Initial public offerings by Hess Midstream Partners LP and Antero Midstream Partners LP's general partner indicate a further thaw of capital markets for midstream master limited partnerships sponsored by oil and gas drillers after the sustained industry downturn of 2014-2016.
With higher, more stable commodity prices and increased U.S. production, KPMG's Tony Bohnert said in an interview, the IPO market is now more receptive to this corner of the midstream sector than in 2015 and the first half of 2016.
"If you look at Noble Midstream Partners LP, which was the first IPO to get done in well over a year, and now Antero and Hess on the heels of that, there are some unique dynamics to them," said Bohnert, KPMG's deal advisory partner for energy, natural resources and chemicals. "The main one being ... you've got a very strong general partner, an upstream oil and gas company that can dedicate production volumes to those assets so the public equity holders are comfortable that there's a continuous stream of revenue out there. ... It's got to be a built-in vehicle for continued growth, so that's the common denominator."
Hess Midstream Partners began its IPO of 12,500,000 common units March 27, with units expected to be priced between $19 and $21, part of a bid to capitalize on growing Bakken Shale production and pursue acquisitions of complementary midstream assets.
The owner of Antero Midstream Partners' general partner interests filed the same day to sell $100 million of common shares, following the February announcement of a joint venture between the partnership and MPLX LP subsidiary MarkWest Energy Partners LP to develop Marcellus Shale rich-gas acreage in West Virginia and expand gas processing facilities to support the resulting production growth.
Greg Matlock, U.S. master limited partnership leader at the business consulting firm EY, also emphasized the themes of cash flow stability and growth. "Although the MLP IPO market has not been as robust as it was a couple of years ago, many companies continue to evaluate growth and access to capital, with an IPO being an option to achieve both goals," he said in an email. "For companies that have [accessed] or plan to access the public markets for an IPO this year, the decision to do so and the work required to effect that decision has commenced some time ago."
That decision to exercise IPOs could reflect a broader optimism about the industry's trajectory, Bohnert said. "Companies want to try and get into today’s valuations knowing that there's very likely increased upside over the next few years," he said.
Midstream companies that are "just going out and acquiring assets" without backing from a production company, however, will not necessarily be able to access IPO markets, Bohnert added. "That brand of MLP would have a tougher time."