Oiltanking Partners, L.P. (Nasdaq:OILT) recently became a public company and is involved in the business of storing crude oil and refined products in the United States. The company anticipates strong growth in demand for its assets as operators continue to pursue oil and liquids development on the domestic front.
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Oiltanking Partners, L.P. sold 11.5 million common units at $21.50 per unit in an initial public offering (IPO) in mid July 2011, with the company receiving net proceeds of approximately $231.2 million from the deal. The stock has done well since then and is up approximately 5% to $24.32.
There was strong demand for the IPO from investors and the underwriters exercised the full over allotment option of 1.5 million shares. Oiltanking Partners, L.P. is now 29% owned by public shareholders.
Oiltanking Partners, L.P. is a master limited partnership (MLP) involved in the midstream segment of the energy complex, including the storage and transportation of oil, refined products and liquefied petroleum gas.
The general partner of Oiltanking Partners, L.P. is Oiltanking GmbH, a large German based midstream energy company. Oiltanking GmbH plans to use the company as a vehicle for growth in the United States, and still owns more than 70% of Oiltanking Partners, L.P. Oiltanking GmbH is a wholly owned subsidiary of Marquard & Bahls AG, a private German company involved in many areas of the energy business.
Oiltanking Partners, L.P. owns storage complexes in the Gulf Coast region of the United States, with facilities in Houston and Beaumont, Texas. The company earned 75% of its revenues from storage services fees in 2010.
The Houston facility is the company's largest with 12.1 million barrels of existing storage capacity, and expansion room for another 7 million barrels. The company reports that nearly 100% of the existing storage is contracted as of March 31, 2011, with a weighted average contract life of 7.1 years.
The Beaumont facility has 5.7 million barrels of existing storage capacity and room for an additional 5.4 million barrels. The company has 97% of its storage space under contract with a weighted average contract life of 4.4 years.
Oiltanking Partners, L.P. anticipates significant growth in demand for crude oil and refined product storage facilities in the Gulf Coast area as operators continue to shift capital to develop oil formations in North America. This oil will have to be transported to refineries and stored either prior to use or afterwards after processing into refined products.
There are many pipelines under construction or being planned in the United States. Some of the companies involved in this construction include TransCanada (NYSE:TRP), Enterprise Products Partners (NYSE:EPD), Energy Transfer Partners (NYSE:ETP), Kinder Morgan Energy Partners (NYSE:KMP) and Magellan Midstream Partners (NYSE:MMP).
Many investors like MLP's for the healthy dividends that they pay out, and Oiltanking Partners, L.P. does not disappoint. The company plans an annual payout of $1.35 per common unit, giving a current yield of 5.5%.
The Bottom Line - Caveat Emptor
Although Oiltanking Partners, L.P. and other MLP's have a reputation as secure investments, investors should be aware that companies with a similar organizational structures have encountered financial problems in the past. In 2008, SemGroup Energy Partners L.P. encountered liquidity problems related to a hedging program and had to file for Chapter 11 bankruptcy protection. The company has since reorganized and become public as SemGroup (NYSE:SEMG). (These five qualitative measures allow investors to draw conclusions about a corporation that are not apparent on the balance sheet. Check out Using Porter's 5 Forces To Analyze Stocks.)
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