* 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," Gaskins said.
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 Desktop.
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, analysts said.
"The entire IPO market is in a virtual state of siege right now," said Scott Sweet, senior managing partner at the IPO Boutique.
"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) (For more M&A news and our DealZone blog, go to here)