Last month in Play Ball: More IPOs on Deck, I mentioned that the next master limited partnership to IPO could be Enable Midstream Partners (NYSE: ENBL). Enable Midstream was formed in May 2013 as a joint venture by affiliates of CenterPoint Energy (NYSE: CNP), OGE Energy (NYSE: OGE) and ArcLight Capital Partners.

The partnership had filed its S-1 with the Securities and Exchange Commission (SEC) back in November, and just missed its targeted IPO date in the first quarter of 2014. The $500 million IPO was priced at a midpoint of $20 per unit on April 11, giving the partnership an initial market capitalization of $8.32 billion — the richest for an MLP IPO on record. Units actually opened at $21.50, and have since risen to $24.58.

Performance so far has been consistent with the advances enjoyed by most of the MLP IPOs over the past year. In fact a few of them made major advances. As discussed in last week’s article No Letup for Last Year’s Top IPO, the best performing MLP of the year so far is Phillips 66 Partners (NYSE: PSXP), which came public last summer and is up 48 percent year-to-date. Of course, there are some exceptions. Marlin Midstream Partners (Nasdaq: FISH) conducted its IPO three days after Phillips 66 Partners last year, and it has traded below its IPO price since.  

So in general most IPOs have traded higher over the past year, but what about Enable’s fundamentals? Enable Midstream is one of the largest midstream partnerships in the US, with assets that include 11,000 miles of gathering pipelines, 12 major processing plants with approximately 2.1 billion cubic feet per day (Bcf/d) of processing capacity, 7,900 miles of interstate pipelines, 2,300 miles of intrastate pipelines and eight storage facilities with a capacity of  86.5 Bcf.

Enable’s natural gas gathering and processing assets are located in four states and serve natural gas production from unconventional shale resource plays in the Anadarko, Arkoma and Ark-La-Tex basins. Its natural gas transportation and storage assets extend from western Oklahoma and the Texas Panhandle to Alabama and from Louisiana to Illinois. The partnership also owns a growing crude oil gathering business in the Bakken shale formation of the Williston Basin that began initial operations in November.

In 2012 and 2013 on a pro forma basis, Enable grew the volume of gas processed on its systems by 61 percent. The partnership expects growth in the basins in which it operates to drive higher throughput and additional organic growth opportunities for it assets. Enable expects to grow distributable cash flow both through third-party acquisitions, and by developing new energy infrastructure projects to support new and existing customers as they expand beyond their current footprint.

For the year ended Dec. 31, on a pro forma basis, approximately 76 percent of Enable’s gross margin was from fee-based contracts, and approximately 50 percent was attributable to firm contracts or contracts with minimum volume commitments.

Last year, Enable generated $1,322 million of gross margin, $779 million of Adjusted EBITDA and $454 million of net income. Pro forma distributable cash flow (DCF) was $541 million, sufficient to pay the minimum quarterly distribution of $0.2875 per unit per quarter. At the recent closing price of $24.58, the minimum annual distribution of $1.15 would result in a yield of 4.7 percent.  

The partnership estimates that pro forma DCF will total $550 million for the 12 months ending March 31, 2015. The relatively flat forecast is one of the negatives, at least in the short term. Some of the recent IPOs have managed to ramp up distributions pretty quickly, but if Enable’s DCF over the next year is essentially what it was over the past year, investors aren’t going to reap the kind of capital appreciation delivered by PSXP, for example.

Thus, we are taking a wait-and-see approach with Enable. If it begins to make some reasonably-priced acquisitions to grow DCF, it may be one that we would add to a conservative portfolio.

The Investing Daily Summit

This week I will attend, and present at, Investing Daily’s annual Investing Summit in Alexandria, Virginia. It is the one time each year that I will make a public presentation devoted entirely to energy investing. I will discuss my personal philosophies for creating long-term wealth, my core beliefs, and detail what I think is ahead for the energy sector this year and beyond.

My talk will be Future Currents: Where the Global Energy Sector will be Flowing, while my colleague Igor Greenwald will be covering MLPs in Inside the MLP Factory: The Makers and the Takers. We hope to see you there!

(Follow Robert Rapier on Twitter, LinkedIn, or Facebook.)

Portfolio Update

The Generals Win Again

We’ve spent a lot of time over the last year pointing out the (some might say unfair) advantages MLP general partners enjoy in managing their partnerships, starting with the often generous incentive distribution rights (IDRs) and proceeding to the upper hand they hold in intramural dealings.

Those advantages were on display yesterday when two partnership families announced transactions on terms most beneficial to their general partners.

In the more notable of these, Energy Transfer Partners (NYSE: ETP) will spend $1.8 billion (half in cash and half in stock) to buy Texas filling stations and convenience stores operator Susser Holdings (NYSE: SUSS) at a 41 percent premium to that stock’s closing price on Friday.

Susser’s affiliated MLP, Susser Petroleum Partners (NYSE: SUSP) would add to its current fuel wholesaling business Susser’s 600 stores and filling stations in Texas, Oklahoma and New Mexico, along with the more than 5,000 Sunoco locations in the East currently owned by ETP.

ETP’s share and debt issuance to finance the acquisition would be offset by the cash and unit compensation it would receive from SUSP for the subsequent dropdowns, and by ETP units it would ultimately receive from general partner Energy Transfer Equity (NYSE: ETE) in trade for SUSP’s GP interest and incentive distribution rights.

ETE and ETP units dipped Monday on the news, but this is the latest smart buy for Energy Transfer founder Kelcy Warren, an inveterate dealmaker betting on the Texan economy and Susser’s strong reputation to drive growth at the combined retail MLP. ETE will have acquired another affiliated partnership to milk for IDRs as it grows, using ETP’s units and balance sheet as the acquisition currency.

The restructuring transactions planned in the wake of the acquisition are subject to approval by the ETP board’s Conflicts Committee, but experienced MLP investors know that’s a formality.

ETP remains a buy below $55 and ETE the No. 4 ranked Best Buy bellow $52.

Also Monday Kinder Morgan (NYSE: KMI) announced a roughly $2 billion dropdown, split almost equally between cash and debt, of a western gas pipeline, Gulf LNG terminal and Colorado gas storage assets. EPB’s price for this grab bag came out to 9 times the assets’ 2013 EBITDA, which is below EPB’s own Enterprise Value/EBITDA multiple of 10.5, allowing Kinder Morgan to assert that the transaction would be immediately accretive to EPB. But since KMI stands to skim a nice stream of incentive distribution rights from these assets’ future cash flows, and since the unit issuance needed by EPB to finance the deal will boost its IDR tab even more, KMI looks to be the clear winner from this transaction with its affiliate. Continue to buy KMI below $37 and to avoid EPB.

— Igor Greenwald