IPO Report: PennTex Midstream Partners, LP (PTXP)

Francis Gaskins |

PennTex.jpgPennTex Midstream Partners, LP (PTXP) is a growth-oriented limited partnership focused on owning, operating, acquiring and developing midstream energy infrastructure assets in North America, especially natural gas. It is based in Houston, TX.

Three other companies are scheduled for the week of June 1. The full IPO calendar is available at IPO Premium.

SEC Documents

Manager, Joint-managers: Citigroup, Barclays, RBC Capital Markets, Wells Fargo Securities
Co-managers: Deutsche Bank Securities, J.P. Morgan, SunTrust Robinson Humphrey, Tudor, Pickering, Holt & Co., Raymond James, Baird, Stifel/Wunderlich

PTXP scheduled a $225 million IPO on Nasdaq with a market capitalization of $800 million at a price range midpoint of $20 for Thursday, June 4, 2015 on Nasdaq.  Priced at $20, no change in  conclusion.

PennTex Midstream Partners, LP Summary

PTXP is a growth-oriented limited partnership focused on owning, operating, acquiring and developing midstream energy infrastructure assets in North America, especially natural gas.

PTXP intends to leverage its relationships with NGP and its parent with a view to becoming a leading midstream energy company serving attractive oil and natural gas basins throughout North America.

PennTex Midstream Partners, LP Valuation


Glossary
Valuation Ratios

Mrkt Cap (mm)

Price /Sls

Yield

Price /BkVlue

Price /TanBV

% offered in IPO

PennTex Midstream Partners, LP (PTXP)

$800

11.6

5.5%

3.9

4.2

28%

             

Compare/contrast

         

DCP Midstream Partners, LP (DPM)

$4,370

1.2

8.2%

1.5

   

Summit Mid-stream (SMLP)

$2,160

6.5

6.9%

2.1

   

Western Gas Partners, LP (WES)

$8,810

7.0

4.2%

2.5

   
             

PennTex Midstream Partners, LP Conclusion

Neutral slightly plus

Natural gas mid-stream assets

5.5% expected distribution at $20, 5.5% expected distribution at $20, which should be attractive to investors

There are other segment companies that have a higher yield, see report below

Rev from new facilities, phase I in May '15, phase II in Oct '15

Per share dilution is 78% of IPO price

25% of expected revenues from over minimum commitments

Total min distributions & excess cash are 69% of  expected revenue of $69mm for 6/16 yr

Parent is a private equity firm, which may or may not have drop down assets

The Players

PTXP’s parent, PennTex Development, was formed by NGP and members of its management team to develop a multi-basin midstream growth platform with an initial focus on organic growth projects in partnership with oil and natural gas producers affiliated with NGP.

NGP: Natural Gas Partners (NGP) manages $7.3 billion in a family of funds that invests private equity capital in oil and gas production and oilfield companies.

Initially, PTXP will provide services primarily to Memorial Resource (NASDAQ: MRD) -- $3.6 billion market cap -- an NGP-affiliated independent natural gas and oil company focused on the development of liquids-rich natural gas opportunities in the Terryville Complex.

PennTex Midstream Partners, LP Business

PTXP is a growth-oriented limited partnership focused on owning, operating, acquiring and developing midstream energy infrastructure assets in North America, especially natural gas.

PTXP intends to leverage its relationships with NGP and its parent with a view to becoming a leading midstream energy company serving attractive oil and natural gas basins throughout North America.

Following the completion of this offering, PTXP will provide natural gas gathering and processing and residue gas and NGL transportation services to producers in the Terryville Complex in northern Louisiana.

Under an area of mutual interest and exclusivity agreement, or the AMI and Exclusivity Agreement, PTXP has the exclusive right to develop, own and operate midstream assets and to provide midstream services to support Memorial Resource’s growing production in northern Louisiana (other than production subject to existing third-party commitments).

PennTex Midstream Partners, LP Long Term Stability

Initial assets will consist of natural gas processing plants, a rich natural gas gathering system, a natural gas header system and an NGL pipeline system located in northern Louisiana servicing growing natural gas production from the Cotton Valley formation.

These assets are supported by 15-year, fee-based commercial agreements with Memorial Resource, an NGP-affiliated independent natural gas and oil partnership focused on the development of liquids-rich natural gas opportunities in multiple zones in the Cotton Valley formation.

Gathering and processing agreements both contain a minimum volume commitment, the gathering agreement contains firm capacity reservation payments and residue gas and NGL transportation agreements contain plant tailgate dedications for natural gas processed at our processing plants.

Phase I
The first phase of development, which PTXP refers to as Phase I, was completed in May 2015 and includes the Lincoln Parish Plant, a 200 MMcf/d design-capacity cryogenic natural gas processing plant, and related natural gas gathering and residue gas transportation pipelines.

Phase II
PTXP expects that the second phase of development, which PTXP refers to as Phase II, will be completed in October 2015 and will increase its natural gas processing capacity to 400 MMcf/d through the addition of the Mt. Olive Plant, a 200 MMcf/d design-capacity cryogenic natural gas processing plant, and add pipeline capacity to transport NGLs and incremental volumes of residue gas.

In addition to the development of its initial assets, PTXP expects to pursue other opportunities for organic development and growth as producers in its region continue to increase production.

PennTex Midstream Partners, LP Intellectual Property

None

PennTex Midstream Partners, LP Competition

As a result of its commercial agreements with Memorial Resource and the AMI and Exclusivity Agreement, PTXP has the exclusive right to provide midstream services to Memorial Resource in the Area of Mutual Interest other than with respect to Memorial Resource’s commitments under existing agreements with third-party service providers for the term of any such agreements.

PTXP will compete with other gatherers, processors and transporters, along with any producers other than Memorial Resource that develop their own midstream infrastructure, for undedicated, expiring dedicated and future production of producers in northern Louisiana and in other areas in which PTXP decides to operate.

PennTex Midstream Partners, LP 5% shareholders pre-IPO

PennTex Midstream Partners, LLC          40.4%

MRD WHR LA Midstream LLC    27.0%

Louisiana Midstream, LLC          4.5%    

PennTex Midstream Partners, LP Dividends

Under its current cash distribution policy, PTXP intends to make a minimum quarterly distribution to the holders of its common units and subordinated units of $0.2750 per unit, or $1.10 per unit on an annualized basis. 

5.5% expected distribution at the price point mid-range of $20

However, there is no guarantee that PTXP will pay the minimum quarterly distribution on its units in any quarter.

PennTex Midstream Partners, LP Use of Proceeds

PTXP expects to receive $207 million from its IPO and use it for the following:

$97.6 million to PennTex NLA and approximately $54.6 million to MRD WHR LA, in each case, in part, as a reimbursement for certain capital expenditures incurred by such entity with respect to the development of its initial assets;

$30.5 million to repay in full all outstanding borrowings under PennTex Operating’s existing credit facility, which PTXP will terminate following such repayment; and

$24 million to fund a portion of the capital expenditures incurred in connection with the construction of its initial assets.

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

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