for the unredeemed portion of any Note being redeemed in part. Also, the Issuers need not exchange or register the transfer of any Notes for a period of 15 days before a selection of Notes to be redeemed or during the period between a record date and the corresponding Interest Payment Date.

     (10) Persons Deemed Owners. The registered Holder of a Note may be treated as its owner for all purposes.

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     (11) Amendment, Supplement and Waiver. Subject to certain exceptions, the Indenture or the Notes or the Note Guarantees may be amended or supplemented with the consent of the Holders of at least a majority in aggregate principal amount of the then outstanding Notes including Additional Notes, if any, voting as a single class, and any existing Default or Event of Default or compliance with any provision of the Indenture or the Notes or the Note Guarantees may be waived with the consent of the Holders of a majority in aggregate principal amount of the then outstanding Notes including Additional Notes, if any, voting as a single class. Without the consent of any Holder of a Note, the Indenture or the Notes or the Note Guarantees may be amended or supplemented to cure any ambiguity, defect or inconsistency, to provide for uncertificated Notes in addition to or in place of certificated Notes, to provide for the assumption of the Issuers’ or a Guarantor’s obligations to Holders of the Notes and Note Guarantees in the case of a merger or consolidation or sale of all or substantially all of the Issuers’ or such Guarantor’s assets, as applicable, to make any change that would provide any additional rights or benefits to the Holders of Notes or that does not adversely affect the legal rights under the Indenture of any such Holder, to comply with the requirements of the SEC in order to effect or maintain the qualification of the Indenture under the TIA, to conform the text of the Indenture or the Note Guarantees to any provision of the “Description of Notes” section of the Issuers’ Offering Memorandum to the extent that such text of the Indenture or the Notes Guarantees was intended to reflect such provision of the “Description of Notes”, to provide for the issuance of Additional Notes in accordance with the limitations set forth in the Indenture as of the date of the Indenture, to allow any Guarantor to execute a supplemental indenture, to secure the Notes and/or the Note Guarantees, or to provide for the reorganization of Regency Energy Partners as any other form of entity, in accordance with Section 5.01 of the Indenture.

     (12) Defaults and Remedies. Events of Default include: (i) default for 30 days in the payment when due of interest on, or Liquidated Damages, if any, with respect to the Notes; (ii) default in the payment when due (at stated maturity, upon redemption or otherwise) of the principal of, or premium, if any, on the Notes; (iii) failure by Regency Energy Partners or any of its Restricted Subsidiaries to timely consummate repurchase offers under Section 4.10 or 4.15 of the Indenture or to comply with Section 5.01 of the Indenture; (iv) failure by Regency Energy Partners for 90 days after notice to comply with Section 4.03 of the Indenture; (v) failure by Regency Energy Partners or any of its Restricted Subsidiaries for 60 days after written notice to comply with any of the other agreements in the Indenture; (vi) default under certain other agreements relating to Indebtedness of Regency Energy Partners or any of its Restricted Subsidiaries, which default results in the acceleration of such Indebtedness prior to its express maturity; (vii) certain final judgments for the payment of money that remain undischarged for a period of 60 days; (viii) certain events of bankruptcy or insolvency with respect to the Issuers or any of Regency Energy Partners’ Restricted Subsidiaries that is a Significant Subsidiary or any group of Restricted Subsidiaries that, taken together, would constitute a Significant Subsidiary; and (ix) except as permitted by the Indenture, any Note Guarantee is held in any judicial proceeding to be unenforceable or invalid or ceases for any reason to be in full force and effect or any Guarantor or any Person acting on its behalf denies or disaffirms its obligations under such Guarantor’s Note Guarantee. If any Event of Default occurs and is continuing, the Trustee or the Holders of at least 25% in aggregate principal amount of the then outstanding Notes may declare all the Notes to be due and payable immediately. Notwithstanding the foregoing, in the case of an Event of Default arising from certain events of bankruptcy or insolvency, with respect to Finance Corp., Regency Energy Partners or any Restricted Subsidiary of Regency Energy Partners that is a Significant Subsidiary or any group of Restricted Subsidiaries of Regency Energy Partners that, taken together, would constitute a Significant Subsidiary, all outstanding Notes will become due and payable immediately without further action or notice. Holders may not enforce the Indenture or the Notes except as provided in the Indenture. Subject to certain limitations, Holders of a majority in aggregate principal amount of the then outstanding Notes may direct the Trustee in its exercise of any trust or power. The Trustee may withhold from Holders of the Notes notice of any continuing Default or Event of Default if it determines that withholding notice is in their interest, except a Default or Event of Default relating to the payment of principal, interest or premium or Liquidated Damages, if any. The Holders of a majority in aggregate principal amount of the then outstanding Notes by notice to the Trustee may, on behalf of the Holders of all of the Notes, rescind an acceleration or waive any existing Default or Event of Default and its consequences under the Indenture except a continuing Default or Event of Default in the payment of interest or premium or Liquidated Damages, if any, on, or the principal of, the Notes. The Issuers and the Guarantors are required to deliver to the Trustee annually a statement regarding compliance with the Indenture, and the Issuers and the Guarantors are required, upon becoming aware of any Default or Event of Default, to deliver to the Trustee a statement specifying such Default or Event of Default.

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     (13) Trustee Dealings with the Issuers. The Trustee, in its individual or any other capacity, may make loans to, accept deposits from, and perform services for the Issuers or their Affiliates, and may otherwise deal with the Issuers or their Affiliates, as if it were not the Trustee.

     (14) No Recourse Against Others. Neither the General Partner nor any director, officer, partner, member, employee, incorporator, manager or unit holder or other owner of Equity Interest of the Issuers or any Guarantor, as such, will have any liability for any obligations of the Issuers or the Guarantors under the Notes, the Indenture, the Note Guarantees or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder of Notes by accepting a Note waives and releases all such liability. The waiver and release are part of the consideration for the issuance of the Notes and the Note Guarantees. The waiver may not be effective to waive liabilities under the federal securities laws.

     (15) Authentication. This Note will not be valid until authenticated by the manual signature of the Trustee or an authenticating agent.

     (16) Abbreviations. Customary abbreviations may be used in the name of a Holder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the entireties), JT TEN (= joint tenants with right of survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts to Minors Act).

     (17) Additional Rights of Holders of Restricted Global Notes and Restricted Definitive Notes. In addition to the rights provided to Holders of Notes under the Indenture, Holders of Restricted Global Notes and Restricted Definitive Notes will have all the rights set forth in the Registration Rights Agreement dated as of December 12, 2006, among the Issuers, the Guarantors and the other parties named on the signature pages thereof or, in the case of Additional Notes, Holders of Restricted Global Notes and Restricted Definitive Notes will have the rights set forth in one or more registration rights agreements, if any, among the Issuers, the Guarantors and the other parties thereto, relating to rights given by the Issuers and the Guarantors to the purchasers of any Additional Notes (collectively, the “Registration Rights Agreement”).

     (18) CUSIP Numbers. Pursuant to a recommendation promulgated by the Committee on Uniform Security Identification Procedures, the Issuers have caused CUSIP numbers to be printed on the Notes, and the Trustee may use CUSIP numbers in notices of redemption as a convenience to Holders. No representation is made as to the accuracy of such numbers either as printed on the Notes or as contained in any notice of redemption, and reliance may be placed only on the other identification numbers placed thereon.

     (19) GOVERNING LAW. THE LAW OF THE STATE OF NEW YORK WILL GOVERN AND BE USED TO CONSTRUE THE INDENTURE, THIS NOTE AND THE NOTE GUARANTEES.

     The Issuers will furnish to any Holder upon written request and without charge a copy of the Indenture and/or the Registration Rights Agreement. Requests may be made to:

Regency Energy Partners LP
Regency Energy Finance Corp.
1700 Pacific Avenue, Suite 2900
Dallas, TX 75201
Attention: Chief Financial Officer

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Assignment Form

To assign this Note, fill in the form below:

(I) or (we) assign and transfer this Note to: (Insert assignee’s legal name)

(Insert assignee’s soc. sec. or tax I.D. no.)

(Print or type assignee’s name, address and zip code)

and irrevocably appoint

to transfer this Note on the books of the Issuers. The agent substitute another to act for him.

Date:                                                             

Your Signature:

(Sign exactly as your name appears on the face of this Note)

Signature Guarantee*:                                                             

     * Participant in a recognized Signature Guarantee Medallion Program (or other signature guarantor acceptable to the Trustee).

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Option of Holder to Elect Purchase

     If you want to elect to have this Note purchased by the Issuers pursuant to Section 4.10 or 4.15 of the Indenture, check the appropriate box below:

o Section 4.10 o Section 4.15

     If you want to elect to have only part of the Note purchased by the Issuers pursuant to Section 4.10 or Section 4.15 of the Indenture, state the amount you elect to have purchased:

$                                        

Date:                                         

Your Signature:

(Sign exactly as your name appears on the face of this Note)

Tax Identification No.:

Signature Guarantee*:                                                             

     * Participant in a recognized Signature Guarantee Medallion Program (or other signature guarantor acceptable to the Trustee).

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Schedule of Exchanges of Interests in the Global Note *

     The following exchanges of a part of this Global Note for an interest in another Global Note or for a Definitive Note, or exchanges of a part of another Global Note or Definitive Note for an interest in this Global Note, have been made:

			Principal Amount of this
	Amount of decrease	Amount of increase	Global Note	Signature of
	in Principal Amount	in Principal Amount	following such	authorized officer
	of	of	decrease	of Trustee or
Date of Exchange	this Global Note	this Global Note	(or increase)	Custodian

* This schedule should be included only if the Note is issued in global form.

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NOTATION OF GUARANTEE

     For value received, each Guarantor (which term includes any successor Person under the Indenture) has, jointly and severally, unconditionally guaranteed, to the extent set forth in the Indenture and subject to the provisions in the Indenture, dated as of December 12, 2006 (the “Indenture”), among Regency Energy Partners LP, a Delaware limited partnership (“Regency Energy Partners”), and Regency Energy Finance Corp., a Delaware corporation (“Finance Corp.” and, together with Regency Energy Partners, the “Issuers”), the Guarantors party thereto and Wells Fargo Bank, National Association, as trustee (the “Trustee”), (a) the due and punctual payment of the principal of, premium, if any, and Liquidated Damages, if any, and interest on, the Notes, whether at stated maturity, by acceleration, redemption or otherwise, the due and punctual payment of interest on overdue principal of, premium if any, interest and Liquidated Damages, if any, on the Notes, if any, if lawful, and the due and punctual performance of all other obligations of the Issuers to the Holders or the Trustee all in accordance with the terms of the Indenture and (b) in case of any extension of time of payment or renewal of any Notes or any of such other obligations, that the same will be promptly paid in full when due or performed in accordance with the terms of the extension or renewal, whether at stated maturity, by acceleration or otherwise. The obligations of the Guarantors to the Holders of Notes and to the Trustee pursuant to the Note Guarantee and the Indenture are expressly set forth in Article 10 of the Indenture and reference is hereby made to the Indenture for the precise terms of the Note Guarantee. Each Holder of a Note, by accepting the same, (a) agrees to and shall be bound by such provisions (b) authorizes and directs the Trustee, on behalf of such Holder, to take such action as may be necessary or appropriate to effectuate the subordination as provided in the Indenture and (c) appoints the Trustee attorney-in-fact of such Holder for such purpose.

     Capitalized terms used but not defined herein have the meanings given to them in the Indenture.

