* Chesapeake Midstream may benefit from strong name
* Tough market for IPO debut
By Jessica Hall
PHILADELPHIA, Feb 26 The initial public
offering of Chesapeake Midstream may get a boost from a thirst
for energy-related companies and the natural gas firm's
affiliation with big parent company Chesapeake Energy Corp
(CHK.N), analysts said.
Chesapeake Midstream is a limited partnership formed by
Chesapeake Energy, a $17 billion company, and Global
Infrastructure Partners, an independent infrastructure
investment fund. Chesapeake Midstream will own, operate,
develop and acquire natural gas gathering systems and other
midstream energy assets.
"This is a high profile, high marque company, with cash to
distribute, if anyone does their homework they realize the risk
is for smaller companies without a big partner backing them,"
said Francis Gaskins. who analyzes IPOs for IPO Desktop.
"In this business, bigger is better. They have a powerful
parent, good growth opportunities and visible cash flow,"
Chesapeake Midstream filed earlier this month for its $345
million IPO. It treats, compresses and transports natural gas
from wellheads to third party pipelines. Its systems consist of
2,810 miles of gathering pipelines, servicing over 3,500
natural gas wells.
The Oklahoma City-based Chesapeake Midstream reported
revenue of $358.9 million in the nine months ended Sept. 30, up
52.9 percent from a year earlier. The company posted a net loss
of $17.4 million compared with a profit of $165.9 million in
the year-earlier period.
Operating expenses grew by more than 50 percent and
depreciation and amortization, and general and administrative
expenses more than doubled. The company also posted an
impairment expense of over $90 million.
The two largest customers for Chesapeake Midstream are
Chesapeake Energy and and Total SA (TOTF.PA), Chesapeake's
upstream joint venture partner in the Barnett Shale region.
Chesapeake Energy accounted for about 98 percent of revenue in
the nine months ended Sept. 30.
Energy-related companies with strong parent companies as
affiliates have performed well since their IPOs. Williams
Partners (WPZ.N) and El Paso Pipeline EPB.N have risen about
90 percent since their IPOs in January 2008 and November 2007,
respectively, according to IPO Desktop.
Other mid-stream IPOs have had mixed performances. Targa
Resources Partners NGLS.N has risen 17 percent since its
February 2007 IPO, while SandRidge Energy (SD.N) has fallen 82
percent since its November 2007, offering, according to IPO
TOUGH TIME TO DEBUT
Despite having a well-known parent affiliate, Chesapeake
Midstream aims to debut at a difficult time for IPOs.
Chesapeake Midstream filed for its IPO at a time when the
IPO market has seen limited activity, several postponed deals,
and many below-expectation debuts across a variety of sectors,
"The entire IPO market is in a virtual state of siege right
now," said Scott Sweet, senior managing partner at the IPO
"Even though Chesapeake has an extremely well-known name
and isn't going away, I would be leery," Sweet said. "This is a
newly formed limited partnership and there's so many LPs out
there that it's a crowded space right now. I would direct
investors to LP names that are already currently trading."
Chesapeake Midstream said it would use proceeds from the
offering to repay outstanding credit, for capital expenditures,
working capital, and general purposes including acquisitions.
The underwriters are being led by Citi and Morgan Stanley.
The company plans to list on the New York Stock Exchange under
the symbol "CHM" CHM.N.
(Reporting by Jessica Hall; Editing by Tim Dobbyn)
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