An energy-infrastructure company this week will test whether a
once-hot investment on Wall Street is poised for a rebound in the
IPO market.
Noble Midstream Partners LP, a master-limited partnership, is
aiming to raise up to $263 million in a U.S. initial public
offering late Wednesday, according to people familiar with the
offering, in what would be the first IPO of an MLP in more than a
year.
MLPs, which earn their money through long-term contracts
charging oil-and-gas producers to transport or store their
products, proliferated over the last decade during the U.S. energy
boom. They attracted investors with steady payouts that offered tax
advantages and income during a time of ultralow interest rates.
Between 2010 and 2014, investors poured a net $44 billion into
energy pipeline and storage funds, according to Morningstar Inc. In
2014, MLP IPOs raised roughly $7.3 billion.
But that changed last year with sharp declines in the price of
crude oil. Investors began to worry that distressed producers would
slide into bankruptcy, and that judges might allow them to break
free of contracts that bring MLPs stable fees for pipeline
partnerships.
This is Noble Midstream's second attempt to go public. Last
November, management launched its roadshow for investors, but
ultimately withdrew the offering because of unfavorable market
conditions, the company said at the time. It is looking to sell
12.5 million shares at between $19 and $21 apiece, according to a
regulatory filing.
"If the deal goes well it certainly will show that the healing
has begun and investors are looking at this asset class from a
different lens than they were six months ago," said Chris Eades,
portfolio manager for several MLP strategies at ClearBridge
Investments, who is considering the Noble Midstream IPO.
While he said he doesn't expect the floodgates to open for new
MLP offerings, a successful stock-market debut should signal to MLP
management teams that if they need to raise equity they can,
something that "is in striking contrast to the beginning of the
year."
Net flows into MLP mutual funds and exchange-traded funds fell
to $3.5 billion in 2015, down 78% from a year prior, according to
Morningstar. The Alerian MLP Index, a benchmark of pipeline and
transportation companies, tumbled 37% in 2015, outpacing the 30%
decline in the price of U.S.-traded crude oil over that period.
The Alerian index is doing better this year as oil prices have
stabilized. The index is up 3.4% in 2016 as of Tuesday's close.
Through the end of August, $3.8 billion has flowed into MLP funds,
according to Morningstar.
Access to capital markets has also improved for MLPs. Between
August 2015 and February 2016, 10 already-public MLPs raised about
$1.8 billion in stock sales, according to Dealogic. Between May and
September, 19 MLPs have raised $3.9 billion in stock sales.
Some MLPs have tried to reassure investors that their balance
sheets are strong enough to withstand persistently low energy
prices.
Plains All American Pipeline LP, for example, announced moves in
July aimed at conserving cash. The company cut its quarterly payout
by 21% and simplified its structure to do away with special
payments it had been making to its parent company. Plains shares
are up 18% this year so far through Tuesday.
If oil prices reach $50 to $60 a barrel, that could be enough to
spur U.S. producers to increase output, said Greg Reid, president
of the MLP complex at Salient Partners.
"It won't go back to the heyday of high growth, but we're in a
more mature industry now," Mr. Reid said.
Some investors looking at the Noble deal said they liked that it
was backed by a parent, which could provide a steady stream of new
assets. Noble Midstream is backed by Noble Energy Inc., an oil and
natural gas producer.
Barclays PLC, Baird and J.P. Morgan Chase & Co. are leading
Noble's offering, and shares are set to start trading on the New
York Stock Exchange under the symbol NBLX on Thursday.
David Ronn, a lawyer at Orrick, Herrington & Sutcliffe, said
there is pent-up demand for access to capital from existing MLPs
that have been shut out of debt and equity markets and some may be
waiting in the wings to go public. Still, he said few expect a
return to the "raucous market" of 2013 and 2014, when oil prices
were closer to $100 a barrel—a price that spurred the energy
infrastructure build out and the proliferation of MLPs.
"For the healthy MLPs, there's been a market overreaction, and
they want to be able to access the capital markets from a
reasonable perspective," he said. "Will there be greater scrutiny?
Of course there will."
Write to Corrie Driebusch at corrie.driebusch@wsj.com and Alison
Sider at alison.sider@wsj.com
(END) Dow Jones Newswires
September 14, 2016 15:45 ET (19:45 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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