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REGENCY GAS SERVICES LP
By:	Regency OLP GP, LLC, its General Partner
By:
	Stephen L. Arata
	Vice President
REGENCY WAHA LP, LLC
REGENCY NGL GP, LLC
REGENCY GAS MARKETING GP, LLC
REGENCY WAHA GP, LLC
REGENCY INTRASTATE GAS LLC
REGENCY MIDCON GAS LLC
REGENCY LIQUIDS PIPELINE LLC
REGENCY GAS GATHERING AND PROCESSING LLC
GULF STATES TRANSMISSION CORPORATION
REGENCY NGL MARKETING LP
	By:	Regency NGL GP, LLC,
		its General Partner
REGENCY GAS MARKETING LP
	By:	Regency Gas Marketing GP, LLC,
		its General Partner
REGENCY GAS SERVICES WAHA, LP
	By:	Regency Waha GP, LLC,
		its General Partner
By:
	Stephen L. Arata
	Vice President

2

REGENCY TS GP LLC
REGENCY FIELD SERVICES LP
	By:	Regency TS GP LLC,
		its General Partner
REGENCY GUARANTOR GP LLC
REGENCY GUARANTOR LP
	By:	Regency Guarantor GP LLC,
		its General Partner
REGENCY OPERATING GP LLC
REGENCY EASTEX NEWLINE LP
	By:	Regency Operating GP LLC,
		its General Partner
REGENCY OPERATING LP
	By:	Regency Operating GP LLC,
		its General Partner
REGENCY EASTEX PROTREAT I LP
	By:	Regency Operating GP LLC,
		its General Partner
REGENCY EASTEX PROTREAT II LP
	By:	Regency Operating GP LLC,
		its General Partner
REGENCY GU GP LLC
REGENCY GAS UTILITY LP
	By:	Regency GU GP LLC,
		its General Partner
REGENCY FS GP LLC
REGENCY FS LP
	By:	Regency FS GP LLC,
		its General Partner
REGENCY TS ACQUISITION GP LLC
REGENCY TS ACQUISITION LP
	By:	Regency TS Acquisition GP LLC,
		its General Partner
REGENCY FN GP LLC
REGENCY FRIO NEWLINE LP
	By:	REGENCY FN GP LLC,
		its General Partner
REGENCY TGG LLC
By:
	Stephen L. Arata
	Vice President

Dated:                                                             

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EX-12.1

Exhibit 12.1. Computation of Ratio of Earnings to Fixed Charges.

Regency Energy Partners LP
Computation of Ratio of Earnings to Fixed Charges
(in thousands, except ratio amounts)
(Unaudited)

	Regency Energy Partners LP									Regency Predecessor LLC
							Period from
							Acquisition Date			Period from		Period from
							(December 1,			January 1,		Inception
	Year Ended			Year Ended			2004) to December			2004 to		(April 2, 2003) to
	December 31, 2006			December 31, 2005			31, 2004			November 30, 2004		December 31, 2003
Earnings:
Income (loss) from continuing operations	$	(7,244	)	$	(11,592	)	$	1,474		$	20,137	$	6,174
Add:
Interest expense		37,182			17,880			1,335			5,097		2,392
Portion of rent under long-term operating leases representative of an interest factor		574			477			43			468		190
Amortization of capitalized interest		131			—			—			—		—
Distributed income from investees accounted for under the equity method		—			—			—			280		—
Less:
Equity income		(532	)		(312	)		(56	)		—		—
Total earnings available for fixed charges	$	30,111		$	6,453		$	2,796		$	25,982	$	8,756
Fixed Charges:
Interest expense	$	37,182		$	17,880		$	1,335		$	5,097	$	2,392
Portion of rent under long-term operating leases representative of an interest factor		574			477			43			468		190
Capitalized interest		511			2,613			—			—		—
Total fixed charges	$	38,267		$	20,970		$	1,378		$	5,565	$	2,582
Ratio of earnings to fixed charges (x times) (1)		—			—			2.03			4.67		3.39

(1) Earnings were insufficient to cover fixed charges for the years ended December 31, 2006 and 2005 by $8,156,000 and $14,517,000, respectively.

EX-14.1

EXHIBIT 14.1

		CODE OF BUSINESS CONDUCT
Date Issued	Date Revised	Approved by: Board of Directors on Jan. 13, 2006	Page 1 of 21
January 23, 2006	n.a.

REGENCY ENERGY PARTNERS LP
CODE OF BUSINESS CONDUCT

     The following constitutes the Code of Business Conduct (the “Code”) of Regency Energy Partners LP (the “Partnership”) which has been adopted by the Board of Directors (the “Board of Directors”) of Regency GP LLC (the “Company”), the general partner of Regency GP LP (the “General Partner”), the general partner of the Partnership, and is applicable to all directors, officers and employees of the Partnership, the General Partner, the Company and the subsidiaries of the Partnership (together, “Regency”). The value statements set forth in this Code describe the standards by which we measure ourselves and are the most important and fundamental principles regarding the way we do business at Regency.

Integrity and Trust

We strive to do what is right and to uphold and enhance our reputation for integrity in all business activities. Meeting business objectives is important, but we must also be proud of the manner in which they are achieved. It is our intention to treat everyone fairly, honestly and with trust and respect. We believe the foundation in trusting relationships is integrity.

Accountability and Dependability

We accept personal accountability to meet business needs, enhance our systems and processes, and help others improve their effectiveness. We will honor our commitments and deliver on the promises we make to customers, unit holders and each other.

Valuing Individuals

Our people will always be our most important asset and the basis for our success. We value the skills, strengths and perspectives of all individuals. We believe creating and sustaining an environment that enables all of our employees to excel is critical to our success. Our employees’ well being is important to us.

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Innovation

We encourage new ideas and innovative thinking, and support efforts to translate those concepts into viable services and processes. We strive to foster an atmosphere of innovation that will enable us to meet the needs of existing and future customers.

Commitment to Quality

We will provide services of superior quality and value that meet the needs of all our customers. We strive for continuous improvement in the quality of services delivered and believe that we will be rewarded in our efforts to do so.

Fair Dealing

It is Regency’s policy that each director, officer and employee should endeavor to deal fairly with each of Regency’s customers, suppliers, competitors and employees. None of them should take unfair advantage of anyone through manipulation, concealment, abuse of privileged information, misrepresentation of material facts or any other unfair practice.

Your Role

The Code describes Regency’s policies for proper business conduct and contains an overview of several of the most important areas regulated by the U. S. government and by our policies. This general discussion does not, however, replace the more detailed information given to employees whose jobs require more extensive knowledge of specific laws and policies, much of which is contained in the Company’s Manual of Internal Control Policies and Procedures.

Ask Questions

Neither the Code nor the Manual of Internal Control Policies and Procedures can provide definitive answers to all questions. For that we must ultimately rely on your good sense of what is required to adhere to Regency’s high standards, including a sense of when it is proper to seek guidance on the appropriate course of conduct. (See also Ethical Decision Check in back of the Code.)

Administering and Enforcing the Code

All of Regency’s directors, officers and employees are required to comply with the Code and the Manual of Internal Control Policies and Procedures. The Company has appointed a Corporate Compliance Committee to govern our compliance program. The Code applies to all Regency employees, whether their responsibilities lie primarily with the Company, the General Partner, the Partnership or the operating subsidiaries.

The Company is committed to providing timely and specific guidance to employees with respect to the Code and other policies. Whenever the correct course of conduct seems unclear, employees must consult their management, the Compliance Officer or the Regency compliance Hotline.

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Reporting of Possible Violations

It is the obligation of any director, officer or employee who believes another director, officer, employee or any agent, consultant or contract worker is violating Regency’s policies or local laws or is engaging in any activity that could damage Regency’s reputation to call this immediately to the attention of management or one or more of the following:

• The Company’s Compliance Officer;

• any member of the Compliance Committee;

• any manager in the internal audit department; or

• Regency’s compliance Hotline

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The Regency Compliance Hotline

The Company has established a toll-free 24-hour telephone line (the “Hotline”) for employees to report possible violations of law or Regency policy. The number is 1-800-355-5549. All calls are confidential and employees may choose to make their calls anonymously. There will be no retaliation against an employee for reporting a suspected violation of the Code.

Enforcement

It is the obligation of the directors, officers and employees of Regency to obey both the letter and spirit of the law and to comply with the Code and Manual of Internal Control Policies and Procedures. The Compliance Committee and the Compliance Officer have the responsibility for enforcement of the Code.

Failure to comply with the Code may result in disciplinary action up to and including termination of employment, depending on the nature and severity of the violation. In addition, any supervisor, manager, officer or director who directs, approves or condones infractions, or has knowledge of them and does not promptly report and correct them in accordance with the Code, will be subject to disciplinary action up to and including termination of employment or office.

Compliance with Law

It is the general policy of Regency that its directors, officers and employees shall comply with all applicable laws and governmental regulations. Specific aspects of laws and governmental regulations applicable to Regency and its operations are addressed in this Code, such as antitrust laws, environmental laws, laws relating to sensitive payments, laws relating to political contributions and laws relating to nondiscriminatory treatment of employees. Notwithstanding these specific references, none of us must lose sight of our collective obligation to comply with all those other laws and regulations that are applicable to our company and its business and operations.

Accounting and Internal Controls

Precise accounting for all transactions is essential to controlling Regency’s affairs and maintaining the accuracy of its financial reporting. It is the common language between management and the various functions within Regency and is also the basis for our communications with equity holders and other stakeholders.

Internal controls are an essential part of accounting, as well as of the orderly functioning of the business of Regency. (See the Introduction to the Manual of Internal Control Policies and Procedures.) Internal accounting controls are designed to ensure the integrity of the accounting data in our financial statements and reports. They also help to prevent inefficiency, waste and the improper use of Regency funds or other assets.

To ensure the integrity of our accounting records, all entries to Regency’s books must be prepared in a timely manner with accuracy and honesty. They must also be supported by adequate documentation to provide a complete, accurate and auditable record of the transactions they describe. Therefore, it is vital that no fund, asset, liability, revenue or

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expense of Regency be concealed or incompletely recorded in any situation or for any purpose. This is not only the responsibility of Regency’s accountants who record transactions but the responsibility of virtually every employee who contributes in some way to creating the records Regency keeps by preparing gas measurement reports, expense reports, time records, job logs, activity reports and similar records.

The Audit Committee of the Board of Directors reviews the Company’s internal auditing practices, selects and arranges compensation for independent auditors, and oversees other aspects of Regency’s financial reporting and control systems and business ethics policies.

A strong audit effort helps ensure compliance with established policies, procedures and controls and helps identify potential control deficiencies so that they may be promptly corrected. Regency’s internal audit function is viewed as an essential resource, and it plays a critical role in providing management with evaluations of the effectiveness of internal controls over accounting, operational and administrative functions. All employees are required to cooperate fully with the auditors. False or misleading statements to auditors, whether internal or external, will not be tolerated and will constitute a falsification of records. No member of management or any other employee may interfere with the audit process or withhold records. Authority for auditing is derived from the Audit Committee of the Board of Directors, which has unrestricted access to the Company’s internal audit department.

Any employee having information or knowledge of any unrecorded fund or asset or any prohibited act should promptly report it to his or her management and to the Company’s internal audit department, which shall promptly advise the Company’s Chief Financial Officer and Chief Legal Officer. Alternatively, he or she can call the Hotline. (See “The Regency Compliance Hotline” above.)

More detailed information about internal controls is contained in the Manual of Internal Control Policies and Procedures. In addition, detailed procedures are made available to all employees who are involved with the design and operation of internal accounting controls.

