IPO Report: EQT GP Holdings, LP (EQGP)

Francis Gaskins |

eqtmidstreampartners_logo.jpg

EQT GP Holdings, LP (EQGP) is a limited partnership formed in January 2015 to own partnership interests in EQT Midstream Partners, LP (NYSE: EQM), a growth-oriented limited partnership formed by EQT Corporation (NYSE: EQT) to own, operate, acquire and develop midstream assets in the Appalachian Basin. It is based in Pittsburgh, PA,

Four other companies are scheduled for the week of May 11. The full IPO calendar is available at IPO Premium.

SEC Documents

Manager, Joint-managers: Barclays, Goldman Sachs, BofA Merrill Lynch, Citigroup, Credit Suisse, Deutsche Bank Securities, J.P. Morgan, RBC Capital Markets, Wells Fargo Securities
Co-managers: MUFG, BNP PARIBAS, PNC Capital Markets, Scotia Howard Weil, SunTrust Robinson Humphrey, Ladenburg Thalmann, Oppenheimer, U.S. Capital Advisors

End of lockup (180 days): Monday, November 9, 2015
End of 25-day quiet period: Monday, June 8, 2015

EQGP scheduled a $450 million IPO with a market capitalization of $5.99 billion at a price range midpoint of $22.50 for Tuesday, May 12, 2015 on NYSE.

EQT GP Holdings, LP Overview

EQGP is a limited partnership formed in January 2015 to own partnership interests in EQT Midstream Partners, LP (NYSE: EQM), a growth-oriented limited partnership formed by EQT Corporation (NYSE: EQT) to own, operate, acquire and develop midstream assets in the Appalachian Basin.  

EQT is a large, investment grade natural gas producer with approximately 630,000 gross acres within the Marcellus Shale, as of December 31, 2014.   EQT has a market cap over $13 billion.

EQGP is expected to be one of the fastest growth MLPs.

EQT GP Holdings, LP Valuation

Glossary

Pre-IPO grade-score summary

Per share dilution

.

.

-$18.71

     
             

Valuation Ratios

Mrkt Cap (mm)

Yield

Price /BkVlue

Price /TanBV

% offered in IPO

 

EQT GP Holdings, LP (EQGP)

$5,985

1.70%

5.9

5.9

8%

 
             

Compare

Mrkt Cap (mm)

Yield

Price /BkVlue

Price /TanBV

   

EQT GP Holdings, LP (EQGP)

$5,985

1.70%

5.9

5.9

   

EQT Midstream Partners LP

$5,985

2.95%

5.9

5.9

   

EQT Corporation (EQT), overall parent

$13,390

0.14%

2.9

2.9

   
             

EQT GP Holdings, LP Conclusion

Positive

Expected to be one of the fastest growing MLPs

Parent EQM targeting 20% annual distribution growth through 2017

If 20% distribution target growth from EQM the parent, then EQGP grows at 41%, because of IDRs.  EQGP growth rate double that of the EQM LP growth rate

Strong growth at EQM is multiplied by IDR growth at EQGP

Parent pays 2.95%, EQGP pays 1.67%

EQM organic growth & asset dropdowns from parent, EQT, market cap over $13 billion

Pro forma EQPG received 44% of EQM's distributable cash flow in '14

For the March '15 yr EQM has $55mm in excess distributable cash flow

 

EQT GP Holdings, LP Business

EQGP is a limited partnership formed in January 2015 to own partnership interests in EQT Midstream Partners, LP (NYSE: EQM), a growth-oriented limited partnership formed by EQT Corporation (NYSE: EQT) to own, operate, acquire and develop midstream assets in the Appalachian Basin.

EQT is a large, investment grade natural gas producer with approximately 630,000 gross acres within the Marcellus Shale, as of December 31, 2014.

EQT is the ultimate parent company of EQGP and EQM.

Upon completion of this offering, EQT will own approximately 92.5% of its outstanding limited partner interests and 100% of its non-economic general partner interest.

