1 Energy Stock Ready for the MLP Life

Devon Energy's (NYSE: DVN  ) master limited partnership spinoff Devon Midstream Partners has filed its S-1 registration form with the Securities and Exchange Commission. The news means Devon is officially part of the MLP pile-on in the energy sector, and investors can begin their research. Today we'll look at which assets the partnership will bring to market, and how it plans to use its IPO proceeds.

The assets 
Devon Midstream will own a 20% stake in Devon Midstream Holdings, the entity that owns "substantially all" of Devon Energy's midstream assets, according to the filing. This is slightly different from what we've seen from IPOs in the past, when a newly launched MLP will make its debut controlling physical assets in their entirety. In this case, Devon is opting for a percentage stake in operations. Over time, Devon Midstream will acquire the remaining 80% stake from Devon Energy.

The primary assets of the holding company are gathering and processing systems in the Cana-Woodford and Barnett shales, as well as a stake in a Gulf Coast fractionating facility.

Going forward, Devon Midstream plans to acquire further interests in the holding company, pick up other assets from Devon Energy, and pursue organic growth projects to support Devon Energy as it develops its production portfolio.

On a pro forma basis, Devon Midstream generated adjusted EBITDA of $40.6 million through the first six months of the year. There is currently no information publicly available on the amount designated for its minimum quarterly distribution.

What's the cash for?
When I covered Valero's (NYSE: VLO  ) MLP spinoff last week, I received a great comment from Fool Community member "moweenfarmer," who wrote, "One thing I look for in an IPO is what happens with the proceeds." It's an excellent idea, so let's take a closer look at not only Devon Midstream's plan for its new cash, but what our other MLPs-to-be are planning as well.

MLP

Ticker

Planned Offering

Devon Midstream Partners

DVNM

$400

Valero Energy Partners

VLP

$345

Western Refining Logistics

WNRL

$287.5

Plains All American GP Holdings

PAGP

$1,000

Source: Company filings. Dollar figures in millions.

Devon Midstream Partners plans to use its IPO proceeds to reimburse Devon Energy for capital spent on the assets it contributed to the partnership. It will also use funds to pay for transaction expenses and fees. If anything is left over, DVNM will use it for general partnership expenses.

Valero Energy Partners will use its proceeds to pay "revolving credit facility origination and commitment fees", though it expects to retain the majority of its cash for potential future acquisitions.

Western Refining Logistics plans to use its proceeds to finance the IPO, and it will retain $50 million for general partnership purposes, sending the rest of it on to parent Western Refining (NYSE: WNR  ) as partial consideration of the assets its contributing, as well as capital expenditures on those assets.

Plains All American GP Holdings is a little bit different from the other MLPs on the list (not the least of which is because it plans to be taxed as a corporation, but that's an article for another time). Remember, this is a holding company; the midstream MLP with assets already exists in Plains All American Pipeline (NYSE: PAA  ) . PAGP plans to distribute the proceeds from its planned $1 billion IPO to existing owners. At some point, it may offer PAA loans, or buy assets on its behalf, but for now, proceeds go directly to stakeholders.

This information is usually included in the press release that follows the S-1 filing, but more detailed information is always in the S-1 in the section cleverly titled "Use of Proceeds."

Bottom line
It's a veritable MLP stampede at this point, which means the market is absolutely jam-packed with income-generating options for investors. You can afford to be choosy! Don't let the MLP headline hoopla sway you before you've done your research, lest you get trampled underfoot.

Can't get enough dividends?
Dividend stocks can make you rich. Over the long term, the compounding effect of the quarterly payouts, as well as their growth, adds up faster than most investors imagine. That's why our analysts sat down to identify the absolute best of the best when it comes to rock-solid dividend stocks, drawing up a list in this free report of nine that fit the bill. To discover the identities of these companies before the rest of the market catches on, you can download this valuable free report by simply clicking here now.


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.

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: 2659478, ~/Articles/ArticleHandler.aspx, 11/24/2014 7:53:17 AM

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...


Advertisement