Fraudulent Conduct

Regency employees may not engage in any scheme to defraud anyone out of money, property, or honest services. Such conduct is in violation of Regency policy and the law and carries severe penalties. Regency relies on its internal controls and the personal integrity of all employees in safeguarding Regency assets against damage, theft, and other unauthorized use. Irregularities include dishonest or fraudulent activity, which results in the misappropriation of Regency assets for personal gain. Employees who become aware of known or suspected irregularities must report them promptly to their manager or other appropriate individual pursuant to the reporting procedures described in the Code.

Conflict of Interest

Regency respects the privacy and individual rights of its employees and directors in the conduct of their personal affairs. Each of the employees and directors has, however, a

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primary business responsibility to Regency and is expected to avoid any activity that may interfere, or have the appearance of interfering, with the discharge of this responsibility. A conflict of interest exists if your outside business or other interests may affect adversely, or have the potential to affect adversely, your job performance.

Circumstances may arise in which the activities of an employee or director could conflict with the best interests of Regency and, consequently, could adversely affect Regency’s reputation or relations with others or interfere with fulfillment of the employee’s or director’s responsibilities to Regency. It is management’s responsibility to ensure that employees and directors are made aware that such activities must be avoided, both on the job and off. It is the obligation of each employee and director to avoid any activities, associations or interests that interfere, or potentially interfere, with the performance of that individual’s responsibilities to Regency. This obligation extends to appearances of conflicts and exists regardless of whether or not the individual’s performance is in fact adversely affected.

No employee or director shall receive compensation beyond that provided by Regency, including fees or honoraria, for services rendered to any person or organization on behalf of Regency. Moreover, no employee or directors shall accept gifts or services of more than nominal value from anyone doing or seeking business with Regency. When an employee believes that it may be inappropriate under the circumstances to reject a gift that may be prohibited by the Code, the employee should consult with his or her supervisor to determine an acceptable course of action.

Conflicts of interest also arise when a director, officer or employee receives improper personal benefits as a result of his or her position with Regency. In this regard, any loans to, or guarantees or obligations of, any such persons must be reviewed and approved by the Chief Executive Officer.

Subject to the provisions of the partnership agreement of the Partnership, directors, officers and employees are prohibited from taking for themselves personally opportunities that are discovered through the use of corporate property, information or their position with Regency.

Employees and directors may not use their positions or Regency’s assets, information or influence for personal gain or for the advantage of others.

Subject to the provisions of the partnership agreement of the Partnership, directors, officers and employees may not compete with Regency.

For the purposes of determining the existence of a conflict of interest, the activities of immediate family members are considered to be the actions of the employee or director.

The employment of or contracting with our relatives may raise issues about confidentiality, objectivity and integrity in work relationships. Similar questions may arise about other personal relationships. Therefore, Regency requires that you immediately disclose to your supervisor any family or personal relationships that may cause or give the appearance of a conflict of interest, either in direct employment with Regency or with related people connected with clients and or suppliers of Regency. For example, an employee should not negotiate or participate in a decision regarding contracting with a company owned or controlled by a person with whom that employee

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has a personal relationship or participate in hiring or other employment decisions regarding a person with whom the employee has a personal relationship.

Employees and directors also have a responsibility to keep confidential trade secrets and all other information that belongs to Regency and that is competitive or has commercial value. Confidential information is to be used in pursuing Regency’s own business interests, and it must not otherwise be used or disclosed to others outside Regency either during or after employment.

If any doubt should exist regarding an actual or potential conflict of interest, employees should seek guidance from management. Each employee is encouraged to report any suspected conflict of interest to the Company by disclosure to management or to the Company’s Compliance Officer. Each employee may also call the Hotline. (See “The Regency Compliance Hotline” above.)

It is expected that each director, officer and employee of Regency will protect any proprietary information he or she may have learned or to which he or she has been given access belonging to a prior employer or its clients or suppliers. Such protection includes refusing use of the information on the job at Regency and refusing to disclose it to Regency personnel for any purpose. Additionally, directors, officers and employees are expected to respect the confidentiality of Regency and Regency client/customer information even after leaving Regency. By preserving one’s personal integrity, each of us assumes a vital role in preserving the integrity of Regency.

Further information about conflicts of interest may be found in the Manual of Internal Control Policies and Procedures. We emphasize, however, that the most important guides in this area are the honesty and good judgment of our employees.

Our Employees

The employees of Regency working together as a team are the key to our success. Our ability to work as a team is grounded in respect, respect by each of us for each other.

Our pay policy is to administer wages and salaries in a manner that will be sufficiently competitive with others in our industry to attract and retain high-caliber personnel and to provide incentive for, and to reward, high-level performance. Our “pay-for-performance” philosophy ensures that employees’ salaries reflect their current and sustained performance relative to that of others paid in the same categories. Our wage and salary schedules are reviewed at least annually, recognizing competitive pay levels of other major employers who hire the same quality of personnel for comparable jobs.

While we hope to provide stable employment, we do not guarantee employment for any particular period of time for any employee and no Regency employee is authorized to make such a guarantee (other than pursuant to authority granted by our Board of Directors). Generally, either an employee or Regency is free to terminate the employment relationship at any time. Regency will take steps to end a person’s employment only after it has concluded that such action is warranted. If applicable, a written contract will control.

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Diversity

We value the uniqueness of individuals and the various perspectives they provide. We promote diversity within our work force and have an inclusive environment that enables each of us to fully participate and contribute.

Avoiding Discrimination and Harassment

Regency is committed to the philosophy underlying the laws prohibiting discrimination in employment matters (i.e., hiring, rate of pay, promotion, demotion and termination) because of age, race, color, marital status, sex, sexual orientation, religion, national origin or disability.

An essential part of our commitment to equal employment opportunity is to maintain a working environment in which employees may perform their jobs free of physical or verbal harassment because of race, marital status, sex, sexual orientation, color, national origin, religion, age, disability or veteran status. It is important for all employees to know and understand that Regency will not tolerate any form of harassment. Once again, our ability to work as a team is grounded in respect for each other. Any form of harassment is utterly inconsistent with that respect.

Employees with concerns about employment, employment discrimination or harassment should contact their supervisor, the Compliance Officer or any member of the Compliance Committee. Employees may also use the Hotline to state their concerns anonymously. (See “The Regency Compliance Hotline” above.)

Substance Abuse Policy

Regency is committed to providing a safe and healthy workplace for employees. As part of this policy, Regency maintains reasonable safety rules, practices and procedures with firm and fair enforcement and communicates these rules, practices and procedures to all employees. At the same time, we expect employees to be efficient and productive in performing their job assignments.

Consistent with this policy, Regency has adopted several rules governing employee conduct, including rules that prohibit:

• The use, possession, distribution, purchase or sale of controlled substances, including illegal drugs, narcotics, prescription drugs obtained or used without a legal prescription, or other unlawful substances or materials on Regency’s premises while conducting business for Regency or while operating Regency equipment.

• The unauthorized use, possession, distribution, purchase or sale of alcohol on Regency’s premises while conducting business for Regency or while operating Regency equipment.

• Reporting to work or working under the influence of controlled substances, including illegal drugs, narcotics, other unlawful substances, or intoxicating beverages.

• The use of any substance that causes or contributes to unacceptable job performance or disruptive job behavior.

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To provide a safe and healthy workplace for its employees, to have an efficient and productive work force and to ensure compliance with the above-described rules, the Company is authorized by the Board of Directors to conduct the following searches and tests, where allowed by law and when deemed necessary, under the conditions described in the procedures applicable to a particular company facility:

• Searches (with the assistance of law enforcement agencies when the management of the facility believes circumstances warrant) of personnel, vehicles, personal property or any other property located on the facility’s premises for illegal drugs or other unlawful or unauthorized substances or materials.

• Tests to determine the presence of any illegal drugs or other unlawful or unauthorized substances in an employee’s body.

Regency’s substance abuse policy can be found in the Manual of Internal Control Policies and Procedures. Regency makes assistance available to employees with alcohol or drug abuse problems through its Employee Assistance Services.

Workplace Violence

Regency is committed to providing a workplace that is safe, secure, and free from acts of violence or threats of violence. In keeping with this commitment, the Company has established a strict policy that prohibits actual or threatened violence against co-workers, visitors, or any other persons who are either on our premises or have contact with employees in the course of their duties. This policy applies to all employees equally, including managers, supervisors, and non-supervisory personnel. Security and safety in the workplace is every employee’s responsibility.

Every threat of violence is serious and must be treated as such. Prohibited behavior may include such acts as:

• Making a verbal threat, orally or in writing, explicitly or implicitly, to harm another employee or destroy company property;

• attempting to intimidate or harass other employees;

• throwing objects at other employees with the intent to inflict bodily harm;

• making menacing gestures in an effort to upset, frighten, terrorize or otherwise antagonize other employees;

• expressing and maintaining grudges against co-workers or supervisors that are out of proportion with what a “reasonable person” might express;

• displaying a persistent and intense or obsessive romantic or physical interest that is unwanted and unwelcome (e.g., harassing, stalking);

• bringing or threatening to bring a weapon to work and displaying a firearm; and

• exhibiting behavior that a reasonable person would consider to be a possible danger to the exhibitor or to others.

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Further detail can be found in the Company’s Policy on Security of Personnel and Assets in the Manual of Internal Control Policies and Procedures.

Securities Laws

The Partnership will, soon after adoption of this Code by the Board of Directors, become a publicly reporting enterprise under the Securities Exchange Act of 1934. As such, the Partnership and its affiliates will become subject to the myriad of federal and state securities laws and regulations. These laws and regulations relate, among other things, to the dissemination of information about the enterprise to the investing public, the trading in the enterprise’s securities by directors, officers and employees, the maintenance of internal controls, including internal accounting controls, corporate governance and the unitholders’ franchise. It is Regency’s policy to abide by and comply with these laws and regulations, both in letter and spirit.

Among the securities laws and regulations are those that relate to the use of material inside information in connection with the purchase or sale of the Partnership’s securities, so-called insider trading. Insider trading is both unethical and illegal. The Company has adopted a specific and detailed policy relating to insider trading. See the Company’s Policy on Insider Trading in the Manual of Internal Control Policies and Procedures.

Lobbying

Lobbying is an essential and constructive part of the political process. It attempts to influence public policy decisions through information and advocacy (which could include legislative testimony and comments on proposed legislation), either by direct communication with public officials or by encouraging employees, equity holders and others to communicate with those officials. Almost all government regulation imposes requirements on the individual or individual’s employer, or both, to disclose certain lobbying activities. These reportable activities are not limited to activities of “lobbyists” and may include actions that most individuals normally do not associate with the term “lobbying.”

Employees authorized to represent Regency in legislative or regulatory matters are responsible for understanding and complying with all applicable laws and regulations. Employees planning to participate in any activity that involves contact with public officials on behalf of Regency should first contact the Executive Vice President — Administration or the Chief Executive Officer of the Company to determine the applicable government requirements, if any.

Sensitive Payments

The United States Foreign Corrupt Practices Act (FCPA) makes it a crime for companies, as well as their officers, directors, employees, and agents, to pay, promise, offer or authorize the payment of anything of value to a foreign official, foreign political party, officials of foreign political parties, candidates for foreign political office or officials of public international organizations corruptly for the purpose of obtaining or retaining

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business. While Regency does not do business abroad, there are other U.S. laws to similar effect with respect to payments to official in the United States.

Directors, officers and employees may not make or promise payments or gifts, beyond modest social courtesies, to officers or employees of any customer or government. Payments of this nature are strictly against Regency policy even if the refusal to make them may cause Regency to lose business.

