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Regency Energy Partners is merging with Energy Transfer Partners to weather volatile oil markets

The collapse in oil prices has hammered energy stocks, but it isn’t slowing large merger and acquisition activity among companies that are building the infrastructure to serve North American shale drillers.

Pipeline giants Energy Transfer Partners and Regency Energy Partners said on Monday they will merge in a $18 billion cash and stock deal that will create the second largest energy infrastructure company in the U.S. with significant exposure to promising shale deposits in Texas such as the Permian Basin and Eagle Ford, and the Marcellus and Utica shales of Appalachia.

The deal also is a direct response to a dramatic tumble oil prices and its potential impact on the finances of both companies.

“In light of the current volatility in commodity prices and the changes in the capital markets, it became apparent over the last several months that Regency needed more scale and diversification, along with an investment grade balance sheet, to continue its growth,” Mike Bradley, CEO of Regency said in a statement.

“As a result, the combination with ETP became a logical transaction, as we believe that this merger will create significant immediate and long-term value for our unitholders. The merger will also allow Regency and ETP to consolidate our complementary midstream operations in the Permian and West Texas areas. The ability to bring those operations together under one roof is expected to create tremendous value for the unitholders of the combined partnerships,” Bradley added.

Consolidation among energy explorers and infrastructure providers could prove a trend worth watching in 2015. as firms respond to the headwinds of tumbling prices by combining operations and improving their balance sheets. Like a $34.6 billion merger between Baker Hughes Baker Hughes and Halliburton Halliburton. the Energy Transfer and Regency deal includes a large stock consideration and promises significant synergy.

Unitholders of Regency will receive 0.4066 Energy Transfer Partners common units and a cash payment of $0.32 share, reflecting a total price of $26.89 based on Jan. 23 closing prices. While that deal comes at a premium to Regency’s most recent closing price, it comes well below trading prices at the beginning of December.

Nonetheless, the significant stock component to the deal may bridge issues on pricing since Regency unitholders will benefit from any rising performance of the combined stock. Both companies said on Monday they expect the merger to create “substantial cost savings, capital efficiencies and valuable ancillary benefits for both Regency’s and ETP’s unitholders,” without specifying any dollar amount.

In the case of Halliburton’s acquisition of Baker Hughes, 36% of the deal came in stock. surprising analysts but potentially underscoring the importance of getting a deal done quickly and giving shareholders the ability to benefit from a recovery in oil over the long-term.

Energy Transfer Partners will assume $6.8 billion in Recency’s net debt but there will be limited new debt created by the merger, which is anticipated to have no impact to Energy Transfer Partners credit ratings and could drive an upgrade for Regency. As such, both companies are likely to see the deal as a shoring up of their balance sheets, potentially boosting future M&A prospects.