UPDATE 3-Targa Resources shares jump in NYSE debut

Tue Dec 7, 2010 4:16pm EST

Related Topics

* Shares close at $24.70, 12.3 pct above IPO price

* Shares trading on NYSE under symbol "TRGP"

* Oil, natgas price disparity good for midstream cos

* Targa, Kinder Morgan going public as corporations

* Corps can be more attractive than LPs as investments (Updates with closing price)

By Clare Baldwin and Anna Driver

NEW YORK/HOUSTON, Dec 7 (Reuters) - Shares of natural gas company Targa Resources Corp (TRGP.N) closed 12.3 percent above their initial public offering price on Tuesday as investors bet on natural gas and a more familiar corporate structure.

The shares opened at $24.10 and rose as high as $25.20 before retreating slightly to close at $24.70 in their stock market debut. The IPO price was $22.

Targa is controlled by private equity firm Warburg Pincus.

It is going public as a corporation but owns general and limited partner interests, including incentive distribution rights, in Targa Resources Partners (NGLS.N) which has access to natural gas reserves in the Permian Basin, Fort Worth Basin and onshore regions of the Louisiana Gulf Coast and the Gulf of Mexico.

Targa Resources Partners provides midstream natural gas and natural gas liquid services in the United States.

More and more U.S. exploration companies are drilling in areas where gas has a higher liquids content, in a bid to take advantage of the price disparity between oil and natural gas. The liquids, which include ethane and propane, can be stripped from the gas and sold for more than "dry gas."

Gas gathering, storage and processing companies, or midstream companies like Targa, could be well-positioned to benefit from higher natural gas liquids production.

Targa's structure as a corporation rather than a limited partnership makes it easier for some institutions and retail investors to buy in, said Morningstar midstream energy analyst Jason Stevens. Limited partnerships have tax advantages but operate under a different tax structure -- requiring different back-office support -- and are not always liquid enough for all investors, Stevens said.

Carlyle-backed [CYL.UL] pipeline company Kinder Morgan is also planning to go public as a corporation. The company in November filed to raise up to $1.5 billion in an IPO. [ID:nN23142136]

"The underlying assets are supporting stable cash flows. Those cash flows go into paying a pretty healthy distribution at the MLP level. Targa will pay a dividend based off of those cash flows," Stevens said.

Targa plans to pay an annual dividend of $1.03. It said in its prospectus that it expects to increase that dividend if its business ventures are successful.

Targa raised 31 percent more than expected in its IPO as it increased both the number of shares sold and the price.

Investors in the company sold 16.4 million shares for $22 each, raising about $360.3 million. They had been expected to sell 13.8 million shares for $19 to $21 each.

Underwriters on the IPO were led by Barclays Capital, Morgan Stanley, Bank of America Merrill Lynch and Deutsche Bank Securities. The shares trade on the New York Stock Exchange under the symbol "TRGP." (Reporting by Clare Baldwin in New York and Anna Driver in Houston; Editing by John Wallace, Matthew Lewis and Richard Chang)

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