Political Contributions

Company contributions to candidates for U.S. federal office are prohibited by law. We may in the future establish an Employees Political Action Committee (REPAC) under applicable laws to support the election of candidates for federal office and candidates for state and local office in certain U.S. states through campaign contributions. Laws governing corporate contributions to state, local and non-U.S. candidates and campaigns vary from place to place. Where and to the extent permitted, Regency makes political contributions to appropriate candidates. Political contributions by Regency will only be regarded as “appropriate” if related to Regency or industry business objectives. Where appropriate, management will take the initiative to identify opportunities and recommend political contributions. All requests for contributions, regardless of the amount, must be reviewed by management and legal counsel. It is Regency policy to furnish a list of all political contributions to any equity holder, upon request.

Gifts to Public Officials

Occasionally, if lawful, Regency may give public officials items of value, such as honoraria, travel expenses, meals or event tickets. Such expenditures may, however, raise limitations, prohibitions, reporting and conflict of interest issues. Any such expenditure, carried out improperly could result, in the worst case, in Regency being accused of attempted bribery. No gift may be provided to a U.S. public official unless approved in advance by the Executive Vice President — Administration or the Chief Executive Officer of the Company. No approval will be granted except to the extent the gift complies with law and the Manual of Internal Control Policies and Procedures. Questions regarding potential gifts to non-U.S. public officials must be reviewed in advance by the Chief Financial Officer of the Company in accordance with the Manual of Internal Control Policies and Procedures.

Civic and Political Activity of Employees

Regency encourages employees to participate in the political and governmental process and communicate their views to appointed and elected officials. The political and governmental activities of employees should not, however, affect job performance adversely. Employees should be careful not to identify themselves as representing Regency unless Regency has given prior approval.

Employees who serve on policy-making or regulatory bodies of government bear a special responsibility to avoid any conflict of interest. Moreover, employee participation in political campaigns during paid working hours or by using the Regency facilities may

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be construed as an “in-kind” political contribution by Regency that would require corporate approval and that, very often, could be illegal. Employees should consult management or the Executive Vice President — Administration of the Company on these matters if there is any uncertainty.

Health, Environment and Safety

Regency’s policy is to protect the safety and health of the people and the environment. Consistent with our values and our goal to be recognized and admired for safety, health, and environmental excellence, we conduct our business in a socially and responsible and ethical manner. To that end, we work ethically and constructively to influence proposed laws and regulations and the debate on emerging issues.

In addition to Regency’s commitment to legal compliance, we embrace the principles of risk management in all aspects of its operations. Risk management means deciding what should be done now to limit our future liabilities and to improve our long-term competitive position. The process of risk management involves identifying and prioritizing potential problems, determining the probability of problems occurring, exploring alternative solutions and acting where appropriate.

On the compliance side, our Policy on Health, Environment and Safety commits Regency to compliance with the spirit and letter of all environmental, health and safety laws and regulations, regardless of the degree of enforcement. If Regency believes that a regulation or government policy is unsound or contrary to law, we will work to change it through the available regulatory, legislative or judicial processes. Until the regulations or policies are changed, however, Regency will comply with them.

In this area, the Company has issued detailed compliance guidelines in its Manual of Internal Control Policies and Procedures, including our Policy on Health, Environment and Safety.

In the United States, federal, state and local governments have enacted legislation designed to protect people and the environment. For protection of Regency and our employees, possible violations affecting people or the environment should be promptly brought to management’s attention for investigation. If preferred, employees may anonymously use the Hotline to report possible violations of law or company policy. (See “The Regency Compliance Hotline” above.)

Antitrust Laws

The purpose of the antitrust laws is to ensure a fair and competitive free market system. While we compete aggressively in our business activities, it is our policy to conduct our efforts in the marketplace in accordance with the letter and spirit of the applicable antitrust laws. The consequences for Regency and its employees of not complying with the antitrust laws are extremely serious. Violation of some antitrust provisions is a felony in the United States and can lead to fines and imprisonment for the individuals involved and to even heavier fines for Regency. Moreover, even in the absence of a criminal prosecution, civil antitrust suits may be brought to recover treble damages and attorneys’ fees.

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Agreements and Contacts with Competitors

Some of the most serious antitrust offenses are between competitors, such as agreements to fix prices or to divide customers, territories, or markets.

Regency must always make its pricing decisions independently of its competitors. Regency also may not agree with a competitor to divide customers or territories or to refrain from selling a certain product or service in any geographic region or to any category of customer. These agreements, like price-fixing, are always illegal in the United States.

Contact with competitors, and particularly exchanges of information with competitors (including benchmarking activities), can be filled with antitrust hazards because the antitrust laws prohibit agreements among competitors that unreasonably restrain trade. Unlawful agreements need not take the form of a written contract or consist of express commitments or mutual assurances. Courts can infer agreements based on “loose talk,” informal discussions, or the mere exchange between competitors of information from which pricing or other collusion could result. Any communication with a competitor’s representative, no matter how innocuous it may seem at the time, may later be subject to legal scrutiny and form the basis for accusations of improper or illegal conduct.

To minimize this risk, contacts with competitors must be kept to an absolute minimum. Membership in trade associations is permissible only if approved in advance by the head of your department. In all contacts with competitors, avoid discussing pricing policy, terms and conditions, costs, marketing and product plans, market surveys and studies, production plans and capabilities and any other proprietary or confidential information. Collaboration or discussion of these subjects with a competitor can be illegal. If a competitor raises any of them, even lightly or with apparent innocence, you should object, stop the conversation immediately, and tell the competitor that under no circumstances can you discuss these matters. If necessary, you should leave the meeting. You should also advise the Executive Vice President — Administration of the Company of such conversation.

Relationships with Customers and Suppliers

Relationships with customers and suppliers can also be subject to a number of antitrust prohibitions. Agreements with a competitor or customer to refuse to buy from or sell to any person may be unlawful under U.S. law. While Regency is as a general rule allowed to determine by itself that it does not wish to buy from or sell to a particular person, such decision when reached jointly with others may be illegal, regardless of whether such determination may be commercially reasonable. In addition, Regency may not agree with a supplier to limit that supplier’s sales to any of Regency competitors.

Some other activities that raise antitrust issues are discrimination in terms and services offered to customers, exclusive dealing arrangements with customers or suppliers, and tie-in sales (“tying”). Tying occurs when a buyer is required as a condition of purchasing one product to also purchase a second, distinct product. No programs involving these activities should be implemented without first consulting the Executive Vice President — Administration of the Company.

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Whenever you have any doubt as to whether a contemplated action raises issues under the antitrust laws, you should consult the Executive Vice President — Administration or the Legal Department of the Company.

Privacy of Personal Information

It is our policy to comply with applicable legal requirements concerning privacy in the workplace. Employees should be aware that they have no right of privacy as to any information or file maintained in or on Regency’s property or transmitted or stored through Regency’s computer systems, voice mail, e-mail, or other technical resources. Employees should note that the attorney/client privilege relating to certain Regency information extends only to Regency and not to the individual. Regency may override any applicable passwords for purposes of inspecting, investigating or searching an employee’s computerized files or transmissions, voice mail, or e-mail or any other Regency media in which information is stored or transmitted.

How information about individuals is collected, maintained and disclosed affects virtually every individual with whom Regency deals, including its employees and credit customers.

Regency respects the confidentiality of information, including computerized information, relating to identified or identifiable individuals. To this end, it is Regency’s policy to guard against unauthorized or improper disclosure of this information. For example, names and addresses of employees would not be given to a travel agency for a travel offer that the agency wanted to extend to employees. Also, Regency would not, without the express written consent of an employee, disclose an employee’s salary to a lending agency where the employee had applied for a loan.

Regency expects its employees to comply with all privacy laws, rules and regulations that are applicable to its information practices. To assist in this regard, Regency has issued detailed guidelines contained in the Manual of Internal Control Policies and Procedures, with which employees are expected to be familiar. Because privacy laws vary in both scope and complexity in different locales, it is the responsibility of the management at each operating facility to obtain from legal counsel specific directions on what is required to comply with the privacy laws of the state in which the facility is located. Management is further responsible for making certain that privacy law requirements are communicated to every employee whose duties are in any way affected.
Restrictions on the Disclosure of Information

With increasing frequency, Regency and its employees are being requested to furnish information or documents to government agencies, legislative committees, courts or other bodies investigating operations conducted in their jurisdictions. The provision of such information may, however, be subject to restrictions or limitations under applicable laws.

Because the applicable laws are so complex in the area, all requests for such information should be forwarded immediately to the Executive Vice President — Administration of the Company, and no information should be furnished until authorization has been obtained from that officer.

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Information Protection and Management

Information Protection

Regency’s information assets are vital resources. These resources include information in any form, whether acquired from others or developed by Regency, and any systems that store, process, or transmit information. It is the policy of Regency to ensure the availability, integrity and confidentiality of these resources in a manner that is consistent with risk and business value. It is the joint responsibility of management and all employees to take the necessary actions to protect these resources.

Employees have the responsibility to understand the business value of their information resources. Employees also have the responsibility to understand the risks associated with the possible compromise of the availability, integrity and confidentiality of these resources. Employees are responsible for taking appropriate actions to ensure that Regency information resources are protected commensurate with business value and risk. Accordingly, employees who are unsure of the legal or regulatory implications of their actions will be responsible for seeking management or supervisory guidance. Regency information is to be used in pursuing Regency’s own business interests and must not otherwise be used or disclosed by any employee either during or after employment.

Records Retention

Employees are required to apply our Policy on Records Management to all documents and other forms of information they create or receive in the course of their employment. Documents that satisfy any of the criteria of a Company Record (as defined in that Policy) must be retained for the applicable period required by the Record Retention Schedule found in that Policy. Documents and other forms of information that do not satisfy any of the criteria are not Company Records and should not be retained, except those subject to a Suspension of Destruction Notification issued in accordance with that Policy.

Computer Systems and Other Technical Resources

It is the joint responsibility of management and all employees to ensure that Regency’s computer systems and other technical resources are used appropriately, that is, consistent with Regency’s standards of business and ethical conduct and policies.

Internet

Regency has Internet services to support the advancement of its business goals and objectives. Regency encourages use of the Internet as a strategic business and learning tool. Occasional access to the Internet for learning or personal use is acceptable to facilitate the learning process and to promote the use of this strategic resource. At all times, during and after work, the Internet user is responsible for avoiding Internet sites that violate Regency’s sexual harassment or other policies. Any unintentional contact with such a site requires the user to avoid exposing anyone else to the material, which should be deleted immediately from computer storage.

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Regency has the right to monitor and log Internet activity and to block offensive, illegal, and non-business-related sites. If an Internet user is uncertain whether a site violates Regency policy or the law, he or she should contact the appropriate manager or the Executive Vice President — Administration of the Company.

Internet activity is to be considered public and users must conduct their activity accordingly. Use caution when sending e-mail to a non-Regency Internet address. These messages travel across non-secure, public lines and may be stored in third-party systems, subject to discovery and disclosure. This could risk loss of confidential data. In addition, the address of the intended recipient should be confirmed prior to sending the communication.

The Internet can be used to communicate and exchange information as long as usage complies with all applicable laws, regulations, and Regency policies.

Electronic Mail

Regency operates and maintains electronic mail (“e-mail”) systems to facilitate internal business communications. While our e-mail system may be used for incidental and occasional personal messages, such use should be kept to a minimum. E-mail may not be used in any way that may be disruptive to Regency operations, offensive to others or violative of Regency policy or law. E-mail users should be aware that Regency and others may access e-mail records that are either stored or handled by Regency’s e-mail systems. E-mail messages, including personal messages, may thus be subject to review by Regency and others for appropriate purposes. Employees with unique or special access to e-mail records shall not access such records outside the normal course of supporting or administering these systems, without proper authorization. Employees who access the e-mail records of others without proper justification and authorization will be subject to disciplinary action up to and including termination of employment.

