IPO Report: Enable Midstream Partners, LP (ENBL)

Enable Midstream Partners, LP ($ENBL) is a large-scale, growth-oriented limited partnership formed to own, operate and develop strategically located natural gas and crude oil infrastructure assets headquartered in Oklahoma City, OK.

Twelve other companies are scheduled for the week of April 7, 2014.  The complete  IPO calendar is available at IPOpremium.

The manager and joint managers are Morgan Stanley, Barclays, Goldman Sachs, Citigroup, Deutsche Bank Securities, J.P. Morgan, UBS Investment Bank, and Wells Fargo Securities.  The co-managers are BofA Merrill Lynch, Credit Suisse, and RBC Capital Markets.

ENBL scheduled a $500 million IPO with a market capitalization of $8.32 billion at a price range midpoint of $20 for Friday, April 11, 2014 on the NYSE.  SEC Filings

Overview

ENBL is a large-scale, growth-oriented limited partnership formed to own, operate and develop strategically located natural gas and crude oil infrastructure assets.

Valuation

Glossary

Conclusion

Expects minimum distributions to be 5.75 percent for the year ended March 31, 2015.

Priced at 1x book. We like Enable because its dividend rate is relatively high, they are projecting excess cash for the next 12 months, and they are selling a small percentage, which means they’d like the stock to go up so their stock is valued more highly.

The rating is positive.

Business

ENBL is a large-scale, growth-oriented limited partnership formed to own, operate and develop strategically located natural gas and crude oil infrastructure assets. ENBL serves key current and emerging production areas in the United States, including several premier shale resource plays and local and regional end-user markets in the United States.

ENBL’s assets and operations are organized into two business segments: (i) gathering and processing, which primarily provides natural gas gathering, processing and fractionation services and crude oil gathering for its producer customers, and (ii) transportation and storage, which provides interstate and intrastate natural gas pipeline transportation and storage service to natural gas producers, utilities and industrial customers.

In both business segments, ENBL generates a substantial portion of its gross margin under long-term, fee-based agreements that minimize its direct exposure to commodity price fluctuations.

ENBL’s natural gas gathering and processing assets are strategically located in four states and serve natural gas production from shale developments, which ENBL refers to as unconventional shale resource plays, in some of the most productive regions of the Anadarko, Arkoma and Ark-La-Tex basins.

These basins have experienced a strong increase in investment and drilling activity by exploration and production companies in recent years.

ENBL also owns an emerging crude oil gathering business in the Bakken shale formation of the Williston Basin that commenced initial operations in November 2013. ENBL is continuing to construct additional crude oil gathering capacity in this area. ENBL’s natural gas transportation and storage assets extend from western Oklahoma and the Texas Panhandle to Alabama and from Louisiana to Illinois.

Dividend Policy

ENBL’s partnership agreement will provide for a minimum quarterly distribution of $0.2875 per unit for each complete quarter, or $1.15 per unit on an annualized basis.

Quarterly distributions, if any, will be made within 45 days after the end of each quarter, on or about the 15th day of each February, May, August and November to holders of record on or about the first day of each such month. If the distribution date does not fall on a business day, ENBL will make the distribution on the first business day immediately following the indicated distribution date.

Competition

ENBL’s intrastate pipeline system competes with numerous interstate and intrastate pipelines, including several of interconnected pipelines, and storage facilities in providing transportation services fornatural gas.

The principal elements of competition are rates, terms of services, flexibility, and reliability of service. Natural gas-fired electric generation facilities contribute their highest value when they have the capability to provide load following service to the customer (i.e., the ability of the generation facility to regulate generation to respond to and meet the instantaneous changes in customer demand for electricity).

5% stockholders

OGEEnergy Corp.    28.5 percent

CenterPoint Energy, Inc.  58.3 percent

ArcLight Capital Partners, LLC 13.2 percent

Use of proceeds

ENBL expects to net $466 million from its IPO. Proceeds are allocated as follows:

$453 million of the net proceeds of this offering for general partnership purposes, including the funding of expansion capital expenditures; and $13 million of the net proceeds of this offering to pre-fund demand fees expected to be incurred over the next three years relating to certain expiring transportation and storage contracts.