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IPO Preview: Rice Midstream Partners LP


Based in Canonsburg, PA, Rice Midstream Partners LP (NYSE:RMP)scheduled a $500 million IPO on NYSE with a market capitalization of $1.15 billion at a price range midpoint of $20 for Wednesday, Dec. 17, 2014.

The full IPO calendar is available at IPOpremium.

SEC Documents

Manager, Joint-managers: Barclays, Citi, Wells Fargo Securities, Goldman Sachs, RBC Capital Markets.
Co-managers: Tudor, Pickering, Holt & Co., BMO Capital Markets, Capital One Securities, Comerica Securities, Scotiabank/Howard Weil, Suntrust Robinson Humphrey, U.S. Capital Advisors, Janney Montgomery Scott.

End of lockup (180 days): Monday, June 15, 2015
End of 25-day quiet period: Monday, January 12, 2015

Summary
RMP is a fee-based, growth-oriented limited partnership formed by Rice Energy Inc. (NYSE: RICE) to own, operate, develop and acquire midstream assets in the Appalachian Basin. RICE has a market cap of $3.26 billion.

Valuation
Glossary

Valuation Ratios

Mrkt Cap ($mm)

Price /Sls*

Expected yield*

Price /BkVlue

Price /TanBV

% offered in IPO

annualizing Sept 9 mos

         

Rice Midstream Partners LP

$1,150

16.0

3.75%

3.4

4.6

43%

   

*based on proforma Dec ’15 projections

   
             
   

Price changes

       
   

last 30 days

       

Rice the parent

-16%

       
             

Recent mid-stream IPOs

       

CONE Midstream Partners LP
(NYSE:CNNX)

-21%

       

Antero Midstream Partners
(NYSE:AM)

-15%

       

Shell Midstream Partners, LP (NYSE:SHLX)

-11%

       
 

Average

-16%

       
             

Conclusion
Neutral, C, 6.5

Expected to yield 3.75% at the price range mid-point of $20

Selling 43% on the IPO, higher than recent new MLP/LPs

Recent midstream IPOs off -16% in last 30 days

Parent RICE also off-16% in last 30 days

3rd-party revenues projected to be 24%

Most recent midstream IPOs are captives to the parent, and don’t rely on 3rd-party revenues

To put the conclusions and observations in context, the following is reorganized, edited and summarized from the full S-1 referenced above.

Business
RMP is a fee-based, growth-oriented limited partnership formed by Rice Energy Inc. to own, operate, develop and acquire midstream assets in the Appalachian Basin. RICE has a market cap of $3.26 billion.

RMP’s initial assets consist of natural gas gathering and compression assets servicing high-quality producers in the rapidly developing dry gas core of the Marcellus Shale in southwestern Pennsylvania.

RMP provides its services under long-term, fixed-fee contracts, primarily to Rice Energy in one of its core operating areas.

RMP believes that its strategically located assets, high-quality customers and relationship with Rice Energy position RMP to become a leading midstream energy company in the Appalachian Basin.

RMP has secured dedications from Rice Energy under a 15-year, fixed-fee contract for gathering and compression services covering (i) approximately 63,000 gross acres of its acreage position as of September 30, 2014 in Washington and Greene Counties, Pennsylvania, and (ii) any future acreage it acquires within these counties, other than in select areas subject to pre-existing third-party dedications and subject to the terms of RMP’s gas gathering and compression agreement described elsewhere in this prospectus.

In addition, RMP has secured dedications from third-party customers under fixed-fee contracts for gathering and compression services in Washington County, Pennsylvania with respect to approximately 21,000 of their existing gross acres, and any future acreage they may acquire within areas of mutual interest of approximately 66,000 acres. RMP refers to these areas of dedication and areas of mutual interest as its “dedicated areas.”

RMP’s third-party fixed-fee contracts have a weighted average remaining term of six years.

At the closing of this offering, RMP’s assets will consist of:

2.8 MMDth/d high-pressure dry gas gathering system and associated compression in Washington County, Pennsylvania, with connections to the Dominion, TCO, EQT and TETCO interstate pipelines; and

420 MDth/d high-pressure dry gas gathering system in Greene County, Pennsylvania, with connections to Dominion, TCO and NFGS interstate pipelines.

Competition
As a result of its relationship with Rice Energy, RMP does not compete for the portion of Rice Energy’s existing operations for which RMP currently provides midstream services and will not compete for future portions of Rice Energy’s operations within RMP’s dedicated areas.

However, RMP will face competition in attracting third-party volumes to its gathering and compression systems.

In addition, these third parties may develop their own gathering and compression systems in lieu of employing RMP’s assets. RMP’s ability to attract such third-party volumes to its gathering and compression systems will depend on its ability to evaluate and select suitable projects and to consummate transactions in a highly competitive environment.

Also, there is substantial competition for capital available for investment in the oil and natural gas industry. Many of RMP’s competitors possess and employ financial, technical and personnel resources substantially greater than ours.

In addition, other companies may be able to offer better compensation packages to attract and retain qualified personnel than RMP is able to offer.

The cost to attract and retain qualified personnel has increased over the past three years due to competition and may increase substantially in the future. RMP may not be able to compete successfully in the future in attracting third-party volumes to its gathering and compression systems, attracting and retaining quality personnel, and raising additional capital, which could have a material adverse effect on its business.

5% shareholders pre-IPO
Rice Energy 56.5%

Dividends
The board of directors of RMP’s general partner will adopt a cash distribution policy pursuant to which RMP intends to distribute at least the minimum quarterly distribution of $0.1875 per unit ($0.75 per unit on an annualized basis) on all of its units to the extent RMP has sufficient cash after the establishment of cash reserves (including estimated maintenance capital expenditures) and the payment of its expenses, including payments to its general partner and its affiliates.

The projected annual yield at the price range mid-point of $20 is 3.75%.

Use of proceeds
RMP expects to receive $466 million from its IPO and use it for the following:

(i) to reimburse Rice Energy for $195.3 million of capital expenditures incurred on its behalf prior to the closing of this offering, (ii) to make a $242.6 million distribution to Rice Energy, (iii) to fund $25.0 million of its 2015 expansion capital expenditures and (iv) to pay $2.7 million of origination fees related to its new revolving credit facility.

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