Access

Employees may access only files or programs, whether computerized or not, that they have permission to enter. Unauthorized review, duplication, dissemination, removal, damage or alteration of files, passwords, computer systems or programs, or improper use of information obtained by unauthorized means, may be grounds for disciplinary action, up to and including termination of employment.

It is the responsibility of each employee to maintain his or her password in a secure place and not share it with others. Also, employees should protect themselves and Regency by locking their workstations when they leave their computer, even for short amounts of time. Any activity done under an employee’s ID is the responsibility of that employee.

Confidential Information

Directors, officers and employees will frequently become aware of confidential non-public information, including trade secrets, concerning Regency and the parties with which Regency does business that is of a competitive nature or potentially has commercial value. Employees and directors are prohibited from using such confidential

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information for personal financial gain or for any purpose other than the conduct of Regency’s business. Employees and directors must maintain the confidentiality of such information and it must not otherwise be used or disclosed by any director, officer or employee either during or after employment except in furtherance of Regency’s business.

Caution and discretion are required in the use of confidential information. Your obligations with respect to Regency’s trade secrets and proprietary information and other confidential information to which you have access by reason of your employment at Regency are:

• Not to disclose the information to persons outside of Regency except when sufficient assurances are obtained under binding confidentiality agreements;

• not to use this information for your personal benefit or the benefit of persons outside Regency;

• to share this information only with other Regency employees who have a legitimate “need to know;” and

• to the extent required by laws or regulations, to report them fully and fairly to the relevant governmental and regulatory authorities.

Litigation Discovery

Special care must be taken with information requests during litigation. It is our policy to respect the judicial process. Truth in that process is essential. Therefore, employees involved in litigation discovery (that is, when documents or other evidence are required to be produced) shall:

• Treat litigation discovery as a priority;

• thoroughly review any questions they have with Regency attorneys handling the matter and fully and completely comply with the instructions received from them; and

• immediately report any suspected noncompliance to the Executive Vice President — Administration of the Company.

Intellectual Property Assets (IPA)

Intellectual Property Assets (IPA) is the term used to describe intangible personal property falling within one of the categories of assets known as patent rights, copyrights, trademarks, and trade secrets.

It is our policy to safeguard IPA against theft, unauthorized disclosure, misuse, and infringement and indiscriminate handling. Accordingly, all management and employees of Regency are expected:

• To comply with the laws and regulations applicable to the creation and protection of IPA;

• to comply with the laws, regulations, and contractual commitments protecting the valid and enforceable IPA rights of third parties (the Company will not knowingly infringe or misuse the valid and enforceable IPA rights of third parties);

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• to recognize that IPA is a valuable asset;

• to avoid any use of the Company’s IPA for personal gain;

• to comply with all contractual obligations safeguarding the IPA of third parties;

• to be accountable for the protection, use and disclosure of IPA and to seek guidance when unsure of their responsibility; and

• to report violations of this policy to appropriate management.

The Executive Vice President — Administration of the Company will, on request, provide guidance to management and employees in identifying IPA and choosing the appropriate protection for IPA.

All Regency employees are required to comply with the Intellectual Property Policies and will be held accountable for noncompliance.

Waivers

Any waiver of any provision of this Code for executive officers or directors may be made only by the Board of Directors or the Conflicts Committee of the Board of Directors. Any such waiver granted by the Board of Directors or the Conflicts Committee shall be promptly reported to the holders of units of the Partnership.

Conclusion

Regency legal and ethical obligations go beyond what has been discussed in this document. We are equally concerned with complying with the many other laws and regulations that affect the conduct of our business. If questions arise, whether covered by the Code or not, we encourage you to contact your manager, the subject matter specialists within the Company, the Executive Vice President — Administration of the Company or the Hotline. Our Manual of Internal Control Policies and Procedures is also a valuable resource for guidance on many compliance issues.

The responsibility for meeting our legal and ethical obligations cannot be fully defined or ensured by any set of written rules, however extensive. Given that reality and because a code cannot possibly cover every situation that may arise, each of us must remember that our corporate standard calls for nothing less than total honesty and integrity in everything we do. This basic standard will govern us as we seek to make the right decision when we have no other specific guideline.

One way to analyze any situation in which the proper course is not clear is to ask yourself the following questions:

• Is the action legal?

• Is the action permitted under specific Regency policy and under its Code of Conduct?

• Would I be willing to disclose this conduct to my own family, or to my management and all other Regency employees, without embarrassment?

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If the decision is still not clear, you must disclose the situation and obtain guidance from your supervisor, your human resources representative, senior management or from Regency’s Legal Department. If you are uncertain as to whom to contact, you may also obtain guidance through use of our Hotline.

In the end, our confidence must rest, as it always has, upon the honesty, integrity and good sense of us all.

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Summary of Regency Gas Services Code of Conduct

The full terms of the Code of Conduct are set forth in the Regency Code of Conduct, which is an important companion document to this form. Please refer to that document for a more comprehensive statement of the guidelines applicable to you as an employee of Regency

For ease of reference, and as a reminder, the following is a brief summary of some of the key elements of Regency’s Code of Conduct:

• At Regency, we treat our customers fairly, honestly and with respect and dignity.

• Regency employees have an obligation to safeguard Regency assets from loss, misuse, waste, damage and theft.

• Communication, computer and information systems are not to be used in a way that may be unlawful, disruptive, offensive, harmful to morale, or cause any employee to feel either embarrassed or uncomfortable.

• It is our policy to grant equal employment opportunity to all qualified persons without regard to race, creed, color, sex, age, national origin, religion, disability, marital status, or veteran status.

• Regency does not tolerate sexual harassment or other unlawful behavior in the workplace, whether committed by a co-worker, leader, client, contractor, vendor or anyone else at Regency-sponsored functions or in any areas in which we operate.

• You must continue to protect any proprietary information you may have learned or been given access to belonging to your prior employer or its clients or suppliers.

• All employees, either while they are employed or after, are prohibited from disclosing to any unauthorized party trade secrets or other proprietary information belonging to Regency.

• Business decisions, obligations and actions must be solely in the best interests of Regency to avoid any conflict of interest.

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Certification

By signing below, I hereby acknowledge to my employer that I am aware of the existence of the Regency Code of Conduct, have access to it, have read and understood it, and agree that I will comply with it.

Employee’s Name:
	(Please Print)
Work Location:
Employee’s Signature:
Date:

All employees of Regency (except where laws do not permit) are required to certify initially with the rollout of this policy, and periodically thereafter. New hires must certify with their orientation to Regency, and in any event within thirty (30) days of hire. Management and Human Resources are responsible for obtaining the required certifications (copies of the current policy will be available via Regency’s Intranet at all times) and will retain copies of the certification in the appropriate files.

Disclosure

Once you have reviewed and signed this Code of Conduct, please disclose any items you feel are relevant to the terms outlined in this Code. If needed, attach an additional page.

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EX-21.1

Exhibit 21.1

LIST OF SUBSIDIARIES
OF
REGENCY ENERGY PARTNERS LP

All subsidiaries are wholly owned, directly or indirectly by Regency Energy Partners LP.

Regency OLP GP LLC
Regency Energy Finance Corp.
Regency Gas Services LP
Regency Intrastate Gas LLC
Regency Midcon Gas LLC
Regency Liquids Pipeline LLC
Regency Gas Gathering and Processing LLC
Regency Waha GP LLC
Regency NGL GP LLC
Regency Gas Marketing GP LLC
Regency Waha LP LLC
Regency NGL Marketing LP
Regency Gas Marketing LP
Regency Gas Services Waha LP
Gulf States Transmission Corporation
Regency TS GP LLC
Regency Field Services LP
Regency Eastex Newline LP
Regency Eastex Protreat I LP
Regency Eastex Protreat II LP
Regency FN GP LLC
Regency Frio Newline LLC
Regency FS LP
Regency FS GP LLC
Regency Gas Company Ltd.
Regency Gas Utility LP
Regency Guarantor LP
Regency Guarantor GP LLC
Regency GU GP LLC
Regency Operating LP
Regency Operating GP LLC
Regency Pipeline Company Inc.
Regency TGG LLC
Regency TS Acquisition LP
Regency TS Acquisition GP LLC
Texana Pipeline Company
Palafox Joint Venture

EX-23.1

Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in Registration Statement No. 333-140088 on Form S-8 of our reports relating to (1) the consolidated financial statements of Regency Energy Partners LP (the “Partnership”) dated March 29, 2007, appearing in this Annual Report on Form 10-K of Regency Energy Partners LP for the year ended December 31, 2006 (which report expresses an unqualified opinion and includes an explanatory paragraph related to the Partnership’s acquisition of TexStar Field Services, L.P. and its general partner, TexStar GP, LLC as acquisitions of entities under common control in a manner similar to a pooling of interests) and (2) the consolidated balance sheet of Regency GP LP at December 31, 2006 included in Exhibit 99.1 in this Annual Report on Form 10-K of Regency Energy Partners LP dated March 29, 2007.

/s/ Deloitte & Touche LLP

Dallas, Texas
March 29, 2007

EX-31.1

Exhibit 31.1

Certifications

I, James W. Hunt, certify that:

1. I have reviewed this annual report on Form 10-K of Regency Energy Partners LP;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Securities and Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

     a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

     b) (Intentionally omitted pursuant to SEC Release No.34-47986);

     c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

     d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

     a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

     b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 30, 2007	/s/ James W. Hunt
	James W. Hunt
	Chairman, Chief Executive Officer and President of Regency GP LLC, General Partner of Regency GP LP, General Partner of Regency Energy Partners LP

EX-31.2

Exhibit 31.2

Certifications

I, Stephen L. Arata, certify that:

1. I have reviewed this annual report on Form 10-K of Regency Energy Partners LP;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Securities and Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

     a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

     b) (Intentionally omitted pursuant to SEC Release No.34-47986);

     c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

     d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

     a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

     b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 30, 2007	/s/ Stephen L. Arata
	Stephen L. Arata
	Executive Vice-President and Chief Financial Officer of Regency GP LLC, General Partner of Regency GP LP, General Partner of Regency Energy Partners LP

EX-32.1

Exhibit 32.1

Certification of Chief Executive Officer of Regency Energy Partners LP
Pursuant to 18 U.S.C. Section 1350

     In connection with the accompanying annual report on Form 10-K for the year ended December 31, 2006 and filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, James W. Hunt, Chief Executive Officer of Regency GP LLC, the general partner of Regency GP LP, the general partner of Regency Energy Partners LP (the “Partnership”), hereby certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

     1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

     2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Partnership.

Date: March 30, 2007	/s/ James W. Hunt
	James W. Hunt
	Chairman, Chief Executive Officer and President of Regency GP LLC, General Partner of Regency GP LP, General Partner of Regency Energy Partners LP

EX-32.2

Exhibit 32.2

Certification of Chief Executive Officer of Regency Energy Partners LP
Pursuant to 18 U.S.C. Section 1350

     In connection with the accompanying annual report on Form 10-K for the year ended December 31, 2006 and filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Stephen L. Arata, Executive Vice-President and Chief Financial Officer of Regency GP LLC, the general partner of Regency GP LP, the general partner of Regency Energy Partners LP (the “Partnership”), hereby certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

     1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

     2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Partnership.

