Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



1 Step Closer to a New MLP

QEP Midstream Partners is about to become a real, live master limited partnership. Parent company QEP Resources (NYSE: QEP  ) has filed the appropriate paperwork with the SEC, and while we don't know specifics regarding the number of shares, or how the offering will be priced, the S-1 is chock-full of information for prospective investors.

The assets
According to the prospectus, the new MLP will trade under ticker symbol "QEPM" and will command the following midstream systems that formally belonged to QEP Resources:

  • Green River Gathering
  • Rendezvous Pipeline
  • Vermillion Gathering
  • Williston Gathering
  • Rendezvous Gas Services (78% stake)
  • Three Rivers Gathering (50% stake)

The assets comprise 1,475 miles of pipeline with an average throughput of 1.8 million MMbtu of natural gas per day, and 18,224 barrels of crude oil per day. The assets are located in the Green River Basin, the Uinta Basin, and the Williston Basin.

The best part
QEP Midstream provides all of its gathering services through fee-based contracts, which means there are no ups and downs from commodity risk -- just stable, predictable income. This is pretty common for midstream partnerships borne of an oil company spinoff. Holly Energy Partners is a perfect example. Its revenue is 100% fee-based because HollyFrontier (NYSE: HFC  ) is more or less its only customer.

Sure enough, QEP Resources provides the QEP Midstream system with about 40% of its natural gas volumes and 45% of its crude oil volumes. But that means that 55% to 60% of its volumes come from other customers, which is excellent for a midstream spin-off.

Customer diversification and fee-based revenue are tough to beat. Let's look at some of QEP's top customers:

  • Anadarko Petroleum
  • EOG Resources (NYSE: EOG  )
  • Questar (NYSE: STR  )
  • Ultra Resources, a subsidiary of Ultra Petroleum (NASDAQOTH: UPLMQ  )

EOG Resources accounted for 11% of the midstream unit's revenue in 2012, while Questar accounted for 12%. Ultra is one of the two-largest shippers on QEP's Green River 60-mile crude oil pipeline (the other is Chevron).

Remaining details
As I mentioned, investors still need to know the size and price of the offering for QEP Midstream units, as well as what percentage of the float will be held by QEP Resources, and what will be available to the public. The S-1 indicates that QEP Resources will hold the standard 2% general-partner stake and some limited partner units and will receive all of the MLP's incentive distribution rights.

What's also yet to be determined is whether QEP Resources will continue to drop down assets to QEP Midstream as time goes on. The parent company retains ownership of three gathering systems, four processing facilities, and one treatment center.

And of course, there's the timing of the IPO. Management has announced that it expects to fully fund its distribution -- whatever amount it may be -- by the 12 months ending June 30, 2014. Therefore, one can reasonably expect that this entity will be on the books by June 30 of this year.

Final thoughts
This will be a small midstream outfit, but it's very likely to be a stable one. Management anticipates revenue of $126.3 million in the partnership's first 12 months. That may seem like peanuts now, but as energy investors know full well, the midstream world is rife with activity these days.

More energy MLP ideas
Of course, sometimes bigger is better, especially when it comes to yield. Energy Transfer Partners is a company that helps alleviate the gluts in supply with its 23,500 miles of transformational pipelines. To see if ETP and its sizable dividend payment could be a good fit for your portfolio, you're invited to check out The Motley Fool's premium research report on the company. Simply click here now for a thorough expert analysis of this midstream company.

Read/Post Comments (0) | Recommend This Article (2)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2425347, ~/Articles/ArticleHandler.aspx, 5/27/2016 10:24:07 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 1 hour ago Sponsored by:
DOW 17,873.22 44.93 0.25%
S&P 500 2,099.06 8.96 0.43%
NASD 4,933.51 31.74 0.65%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

5/27/2016 4:00 PM
EOG $81.57 Down -0.73 -0.89%
EOG Resources, Inc… CAPS Rating: ****
HEP $32.70 Down -0.45 -1.36%
Holly Energy Partn… CAPS Rating: ****
QEP $18.46 Down -0.02 -0.11%
QEP Resources, Inc… CAPS Rating: ***
STR $25.28 Up +0.01 +0.04%
Questar Corp CAPS Rating: ****
UPLMQ $0.89 Down -0.12 -11.50%
Ultra Petroleum CAPS Rating: **