What's Behind This New MLP IPO?

Focus: STOCKS

Peter Staas Image Peter Staas Managing Editor, Capitalist Times and Energy & Income Advisor

A new energy MLP went to market in December, and below is a breakdown of how it plans to make some money, notes Peter Staas of Energy and Income Advisor.

Amid the recent influx of MLPs that own nontraditional assets or pay a variable distribution, Summit Midstream Partners LP (SMLP), which went public on September 27, is a bit of a throwback: a midstream operator that owns gathering and processing assets and pays a regular quarterly distribution.

The fledgling publicly traded partnership traces its lineage back to fall 2009, when members of the management team and private-equity outfit Energy Capital Partners formed Summit Midstream Partners LLC to build a portfolio of midstream energy assets in North America. In the third quarter of 2011, this group sold a 9% interest in the concern to GE Energy Financial Services.

Summit Midstream Partners LP owns two operating entities: DFW Midstream Services LLC and Grand River Gathering LLC.

DFW Midstream Services
The MLP's privately owned antecedent acquired the DFW Midstream system-a network of small-diameter gathering pipelines that connect wellhead production to larger pipelines and processing systems-in the Barnett Shale from Chesapeake Energy (CHK) and a subsidiary of Energy Future Holdings.

In subsequent years, Summit Midstream Partners LLC expanded the gathering network to its current capacity of 410 million cubic feet of natural gas per day. Management expects nameplate throughput to expand to 450 million cubic feet per day when additional compressors and looping pipelines come on stream in the first quarter of 2013.

This operation has little direct exposure to fluctuations in commodity prices, thanks to long-term gathering agreements that also include remaining minimum volume commitments with an average of 138 million cubic feet per day remaining.