Date: March 30, 2007	/s/ Stephen L. Arata
	Stephen L. Arata
	Executive Vice-President and Chief Financial Officer of Regency GP LLC, General Partner of Regency GP LP, General Partner of Regency Energy Partners LP

EX-99.1

Exhibit 99.1

Index to Consolidated Balance Sheet

Report of Independent Registered Public Accounting Firm	2
Consolidated Balance Sheet at December 31, 2006	3
Notes to the Consolidated Balance Sheet	4

1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors of Regency GP LLC:

We have audited the accompanying consolidated balance sheet of Regency GP LP (the “General Partner”) as of December 31, 2006. This consolidated financial statement is the responsibility of the General Partner’s management. Our responsibility is to express an opinion on this consolidated financial statement based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The General Partner is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the General Partner’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provide a reasonable basis for our opinion.

In our opinion, the consolidated balance sheet presents fairly, in all material respects, the financial position of the General Partner as of December 31, 2006, in conformity with accounting principles generally accepted in the United States of America.

/s/  Deloitte & Touche LLP

Dallas, Texas
March 29, 2007

2

Regency GP LP

Consolidated Balance Sheet

	December 31,
	2006
	(In thousands)
ASSETS
Current Assets:
Cash and cash equivalents	$	9,140
Restricted cash		5,782
Accounts receivable, net of allowance of $181 in 2006 and $169 in 2005		96,993
Related party receivables		755
Assets from risk management activities		2,126
Other current assets		5,279
Total current assets		120,075
Property, plant and equipment:
Gas plants and buildings		103,490
Gathering and transmission systems		529,776
Other property, plant and equipment		73,861
Construction-in-progress		85,277
Total property, plant and equipment		792,404
Less accumulated depreciation		(58,370	)
Property, plant and equipment, net		734,034
Other assets:
Intangible assets, net of amortization of $4,676 in 2006 and $2,027 in 2005		76,923
Long-term assets from risk management activities		1,674
Other, net of amortization on debt issuance costs of $946 in 2006 and $305 in 2005		17,212
Investments in unconsolidated subsidiaries		5,616
Goodwill		57,552
Total other assets		158,977
TOTAL ASSETS	$	1,013,086
LIABILITIES & PARTNERS’ CAPITAL OR MEMBER INTEREST
Current Liabilities:
Accounts payable and accrued liabilities	$	117,254
Related party payables		280
Escrow payable		5,783
Accrued taxes payable		2,758
Liabilities from risk management activities		3,647
Other current liabilities		5,592
Total current liabilities		135,314
Long term liabilities from risk management activities		145
Other long-term liabilities		269
Long-term debt		664,700
Minority interest		208,405
Commitments and contingencies
Partners’ Capital
Limited partner		4,232
General partner		1
Accumulated other comprehensive income		20
Total partners’ capital		4,253
TOTAL LIABILITIES & PARTNERS’ CAPITAL	$	1,013,086

See accompanying notes to balance sheet.

3

Regency GP LP

Notes to the Consolidated Balance Sheet

1.   Organization and Basis of Presentation

Organization of Regency GP LP — Regency GP LP (the “General Partner”) is a Delaware limited partnership formed on September 8, 2005, for the purpose of becoming the General Partner of Regency Energy Partners LP. The General Partner owns a 2 percent general partner interest and incentive distribution rights in Regency Energy Partners LP, a Delaware limited partnership (the “Partnership”). The General Partner’s managing general partner is Regency GP LLC.

Organization of Regency Energy Partners LP — The Partnership was formed on September 8, 2005; on February 3, 2006, in conjunction with its initial public offering of securities (“IPO”), the Partnership’s predecessor, Regency Gas Services LLC (“Predecessor”) was converted to a limited partnership, Regency Gas Services LP (“RGS”) and became a wholly owned subsidiary of the Partnership. The Partnership and its subsidiaries are engaged in the business of gathering, treating, processing, transporting, and marketing natural gas and natural gas liquids (“NGLs”). On August 15, 2006, the Partnership, through RGS, acquired all the outstanding equity of TexStar Field Services, L.P. and its general partner, TexStar GP, LLC (collectively “TexStar”) (the “TexStar Acquisition”), from HMTF Gas Partners II, L.P. (“HMTF Gas Partners”), an affiliate of HM Capital Partners LLC (“HM Capital Partners”). Hicks Muse Equity Fund V, L.P. (“Fund V”) and its affiliates, through HM Capital Partners, control the General Partner. Fund V also indirectly owns approximately 95 percent of, and, through HM Capital Partners, controls HMTF Gas Partners. Because the TexStar Acquisition is a transaction between commonly controlled entities, the Partnership is required to account for the TexStar Acquisition in a manner similar to a pooling of interests.

Basis of Presentation — The General Partner owns a 2 percent general partner interest in the Partnership, which conducts substantially all of the General Partner’s business. The General Partner has no independent operations and no material assets outside those of the Partnership. The number of reconciling items between the consolidated balance sheet and that of the Partnership are few. The most significant difference is that relating to minority interest ownership in the General Partner’s net assets by certain limited partners of the Partnership, and the elimination of the General Partner’s investment in the Partnership. See Note 11 for additional information regarding minority interest.

The accompanying consolidated balance sheet includes the assets, liabilities and partners’ capital of the General Partner.

2.   Summary of Significant Accounting Policies

Use of Estimates — This consolidated balance sheet has been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”) which necessarily includes the use of estimates and assumptions by management that affect the reported amounts of assets, liabilities and disclosure of contingent assets and liabilities that exist at the date of the balance sheet. Although these estimates are based on management’s best available knowledge of current and expected future events, actual results could be different from those estimates.

Consolidation — The General Partner consolidates the balance sheet of the Partnership with that of the General Partner. This accounting consolidation is required because the General Partner owns 100 percent of the general partner interest in the Partnership, which gives the General Partner the ability to exercise control over the Partnership.

Cash and Cash Equivalents — Cash and cash equivalents include temporary cash investments with original maturities of three months or less.

Restricted Cash — Restricted cash of $5,782,000 is held in escrow for environmental remediation projects pursuant to an escrow agreement. A third-party agent invests funds held in escrow in US Treasury securities. Interest earned on the investment is credited to the escrow account.

4

Regency GP LP

Notes to the Consolidated Balance Sheet — (Continued)

Property, Plant and Equipment — Property, plant and equipment is recorded at historical cost of construction or, upon acquisition, the fair value of the assets acquired. Sales or retirements of assets, along with the related accumulated depreciation, are included in operating income unless the disposition is treated as discontinued operations. Gas required to maintain pipeline minimum pressures is capitalized and classified as property, plant, and equipment. Financing costs associated with the construction of larger assets requiring ongoing efforts over a period of time are capitalized. For the year ended December 31, 2006, the Partnership capitalized interest of $511,000. The costs of maintenance and repairs, which are not significant improvements, are expensed when incurred. Expenditures to extend the useful lives of the assets are capitalized.

The Partnership assesses long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability is assessed by comparing the carrying amount of an asset to undiscounted future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured as the amount by which the carrying amounts exceed the fair value of the assets.

The Partnership accounts for its asset retirement obligations in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 143 “Accounting for Asset Retirement Obligations” and FIN 47 “Accounting for Conditional Asset Retirement Obligations.” These accounting standards require the Partnership to recognize on its balance sheet the net present value of any legally binding obligation to remove or remediate the physical assets that it retires from service, as well as any similar obligations for which the timing and/or method of settlement are conditional on a future event that may or may not be within the control of the Partnership. While the Partnership is obligated under contractual agreements to remove certain facilities upon their retirement, management is unable reasonably to determine the fair value of such asset retirement obligations as of December 31, 2006 because the settlement dates, or ranges thereof, were indeterminable and could range up to 95 years, and the undiscounted amounts are immaterial. An asset retirement obligation will be recorded in the periods wherein management can reasonably determine the settlement dates.

Depreciation of plant and equipment is recorded on a straight-line basis over the following estimated useful lives.

	Useful Lives
Functional Class of Property	(Years)
Gathering and Transmission Systems		5 – 20
Gas Plants and Buildings		15 – 35
Other property, plant and equipment		3 – 10

Intangible Assets — Intangible assets consisting of (i) permits and licenses and (ii) customer contracts are amortized on a straight line basis over their estimated useful lives, which is the period over which the assets are expected to contribute directly or indirectly to the Partnership’s future cash flows. The value of the permits and licenses was determined by discounting the income associated with activities that would be lost over the period required to replace these permits and their estimated useful life is fifteen years. The Partnership renegotiated a number of significant customer contracts and the value of customer contracts was determined by using a discounted cash flow model. The estimated useful lives range from three to thirty years.

The Partnership evaluates the carrying value of intangible assets whenever certain events or changes in circumstances indicate that the carrying amount of these assets may not be recoverable. In assessing the recoverability, the Partnership compares the carrying value to the undiscounted future cash flows the intangible assets are expected to generate. If the total of the undiscounted future cash flows is less than the carrying amount of the intangible assets, the intangibles are written down to their fair value. The Partnership did not record any impairment in the year ended December 31, 2006.

5

Regency GP LP

Notes to the Consolidated Balance Sheet — (Continued)

Goodwill — Goodwill represents the excess of the purchase price over the fair value of net asset acquired in a business combination. Goodwill is allocated to our two reportable segments, Gathering and Processing and Transportation. Goodwill is not amortized, but is tested for impairment annually based on the carrying values as of December 31, or more frequently if impairment indicators arise that suggest the carrying value of goodwill may not be recovered. Impairment occurs when the carrying amount of a reporting unit exceeds it fair value. At the time it is determined that an impairment has occurred, the carrying value of the goodwill is written down to its fair value. To estimate the fair value of the reporting units, the Partnership makes estimates and judgments about future cash flows, as well as to revenues, cost of sales, operating and maintenance expenses, capital expenditures and net working capital based on assumptions that are consistent with our most recent forecast.

Investment in Unconsolidated Subsidiaries — Investments in entities for which the Partnership has significant influence over the investee’s operating and financial policies, but less than a controlling interest, are accounted for using the equity method. Under the equity method, the Partnership’s investment in an investee is included in the consolidated balance sheets under the caption investments in unconsolidated subsidiaries and the Partnership’s share of the investee’s earnings or loss is included in the consolidated statements of operations under the caption equity income. All of the Partnership’s investments are subject to periodic impairment review. The impairment analysis requires significant judgment to identify events or circumstances that would likely have significant adverse effect on the future use of the investment.

Other Assets, net — Other assets, net primarily consists of debt issuance costs, which are capitalized and amortized to interest expense, net over the life of the related debt.

Gas Imbalances — Quantities of natural gas or NGLs over-delivered or under-delivered related to imbalance agreements are recorded monthly as other current assets or other current liabilities using then current market prices or the weighted average prices of natural gas or NGLs at the plant or system pursuant to imbalance agreements for which settlement prices are not contractually established. Within certain volumetric limits determined at the sole discretion of the creditor, these imbalances are generally settled by deliveries of natural gas. Imbalance receivables and payables as of December 31, 2006 were immaterial.

Risk Management Activities — The Partnership’s net income and cash flows are subject to volatility stemming from changes in market prices such as interest rates, natural gas prices, natural gas liquids prices and processing spreads. The Partnership uses ethane, propane, butane, natural gasoline and crude oil swaps and interest rate swaps to create offsetting positions to specific commodity or interest rate exposures. Under SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities” (“SFAS No. 133”) all derivative financial instruments are recorded in the balance sheet at their fair value. The Partnership records the fair value of derivative financial instruments in the balance sheet as current and long-term assets or liabilities on a net basis by settlement date. For those instruments that qualify for hedge accounting, the accounting treatment depends on each instrument’s intended use and how it is designated. For the Partnership’s derivative financial instruments related to commodities and interest expense that do not qualify for hedge accounting, the change in market value is recorded as a component of net unrealized and realized gain (loss) from risk management activities and interest expense, net, respectively, in the consolidated statements of operations.

