Hess Midstream Partners LP (Pending:HESM) filed an S-1/A with the Securities and Exchange Commission for its upcoming initial public offering. The company is offering 12,500,000 shares of its common stock at a marketed price range of $19 to $21. It also has an additional 1,875,000 shares as an overallotment option for its underwriters. It is expected to price on April 5, 2017.
The joint book-running managers for the IPO include Goldman Sachs & Co., Morgan Stanley, Citigroup, J.P. Morgan, MUFG and Wells Fargo Securities. The co-managers include ING, Scotia Howard Weil, SMBC Nikko, Barclays, HSBC and TD Securities.
Business summary
Initially formed in 2014 by Hess, Hess Midstream Partners LP acquires, develops, operates and owns midstream assets in order to provide services to third-party customers and Hess. It owns storage and pipeline assets in the Bakken Shale. For the 12 months that ended on Dec. 31, 2016, the company reports that it had $510 million in sales.
Executive management
The company reports that because it is a limited partnership, Hess Midstream Partners GP executives and board of directors manage Hess Midstream Partners LP. It reports that at the close of its IPO, Hess Midstream Partners GP LLC will have a minimum of six directors, three of whom will be directors of Hess Midstream Partners LP.
Financial highlights and risks
Hess Midstream Partners LP reports it had total sales of $509.8 million and $565.1 million for the years ending on Dec. 31, 2016, and Dec. 31, 2015, respectively. The company also reported it had net incomes for those two years of $206.3 million in 2016 and $193.4 million in 2015.
Among its risk factors, Hess Midstream Partners LP identifies the fact that it derives nearly all of its revenues from Hess Midstream Partners GP LLC, and if it changed its business strategy, the company's business would suffer drastically. The company also reports that the wells in its area are declining, and its continued success depends on its procurement of new wells and sources.
The company plans to use its proceeds by distributing $218.1 million to its sponsors, using $10 million for general partnership purposes and paying $3.8 million for origination fees of its revolving credit facility.
Competitors
The company faces high competition from a number of other midstream companies including large companies that have far greater resources and assets than Hess does.
If HESM prices at the midpoint of its proposed range, it would have a market cap of $1.19B and P/S of 2.19x. This is slightly higher than a similar company, Enbridge (NYSE:ENB), also operating in the Bakken, and just slightly above the industry average of 2.1.
Conclusion: Consider A Modest Allocation
The oil and gas industry is highly volatile, and Hess Midstream Partners LP is almost entirely dependent on Hess Midstream Partners GP LLC. While it has enjoyed profits in its short history, we recommend a modest allocation in this upcoming IPO, at most.
The regulatory environment is apparently favorable yet continues to remain very unclear.
We hear this deal could price significantly above its proposed range.
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