QEP Midstream Partners is about to become a real, live master limited partnership. Parent company QEP Resources (QEP +0.00%) 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 (HFC +0.00%) 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 (EOG 0.23%)
- Questar (NYSE: STR)
- Ultra Resources, a subsidiary of Ultra Petroleum (UPL +0.00%)
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.