The Partnership employs derivative financial instruments in connection with an underlying asset, liability and/or anticipated transaction and not for speculative purposes. Derivative financial instruments qualifying for hedge accounting treatment and in use by the Partnership are cash flow hedges. The Partnership enters into cash flow hedges to hedge the variability in cash flows related to a forecasted transaction. The amounts reported in our consolidated financial statements change quarterly as these estimates are revised to reflect actual results, changes in market conditions or other factors, many of which are beyond our control.

6

Regency GP LP

Notes to the Consolidated Balance Sheet — (Continued)

At inception, the Partnership formally documents the relationship between the hedging instrument and the hedged item, the risk management objectives, and the methods used for assessing and testing correlation and hedge effectiveness. The Partnership also assesses, both at the inception of the hedge and on an on-going basis, whether the derivatives are highly effective in offsetting changes in cash flows of the hedged item. Furthermore, the Partnership regularly assesses the creditworthiness of counterparties to manage against the risk of default. If the Partnership determines that a derivative is no longer highly effective as a hedge, it discontinues hedge accounting prospectively by including changes in the fair value of the derivative in current earnings. For cash flow hedges, changes in the derivative fair values, to the extent that the hedges are effective, are recorded as a component of accumulated other comprehensive income until the hedged transactions occur and are recognized in earnings. Any ineffective portion of a cash flow hedge’s change in value is recognized immediately in earnings.

Minority Interest — Minority interest represents non-controlling ownership interests in the net assets of the Partnership. For financial reporting purposes, the assets and liabilities of the Partnership are consolidated with the General Partner, with limited partners’ interest in the Partnership in the consolidated balance sheet shown as minority interest.

Segments — The Partnership operates and manages its business as two reportable segments: a) gathering and processing, and b) transportation.

Recently Issued Accounting Standards — In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements”, which provides guidance for using fair value to measure assets and liabilities. SFAS 157 applies whenever another standard requires (or permits) assets or liabilities to be measured at fair value. This standard does not expand the use of fair value to any new circumstances. SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. The Partnership is currently evaluating the potential impacts on our financial position, results of operations or cash flows of the adoption of this standard.

In September 2006, the SEC issued SAB No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements,” (“SAB 108”) to address diversity in practice in quantifying financial statement misstatements. SAB 108 requires entities to quantify misstatements based on their impact on each of their financial statements and related disclosures. SAB 108, effective as of December 31, 2006 for the Partnership, allows for a one-time transitional cumulative effect adjustment to retained earnings as of January 1, 2006 for errors that were not previously deemed material, but are material under the guidance in SAB 108. The adoption of this standard did not have a material impact on our consolidated financial position.

In July 2006, the FASB issued FIN No. 48 “Accounting for Uncertainty in Income Taxes  — An Interpretation of FASB Statement 109”, which clarifies the accounting for uncertainty in income taxes recognized in financial statements in accordance with FASB Statement No. 109, “Accounting for Income Taxes” and is effective for fiscal years beginning after December 15, 2006. FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. The adoption of FIN 48 is not expected to have a material impact on our consolidated financial position.

In January 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities, Including an Amendment of FASB Statement No. 115” (“SFAS 159”), which permits entities to measure many financial instruments and certain other assets and liabilities at fair value on an instrument-by-instrument basis. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007. The Partnership is currently evaluating the potential impacts on our financial position, results of operations or cash flows of the adoption of this standard.

7

Regency GP LP

Notes to the Consolidated Balance Sheet — (Continued)

3.   Acquisitions and Dispositions

TexStar — On August 15, 2006, the Partnership acquired all the outstanding equity of TexStar by issuing 5,173,189 Class B common units valued at $119,183,000, a cash payment of $62,074,000 and the assumption of $167,652,000 of TexStar’s outstanding bank debt. Because the TexStar Acquisition is a transaction between commonly controlled entities, the Partnership accounted for the TexStar Acquisition in a manner similar to a pooling of interests.

Como — On July 25, 2006, TexStar consummated an Asset Purchase and Sale Agreement dated June 16, 2006 with Valence Midstream, Ltd. and EEC Midstream, Ltd., under which TexStar acquired certain natural gas gathering, treating and processing assets from the other parties thereto for $81,695,000 including transaction costs. The assets acquired consisted of approximately 59 miles of pipelines and certain specified contracts. The Partnership’s purchase price allocation resulted in $18,493,000 being allocated to property, plant and equipment and $63,202,000 being allocated to intangible assets.

4.   Risk Management Activities

The Partnership elected hedge accounting for its ethane, propane, butane and natural gasoline swaps, as well as for its interest rate swaps. These contracts are accounted for as cash flow hedges under SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities”, as amended. As of December 31, 2006, the Partnership’s hedging positions accounted for as cash flow hedges reduce exposure to variability of future commodity prices through 2009. The Partnership expects to reclassify $1,065,000 of losses into earnings from other comprehensive income (loss) in the next twelve months. The net fair value of risk management activities was an asset of $8,000 as of December 31, 2006.

Upon the early termination of an interest rate swap in June 2006 with a notional debt amount of $200,000,000 that was effective from April 2007 through March 2009, the Partnership received $3,550,000 in cash from the counterparty. The Partnership issued in a private placement $550,000,000 of senior notes that accrue interest at a fixed rate of 8.375 percent in December 2006, which results in only $50,000,000 remaining outstanding under the credit facility. The Partnership reclassified $2,663,000 from accumulated other comprehensive income (loss) to interest expense, net in December 2006 related to the portion of the forecasted transaction that is probable of not occurring.

In December 2006, the Partnership terminated two interest rate swaps totaling a notional debt amount of $200,000,000 that was effective until March 2007 and received $1,390,000 in cash from the counterparties. Since the forecasted hedge transaction of $150,000,000 floating rate debt is no longer probable of occurring, the Partnership reclassified $1,199,000 from accumulated other comprehensive income (loss) to interest expense, net in December 2006.

5.   Long-term Debt

Obligations in the form of senior notes, and borrowings under the credit facilities are as follows.

8

Regency GP LP

Notes to the Consolidated Balance Sheet — (Continued)

	December 31, 2006
	(In thousands)
Senior notes	$	550,000
Term loans		50,000
Revolving loans		64,700
Total		664,700
Less: current portion		—
Long-term debt	$	664,700
Availability
Total Facility Limit	$	300,000
Term loans		(50,000	)
Revolver loans		(64,700	)
Letters of credit		(5,183	)
Total	$	180,117

Long-term debt maturities as of December 31, 2006 for each of the next five years are as follows.

	Amount
	(In thousands)
2007	$	—
2008		—
2009		—
2010		—
2011		64,700
Thereafter		600,000
Total	$	664,700

Senior Notes — On December 12, 2006, the Partnership and Regency Energy Finance Corp. (“Finance Corp”), a wholly-owned subsidiary of RGS, issued $550,000,000 senior notes that mature on December 15, 2013 in a private placement (“Senior Notes”). The Senior Notes bear interest at 8.375 percent and interest is payable semi-annually in arrears on each June 15 and December 15, commencing on June 15, 2007.

The senior notes and the guarantees are unsecured and rank equally with all of the Partnership’s and the guarantors’ existing and future unsubordinated obligations. The senior notes and the guarantees will be senior in right of payment to any of the Partnership’s and the guarantors’ future obligations that are, by their terms, expressly subordinated in right of payment to the notes and the guarantees (explained below). The senior notes and the guarantees will be effectively subordinated to the Partnership’s and the guarantors’ secured obligations, including the Partnership’s Credit Facility, to the extent of the value of the assets securing such obligations.

The notes are initially guaranteed by each of the Partnership’s current subsidiaries (the Guarantors), except Finance Corp. These note guarantees are the joint and several obligations of the Guarantors. A Guarantor may not sell or otherwise dispose of all or substantially all of its properties or assets if such sale would cause a default under the terms of the senior notes. Events of default include nonpayment of principal or interest when due; failure to make a change of control offer (explained below); failure to comply with reporting requirements according to SEC rules and regulations; and defaults on the payment of obligations under other mortgages or indentures.

9

Regency GP LP

Notes to the Consolidated Balance Sheet — (Continued)

The Partnership may redeem the senior notes, in whole or in part, at any time on or after December 15, 2010, at a redemption price equal to 100 percent of the principal amount thereof, plus a premium declining ratably to par and accrued and unpaid interest and liquidated damages, if any, to the redemption date. At any time before December 15, 2010, the Partnership may redeem some or all of the notes at a redemption price equal to 100 percent of the principal amount plus a make-whole premium, plus accrued and unpaid interest and liquidated damages, if any, to the redemption date. At any time before December 15, 2009, the Partnership may redeem up to 35 percent of the aggregate principal amount of the notes issued under the indenture with the net cash proceeds of one or more qualified equity offerings at a redemption price equal to 108.375 percent of the principal amount of the notes to be redeemed, plus accrued and unpaid interest and liquidated damages, if any, to the redemption date; provided that: (i) at least 65 percent of the aggregate principal amount of the notes remains outstanding immediately after the occurrence of such redemption; and (ii) such redemption occurs within 90 days of the date of the closing of any such qualified equity offering.

Upon a change of control, each holder of notes will be entitled to require us to purchase all or a portion of its notes at a purchase price equal to 101 percent of the principal amount thereof, plus accrued and unpaid interest and liquidated damages, if any, to the date of purchase. The Partnership’s ability to purchase the notes upon a change of control will be limited by the terms of the Partnership’s debt agreements, including the Credit Facility.

The senior notes contain covenants that, among other things, limit the Partnership’s ability and the ability of certain of the Partnership’s subsidiaries to: (i) incur additional indebtedness; (ii) pay distributions on, or repurchase or redeem equity interests; (iii) make certain investments; (iv) incur liens; (v) enter into certain types of transactions with affiliates; and (vi) sell assets or consolidate or merge with or into other companies. If the Senior Notes achieve investment grade ratings by both Moody’s and S&P and no default or event of default has occurred and is continuing , the Partnership and its restricted subsidiaries will no longer be subject to many of the foregoing covenants.

The senior notes have a registration rights agreement whereby the Partnership agrees to: (i) file a registration statement within 150 days of the issue date, enabling Senior Notes holders to exchange the privately placed notes for publicly registered exchange notes with substantially the same terms; (ii) use commercially reasonable efforts to cause the registration statement to become effective within 310 days of the issue date; (iii) use commercially reasonable efforts to issue the exchange notes within 30 business days after the registration statement has become effective, unless prohibited by law or SEC policy; and (iv) file a shelf registration statement for the resale of the senior notes if the Partnership cannot consummate the exchange offer within the time period listed above and in certain other circumstances. The Partnership has agreed to pay liquidated damages in the form of additional interest payments, subject to a maximum of one percent per year, to holders of the senior notes under certain circumstances if the Partnership does not comply with its obligations under the registration rights agreement.

Finance Corp. does not have any operations of any kind and will not have any revenue other than as may be incidental as a co-issuer of the senior notes. Since the Partnership has no independent operations, the guarantees are full and unconditional and joint and several and there are no subsidiaries of the Partnership that do not guarantee the senior notes, the Partnership has not included condensed consolidated financial information of guarantors of the senior notes.

Fourth Amended and Restated Credit Agreement — In connection with the TexStar Acquisition, RGS amended and restated its $470,000,000 credit agreement, increasing the facility to $850,000,000 consisting of $600,000,000 in term loans and $250,000,000 in a revolving credit facility. The availability for letters of credit was increased to $100,000,000. RGS has the option to increase the commitments under the revolving credit facility or the term loan facility, or both, by an amount up to $200,000,000 in the aggregate, provided that no event of default has occurred or would result due to such increase, and all other additional conditions for the

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Regency GP LP

Notes to the Consolidated Balance Sheet — (Continued)

increase of the commitments set forth in the Fourth Amended and Restated Credit Agreement (“Credit Facility”) have been met.

