Dominion Midstream Partners, LP (DM)

Dominion Midstream Partners, LP ($DM) initially owns all of the outstanding preferred equity interests in Dominion Cove Point LNG, LP, a Delaware limited partnership (“Cove Point”), which owns liquefied natural gas (“LNG”) import, storage, regasification and transportation assets. It is headquartered in Richmond, VA,

Six other companies are scheduled for the week of Oct. 13, 2014. The full IPO calendar is available at IPOpremium.

The manager and co-managers are: Barclays, Citi, J.P. Morgan, BofA Merrill Lynch, Goldman Sachs, UBS Investment, and Morgan Stanley.

The joint managers are RBC Capital Markets and Scotiabank/Howard Weil.

DM scheduled a $350 million IPO with a market capitalization of $1.7 billion at a price range midpoint of $20 for Wednesday, Oct. 15, 2014 on the NYSE. SEC filings

Dominion Midstream Partners IPO Report

Overview

DM initially owns all of the outstanding preferred equity interests in Dominion Cove Point LNG, LP, a Delaware limited partnership (“Cove Point”), which owns liquefied natural gas (“LNG”) import, storage, regasification and transportation assets.

Liquefaction is the process by which natural gas is converted into LNG, which can be loaded into LNG vessels for export.

The Liquefaction Project is expected to be completed and placed into service in late 2017.  It is fully contracted out.  Upon completion, the Liquefaction Project is expected to substantially increase net income and EBITDA generated by Cove Point, in which DM holds the Preferred Equity Interest.

Valuation

Glossary

Conclusion

Neutral plus

Flat estimated  distributable cash flows through 2015

3.5% yield on the low side

Yield expected to rise considerably in 2017

Business

DM is a growth-oriented Delaware limited partnership formed on March 11, 2014 by Dominion to initially own all of the outstanding preferred equity interests (the “Preferred Equity Interest”) in Dominion Cove Point LNG, LP, a Delaware limited partnership (“Cove Point”), which owns liquefied natural gas (“LNG”) import, storage, regasification and transportation assets.

DM expects that its relationship with Dominion, which has substantial additional midstream assets, should provide DM the opportunity over time to grow a portfolio of natural gas terminalling, processing, storage, transportation and related assets.

Cove Point

Cove Point is the owner and operator of the Dominion Cove Point LNG Facility, an LNG import/regasification and storage facility located on the Chesapeake Bay in Lusby, Maryland (the “Cove Point LNG Facility”), and approximately 136 miles of natural gas pipeline (the “Cove Point Pipeline”) that connects the Cove Point LNG Facility to interstate natural gas pipelines.

Cove Point is currently generating significant revenue and earnings from annual reservation payments under regasification, storage and transportation contracts with a portfolio of creditworthy counterparties, including affiliates of BP, Royal Dutch Shell and Statoil.

U.S. exports of LNG

U.S. exports of LNG are expected to increase substantially over the next decade, driven by an abundant supply of natural gas in the U.S., combined with projected growth in worldwide demand for natural gas and significantly higher prices globally, particularly in Asia.

Liquefaction Project

Cove Point is actively pursuing the development of natural gas export/liquefaction facilities (the “Liquefaction Project” and, together with the Cove Point Pipeline and the Cove Point LNG Facility, the “Cove Point Facilities”) on land already owned by Cove Point, which is within the developed area of the existing Cove Point LNG Facility.

The Liquefaction Project is expected to be completed and placed into service in late 2017. Liquefaction is the process by which natural gas is converted into LNG, which can be loaded into LNG vessels for export.

The proposed Liquefaction Project’s capacity is fully contracted under long-term fixed reservation fee agreements.

The Liquefaction Project’s available capacity is fully contracted with two counterparties:

(1) a joint venture between Sumitomo Corporation and Tokyo Gas Co., Ltd. and

(2) a subsidiary of GAIL (India) Limited. Each contract is a long-term fixed reservation fee agreement with a 20-year term commencing on the date the Liquefaction Project is placed in service.

Upon completion, the Liquefaction Project is expected to substantially increase net income and EBITDA generated by Cove Point, in which DM holds the Preferred Equity Interest.

Dominion

Dominion is the owner of all of the common equity interests in Cove Point and has indicated that it intends to provide the funding necessary for the development of the Liquefaction Project and other capital expenditures incurred by Cove Point.

Dominion will grant DM in connection with this offering a right of first offer with respect to any future sale of its common equity interests in Cove Point, which should benefit from the expected increased cash flows and income associated with the Liquefaction Project upon its completion, and DM may also acquire newly issued common equity or additional preferred equity interests in Cove Point.

Dividend Policy

The board of directors of DM’s general partner will adopt a cash distribution policy pursuant to which DM intends to distribute at least the minimum quarterly distribution of $0.175 per unit ($0.70 per unit on an annualized basis) on all of DM’s units to the extent DM has sufficient cash after the establishment of cash reserves and the payment of its expenses, including payments to its general partner and its affiliates.

$0.70 per unit is 3.5% payout rate at the price range midpoint of $20

Competition

Substantially all of the regasification and storage capacity of the Cove Point LNG Facility, and all of the transportation capacity of the Cove Point Pipeline is currently under contract, and the proposed Liquefaction Project’s capacity is also fully contracted under long-term fixed reservation fee agreements.

However, Cove Point may compete with other independent terminal operators as well as major oil and gas companies on the basis of terminal location, services provided and price in the future.

Competition from terminal operators primarily comes from refiners and distribution companies with marketing and trading arms.

These companies tend to prioritize movement of their own products over their third-party customers. Accordingly,

DM believes that Cove Point will be able to compete successfully.

5% stockholders

Dominion MLP Holding Company, LLC  45.3%

Use of proceeds

DM intends to use the $324 million in proceeds from its IPO as follows:

to make a contribution to Cove Point in exchange for a portion of the Preferred Equity Interest. DM intends to cause Cove Point to use the net proceeds contributed to it in connection with this offering to fund a portion of development and construction costs associated with the Liquefaction Project.