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American Midstream Partners Revew
American Midstream Partners, LP (NYSE:AMID) is a midstream energy company involved in the gathering, transportation and processing of natural gas in the United States. The company will soon be public, and plans to grow through acquisitions as well as organically in its service area.
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Initial Public Offering
American Midstream Partners is offering 3.75 million common units to the public in an initial public offering planned for the final week of July, 2011. The company expects the IPO to be priced in a range between $19-21 per unit. AMID is organized as a Master Limited Partnership (MLP), and owns a portfolio of midstream energy assets that gather natural gas from the wellhead, and then transport it to facilities for further processing. These assets are located mostly in the Gulf Coast area of the United States and were purchased in 2009 for $151 million from Enbridge Energy Partners, L.P. (NYSE:EEP).
After the offering is complete, the public will own just over 40% of the company. The general partner of AMID is AIM Midstream Holdings. Post deal, this entity will continue in this capacity and own approximately 58% of the limited partner interests.
Assets
AMID owns and operates nine natural gas gathering systems in Alabama, Louisiana, Texas and Mississippi. The company also has three facilities to process the natural gas, and eight pipeline systems. The total design capacity of the gathering and processing assets are 546 million cubic feet per day, and the company reported total throughput of 243 million per day in the first quarter of 2011. The company's transmission assets comprise approximately 1,400 miles of pipeline.
Customers
AMID earns money under various types of contract arrangements, including fee based, fixed margin and percent of proceeds. The company is dependent on several large customers for a high percentage of its revenues. It recently reported that Conoco Phillips (NYSE:COP) and Dow Chemical (NYSE:DOW) accounted for 59% and 8% of revenues in the gathering and processing segment, respectively, in Q1.
American Midstream Partners is equally dependent on large customers in the company's transmission segment. In Q1, Exxon Mobil (NYSE:XOM) accounted for 50% of revenue here.
Distribution
The company plans to make a quarterly distribution of $0.4125 per unit once the offering is over. This annual payout of $1.65 per unit would provide a yield of 8.25%, assuming the midpoint of the pricing range. There is a risk that American Midstream Partners may not be able to make this payout, as the company needs to generate $15.2 million of available cash each year to fund this level of distribution.
The Bottom Line
The high yield that American Midstream Partners offers investors makes it an attractive investment for those looking for income. This compelling payout must be considered in the context of the company's customer concentration and involvement with a commodity that is seeing capital shift towards the higher returns that oil development generates. (For additional reading, also check out How An IPO Is Valued.)
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TUTORIAL: Top Stock-Picking Strategies
Initial Public Offering
American Midstream Partners is offering 3.75 million common units to the public in an initial public offering planned for the final week of July, 2011. The company expects the IPO to be priced in a range between $19-21 per unit. AMID is organized as a Master Limited Partnership (MLP), and owns a portfolio of midstream energy assets that gather natural gas from the wellhead, and then transport it to facilities for further processing. These assets are located mostly in the Gulf Coast area of the United States and were purchased in 2009 for $151 million from Enbridge Energy Partners, L.P. (NYSE:EEP).
After the offering is complete, the public will own just over 40% of the company. The general partner of AMID is AIM Midstream Holdings. Post deal, this entity will continue in this capacity and own approximately 58% of the limited partner interests.
Assets
AMID owns and operates nine natural gas gathering systems in Alabama, Louisiana, Texas and Mississippi. The company also has three facilities to process the natural gas, and eight pipeline systems. The total design capacity of the gathering and processing assets are 546 million cubic feet per day, and the company reported total throughput of 243 million per day in the first quarter of 2011. The company's transmission assets comprise approximately 1,400 miles of pipeline.
AMID earns money under various types of contract arrangements, including fee based, fixed margin and percent of proceeds. The company is dependent on several large customers for a high percentage of its revenues. It recently reported that Conoco Phillips (NYSE:COP) and Dow Chemical (NYSE:DOW) accounted for 59% and 8% of revenues in the gathering and processing segment, respectively, in Q1.
American Midstream Partners is equally dependent on large customers in the company's transmission segment. In Q1, Exxon Mobil (NYSE:XOM) accounted for 50% of revenue here.
Distribution
The company plans to make a quarterly distribution of $0.4125 per unit once the offering is over. This annual payout of $1.65 per unit would provide a yield of 8.25%, assuming the midpoint of the pricing range. There is a risk that American Midstream Partners may not be able to make this payout, as the company needs to generate $15.2 million of available cash each year to fund this level of distribution.
The Bottom Line
The high yield that American Midstream Partners offers investors makes it an attractive investment for those looking for income. This compelling payout must be considered in the context of the company's customer concentration and involvement with a commodity that is seeing capital shift towards the higher returns that oil development generates. (For additional reading, also check out How An IPO Is Valued.)
Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!
by
Eric Fox
Eric J. Fox, CFA, is a freelance financial writer and has previous experience working in the asset management industry as an equity analyst and portfolio manager on the buy side. His favorite area to write on is the energy sector and he keeps current on the industry by reading Haynesville Shale, Permian Oil and Gas and various other blogs.
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