RGS’ obligations under the Credit Facility are secured by substantially all of the assets of RGS and its subsidiaries and are guaranteed by the Partnership and each such subsidiary. The revolving loans under the facility will mature in five years, and the term loans thereunder will mature in seven years.

Interest on term loan borrowings under the Credit Facility will be calculated, at the option of RGS, at either: (a) a base rate plus an applicable margin of 1.50 percent per annum or (b) an adjusted LIBOR rate plus an applicable margin of 2.50 percent per annum. Interest on revolving loans thereunder will be calculated, at the option of RGS, at either: (a) a base rate plus an applicable margin of 1.00 percent per annum or (b) an adjusted LIBOR rate plus an applicable margin of 2.00 percent per annum. RGS must pay (i) a commitment fee equal to 0.50 percent per annum of the unused portion of the revolving loan commitments, (ii) a participation fee for each revolving lender participating in letters of credit equal to 2.25 percent per annum of the average daily amount of such lender’s letter of credit exposure, and (iii) a fronting fee to the issuing bank of letters of credit equal to 0.125 percent per annum of the average daily amount of the letter of credit exposure.

The Credit Facility contains financial covenants requiring RGS and its subsidiaries to maintain debt to EBITDA and EBITDA to interest expense within certain threshold ratios. At December 31, 2006, RGS and its subsidiaries were in compliance with these covenants.

The Credit Facility restricts the ability of RGS to pay dividends and distributions other than reimbursements of the Partnership for expenses and payment of dividends to the Partnership to the extent of the Partnership’s determination of available cash (so long as no default or event of default has occurred or is continuing). The Credit Facility also contains various covenants that limit (subject to certain exceptions and negotiated baskets), among other things, the ability of RGS (but not the Partnership):

•  to incur indebtedness;

•  to grant liens;

•  to enter into sale and leaseback transactions;

•  to make certain investments, loans and advances;

•  to dissolve or enter into a merger or consolidation;

•  to enter into asset sales or make acquisitions;

•  to enter into transactions with affiliates;

•  to prepay other indebtedness or amend organizational documents or transaction documents (as defined in the Credit Facility);

•  to issue capital stock or create subsidiaries; or

•  to engage in any business other than those businesses in which it was engaged at the time of the effectiveness of the Credit Facility or reasonable extensions thereof.

The outstanding balances of term debt and revolving debt under the Credit Facility bear interest at either LIBOR plus margin or at Alternative Base Rate (equivalent to the US prime lending rate) plus margin, or a combination of both. The weighted average interest rates for the revolving and term loan facilities, including interest rate swap settlements, commitment fees, and amortization of debt issuance costs were 7.70 percent for the year ended December 31, 2006.

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Regency GP LP

Notes to the Consolidated Balance Sheet — (Continued)

6.   Other Assets

Intangible assets, net — Intangible assets, net consist of the following.

	Permits and			Customer
	Licenses			Contracts			Total
	(In thousands)
Gross balance	$	11,900		$	69,699		$	81,599
Accumulated amortization		(1,653	)		(3,023	)		(4,676	)
Balance at December 31, 2006	$	10,247		$	66,676		$	76,923

The expected amortization of the intangible assets for each of the five succeeding years is as follows.

For the year ending December 31,	Total
	(In thousands)
2007		3,923
2008		3,261
2009		3,261
2010		3,261
2011		3,261

Investment in Unconsolidated Subsidiaries — The Partnership has a 50 percent interest in the Palafox Joint Venture (“Palafox”). The Partnership recorded $2,181,000 in investments in unconsolidated subsidiaries for the amount paid for Palafox in excess of its ownership percentage in the underlying net assets. This excess of the investment over the underlying carrying value is being amortized over the estimated useful life of the underlying assets of 20 years. At December 31, 2006, the net unamortized excess of the Partnership’s investments in Palafox was $1,918,000.

Goodwill — Goodwill consists of the following.

	Gathering and
	Processing		Transportation		Total
	(In thousands)
Balance at December 31, 2006	$	23,309	$	34,243	$	57,552

7.   Fair Value of Financial Instruments

The estimated fair value of financial instruments was determined using available market information and valuation methodologies. The carrying amount of cash and cash equivalents, accounts receivable and accounts payable approximates fair value due to their short-term maturities. Restricted cash and related escrow payable approximate fair value due to the relatively short-term settlement period of the escrow payable. Risk management assets and liabilities are carried at fair value. Long-term debt other than the senior notes was comprised of borrowings under which, at December 31, 2006, accrued interest under a floating interest rate structure. Accordingly, the carrying value approximates fair value for the long term debt amounts outstanding. The fixed interest rate for the senior notes was established in December 2006 and accordingly the carrying value approximates fair value as of December 31, 2006.

8.   Commitments and Contingencies

Legal — The Partnership is involved in various claims and lawsuits incidental to its business. In the opinion of management, these claims and lawsuits in the aggregate will not have a material adverse effect on the business, financial condition, results of operations or cash flows.

12

Regency GP LP

Notes to the Consolidated Balance Sheet — (Continued)

Escrow Payable — At December 31, 2006, $5,783,000 remained in escrow pending the completion by El Paso Field Services, LP (“El Paso”) of environmental remediation projects pursuant to the purchase and sale agreement (“El Paso PSA”) related to the assets in north Louisiana and in the mid-continent area. In the El Paso PSA, El Paso indemnified the Regency LLC Predecessor against losses arising from pre-closing and known environmental liabilities subject to a limit of $84,000,000 and subject to certain deductible limits. Upon completion of a Phase II environmental study, Regency LLC Predecessor notified El Paso of remediation obligations amounting to $1,800,000 with respect to known environmental matters and $3,600,000 with respect to pre-closing environmental liabilities. Upon satisfactory completion of the remediation by El Paso, the amount held in escrow will be released. These contractual rights of Regency LLC Predecessor were continued by the Partnership unaffected by the HM Capital Transaction and the Partnership’s IPO.

Environmental — Waha Phase I. A Phase I environmental study was performed on the Waha assets in connection with the pre-acquisition due diligence process in 2004. Most of the identified environmental contamination had either been remediated or was being remediated by the previous owners or operators of the properties. The estimated potential environmental remediation costs at specific locations were $1,900,000 to $3,100,000. No governmental agency has required that the Partnership undertakes these remediation efforts. Management believes that the likelihood that it will be liable for any significant potential remediation liabilities identified in the study is remote. Separately, the Partnership acquired an environmental pollution liability insurance policy in connection with the acquisition to cover any undetected or unknown pollution discovered in the future. The policy covers clean-up costs and damages to third parties, and has a 10-year term (expiring 2014) with a $10,000,000 limit subject to certain deductibles.

TCEQ Notice of Enforcement — In November 2004, the Texas Commission on Environmental Quality, or TCEQ, sent a Notice of Enforcement, or NOE, to the Regency LLC Predecessor relating to the operation of the Waha processing plant in 2001 before it was acquired by us. Regency LLC Predecessor settled this NOE with the TCEQ in November 2005.

Regardless of the allegations in the NOE, the air emissions at the Waha processing plant would have been considered “grandfathered;” and therefore not subject to more stringent emission limitations, only until 2007. In anticipation of the expiration of the facility’s “grandfathered” status and regardless of the outcome of the NOE, in February 2005 we submitted an application to the TCEQ for a state air permit for the Waha plant predicated on the use of acid gas reinjection for air emission control and, after completion of the well and facilities, the reinjection of the previously emitted gases. That permit has been issued and requires completion of construction of the well and facilities by the end of February 2007. The well was completed in March 2007 pursuant to an extension granted by the TCEQ. The capital expenditures relating to the well and facilities were $6,500,000.

9.   Related Party Transactions

Concurrent with the closing of the Partnership’s IPO, the Partnership paid $9,000,000 to an affiliate of HM Capital Partners to terminate a management services contract with a remaining tenor of 9 years. In connection with the acquisition of TexStar, the Partnership paid $3,542,000 to terminate TexStar’s management services contract.

The employees operating the assets of the Partnership and its subsidiaries and all those providing staff or support services are employees of Regency GP LLC, the Partnership’s managing general partner. Pursuant to the Partnership Agreement, the managing general partner receives a monthly reimbursement for all direct and indirect expenses that it incurs on behalf of the Partnership. Reimbursements of $16,789,000 were recorded in the Partnership’s financial statements during the year ended December 31, 2006 as operating and maintenance expenses or general and administrative expenses, as appropriate.

13

Regency GP LP

Notes to the Consolidated Balance Sheet — (Continued)

The Partnership made cash distributions of $20,139,000 during the year ended December 31, 2006 to HM Capital Partners and affiliates as a result of their ownership of a portion of the Partnership’s common and subordinated units, and their ownership of the general partner interest.

Of the related party receivables on the consolidated balance sheet, $386,000 relates to amounts owed by BlackBrush Oil & Gas, LP, an affiliate of HMTF Gas Partners, for compression and transportation services. The remaining related party receivables include $190,000 for audit expenses incurred on behalf of HM Capital in connection with the Partnership’s acquisition of TexStar, and $179,000 of equity offering costs allocable to HM Capital.

TexStar paid a transaction fee in the amount of $1,200,000 to an affiliate of HM Capital Partners upon completing its acquisition of the Como Assets. This amount was capitalized as a part of the purchase price.

10.   Segment Information

The Partnership has two reportable segments: i) gathering and processing and ii) transportation. Gathering and processing involves the collection of raw natural gas from producer wells across the five operating regions, which now includes the Partnership’s TexStar acquisition, aggregated for segment reporting purposes, and transporting it to a treating plant where water and other impurities such as hydrogen sulfide and carbon dioxide are removed. Treated gas then goes through further processing to remove the natural gas liquids. The treated and processed natural gas then is transported to market, separately from the natural gas liquids. The gathering and processing segment also includes its NGL marketing business. The Partnership aggregates the results of its gathering and processing activities across five geographic regions into a single reporting segment.

The transportation segment uses pipelines to move natural gas from processing plants to interconnections with larger pipelines or to trading hubs. The Partnership performs transportation services for shipping customers under firm or interruptible arrangements. In either case, revenues are primarily fee based and involve minimal direct exposure to commodity price fluctuations. The Partnership also purchases natural gas at the inlets to the pipeline and sells this gas at its outlets. The north Louisiana intrastate pipeline operated by this segment serves the Partnership’s gathering and processing facilities in the same area, which create the intersegment revenues.

Amounts related to the consolidated balance sheet for each segment as of December 31, 2006, are shown below.

	Gathering and
	Processing		Transportation		Corporate		Eliminations		Total
	(In thousands)
Total assets		648,116		316,038		48,932		—		1,013,086
Investments in Unconsolidated Subsidiaries		5,616		—		—		—		5,616

11.   Minority Interest

Minority interest represents non-controlling ownership interests in the net assets of the Partnership. The minority interest attributable to the limited partners of the Partnership consists of common units of the

14

Regency GP LP

Notes to the Consolidated Balance Sheet — (Continued)

Partnership held by the public and private investments in the Partnership. The following table shows the components of minority interest at December 31, 2006:

	Amount
	(In thousands)
Affiliates	$	115,040
Non-affiliates		93,365
Total	$	208,405

12.   Subsequent Event

Effective February 1, 2007, the Partnership acquired the remaining 50 percent interest in the Palafox Joint Venture for $5,000,000.

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