EQGP’s only cash-generating assets consist of its partnership interests in EQM, which upon the completion of this offering will consist of:

21,811,643 EQM limited partner units, representing a 30.2% limited partner interest in EQM;

1,443,015 EQM general partner units, representing a 2.0% general partner interest in EQM; and all of EQM's incentive distribution rights, or IDRs, which entitle EQGP to receive up to 48.0% of all incremental cash distributed in a quarter after $0.5250 has been distributed in respect of each common unit and general partner unit of EQM for that quarter.

EQM's operations are primarily focused in southwestern Pennsylvania and northern West Virginia, a strategic location in the core of the rapidly developing natural gas shale play known as the Marcellus Shale.

This same region is also the core operating area of EQT, EQM's largest customer and parent.

EQT accounted for approximately 69% of EQM's revenues generated for the three months ended March 31, 2015 and the year ended December 31, 2014.

EQM provides midstream services to EQT and multiple third parties across 21 counties in Pennsylvania and West Virginia through its two primary assets: its transmission and storage system, which serves as a header system transmission pipeline, and its gathering system, which delivers natural gas from wells and other receipt points to transmission pipelines.

EQM provides substantially all of its natural gas transmission, storage and gathering services under contracts with long-term, firm reservation and/or usage fees.

This contract structure enhances the stability of EQM's cash flows and limits its direct exposure to commodity price risk.

As of December 31, 2014, the weighted average remaining contract life based on total projected contracted revenues for firm transmission and storage contracts, including those on the Allegheny Valley Connector facilities (AVC), was approximately 17 years.

As of December 31, 2014, approximately 87% of EQM's contracted transmission firm capacity was subscribed by customers under negotiated rate agreements under its tariff.

EQT GP Holdings, LP Intellectual Property

None

EQT GP Holdings, LP Competition

Competition for natural gas transmission and storage volumes is primarily based on rates, customer commitment levels, timing, performance, commercial terms, reliability, service levels, location, reputation and fuel efficiencies.

EQM's principal competitors in its natural gas transmission and storage market include companies that own major natural gas pipelines.

In addition, EQM competes with companies that are building high pressure gathering facilities that are not subject to FERC jurisdiction to move volumes to interstate pipelines.

EQT also owns, and in the future may construct, natural gas transmission pipelines and high-pressure gathering facilities.

Major pipeline natural gas transmission companies that compete with EQM also have existing storage facilities connected to their transmission systems that compete with certain of EQM's storage facilities.

Pending and future third-party construction projects, if and when brought on-line, may also compete with EQM's natural gas transmission and storage services.

These third-party projects may include FERC-certificated expansions and greenfield construction projects.

Key competitors for new gathering systems include companies that own major natural gas pipelines, independent gas gatherers and integrated energy companies.

Many of EQM's competitors have capital resources and control supplies of natural gas greater than it does.

5% Shareholders Pre-IPO

EQT Gathering Holdings, LLC    100%   

EQT GP Holdings, LP Dividends

Upon completion of this offering, EQGP expects to pay an initial quarterly distribution of $0.09175 per common unit, or $0.367 per common unit on an annualized basis.

This equates to an aggregate cash distribution of approximately $24.4 million per quarter (approximately $97.7 million on an annualized basis) based on the number of common units expected to be outstanding immediately after the completion of this offering.

EQT GP Holdings, LP Use of Proceeds

EQGP will not receive any proceeds from the sale of the units in this offering.

All of the units being sold in this offering are being offered by EQT Gathering Holdings, LLC, a wholly owned subsidiary of EQT.

EQT intends to use the net proceeds from this offering to fund a portion of its 2015 capital expenditure budget and for other general corporate purposes.

EQT does not intend to use the proceeds from this offering to directly facilitate EQM's growth activities.

EQGP expects that the total expenses of this offering, excluding underwriting discounts, commissions and structuring fees, will be approximately $3.3 million. EQT will pay the expenses of the offering.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

Companies

Symbol Name Price Change % Volume
EQGP EQT GP Holdings LP representing limited partner in 23.93 0.20 0.84 67,843

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