This week will see the public debut of a new MLP. Houston-based PennTex Midstream Partners was founded in 2014, and had originally intended to go public by year-end 2014. Its sponsor, PennTex Development, was formed by the private equity firm Natural Gas Partners to develop a multi-basin midstream growth platform across North America.

Since we originally reported on this pending IPO in October 2014 (“3 More IPOs to Test Volatile Market“), the IPO has been upsized from the initial $150 million. The offering is now for 11,250,000 limited partner units with an anticipated IPO price range of $19 to $21. At the midpoint, this would be a $225 million IPO. Units will trade on the NASDAQ under the symbol PTXP.

Following the completion of the offering, PTXP will provide natural gas gathering and processing and residue gas and NGL transportation services to producers in the Terryville Complex in northern Louisiana. Initially, these services will be provided primarily to Memorial Resource (NASDAQ: MRD), an NGP-affiliated independent natural gas and oil company developing properties in North Louisiana and East Texas. PTXP will have the exclusive right to develop, own and operate midstream assets and to provide midstream services to support Memorial Resource’s growing production in northern Louisiana.

Initial assets are being developed in two phases. Phase I was completed in May 2015 and consists of the following:

• Lincoln Parish Plant: a 200 million cubic feet per day (MMcf/d) cryogenic natural gas processing plant in Lincoln Parish, Louisiana

• PennTex Gathering Pipeline: a 30.5-mile rich natural gas gathering system that will provide producers access to the Lincoln Parish Plant and to the Minden Plant owned and operated by DCP Midstream Partners (NYSE: DPM), with available capacity of at least 400 MMcf/d to the Lincoln Parish Plant and 50 MMcf/d to the Minden Plant

• PennTex Residue Gas Pipeline: a one-mile, 24” residue natural gas header with at least 400 MMcf/d of capacity that provides market access for residue natural gas from the Lincoln Parish Plant for delivery to third party pipelines, including pipelines that provide access to other markets in the Gulf Coast region

Phase II is projected to be completed in October 2015 and will increase their natural gas processing capacity to 400 MMcf/d. Phase 2 assets include:

• Mt. Olive Plant: a 200 MMcf/d design-capacity cryogenic natural gas processing plant under development near Ruston, Louisiana with on-site liquids handling facilities for inlet gas

• PennTex Residue Gas Extension: a 14-mile, 24” residue natural gas pipeline with at least 400 MMcf/d of capacity, which will provide market access for residue natural gas from the Mt. Olive Plant to the same delivery point as the PennTex Residue Gas Pipeline

• PennTex NGL Pipeline: a 12-mile NGL pipeline with a total capacity of over 36,000 barrels per day, which will connect the Lincoln Parish Plant to the Black Lake Pipeline owned and operated by DCP Midstream, and will provide a Mont Belvieu-based market for NGLs produced from the Lincoln Parish Plant

Initial assets are supported by 15-year, fee-based commercial agreements with Memorial Resource, including gathering and processing agreements containing escalating minimum volume commitments. The minimum volume commitments under the gathering and processing agreements will be 115,000 MMBtu/d, or 50% of the design capacity of the Lincoln Parish Plant. The minimum volume commitments will increase to 345,000 MMBtu/d, or 75% of the combined design capacity of the processing plants, upon the completion of the Mt. Olive Plant and, for a ten-year period beginning on July 1, 2016, will further increase to 460,000 MMBtu/d, or 100% of the combined design capacity of the processing plants.

The minimum quarterly distribution is set at $0.2750 per unit per quarter, or $1.10 per unit on an annualized basis. At the midpoint price of the offering, this represents an initial annualized yield of 5.5%. Upon the closing of the offering affiliates of NGP will indirectly own the general partner and associated incentive distribution rights (IDRs), as well as a 67.4% limited partner interest. The IDR schedule is:

For the quarters ending June 30, 2015 and Sept. 30, 2015 PTXP expects a shortfall in the amount needed to pay the full minimum quarterly distribution, but will make the full distribution by tapping its revolving credit facility. However, the IPO sponsor forecasts that estimated cash available for distribution for the 12 months ending June 30, 2016 will be $47.5 million — sufficient to support the total annualized minimum quarterly distribution of $44.0 million.

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Portfolio Update

Enterprise Strikes Again

Enterprise Products Partners (NYSE: EPD) likes to talk up its organic growth, and executives almost always disclaim having much, if any, interest in acquisition opportunities on quarterly conference calls.

EPD’s recent deals reveal its more aggressive nature, After concluding a buyout of key logistics partner Oiltanking for nearly $6 billion in February, Enterprise has now outbid all comers with a $2,15 billion deal for EFS Midstream, a gas gathering and processing complex in the Eagle Ford shale.

For that price it gets 460 miles of gathering lines, 10 gas processing plants and some condensate stabilization towers,  

In addition to the stated purchase price, the sellers — a joint venture between Pioneer Natural Resources (NYSE: PXD) and India’s Reliance Industries — secured downstream shipping discounts valued at $200 million from Enterprise, according to Pioneer’s press release. In return, the joint venture signed gathering and processing agreements with Enterprise covering all of its Eagle Ford acreage for the next 20 years, with minimum volume commitments spanning seven years.

Pioneer said its 50% share of EFS was expected to generate more than $100 million in EBITDA this year. That implies Enterprise paid a multiple of 11 times EBITDA, significantly less than the 15x-plus EBITDA multiple paid by Kinder Morgan (NYSE: KMI) in its buyout of Hiland Partners, a gathering and processing venture in the Bakken.

Enterprise said the “bolt-on” EFS acquisition would complement its already significant midstream presence in the Eagle Ford, translate into increased downstream volumes and be immediately accretive to distributable cash flow. It will pay just over half the purchase price upon the deal’s expected close in the third quarter, and the rest a year later.

This is another strategic deal building up the partnership’s downstream gas volumes and its inventory of condensate and other liquids for export. Down the line, it should help Enterprise lift its distribution growth rate, which has begun to noticeably lag the pace of increases by its main rivals. Buy EPD below $42.50.  

— Igor Greenwald