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Based in Houston, Texas, Oiltanking Partners, L.P. (proposed symbol OILT) scheduled a $200 million IPO with a market capitalization of $800 million at the price range mid-point of $20 for Thursday, July 14.

The owner of OILT’s general partner is one of the strongest in the business, Oiltanking GmbH, which gives OILT credibility and cash distribution visibility.

At the price range mid-point of $20, the anticipated annual distribution is 6.8%, which is near the high range (higher is better) of the market. The pro-forma coverage ratio was 111% for the year ended December 31, 2010. The forecast coverage ratio for the 12 months ending June 30, 2012 is 114%.

The two companies we follow that pay equivalent or higher rates have both declined in stock price in the last three months and sell for 2.1 times book value. OILT expects to sell for 3.1 times book value (lower is better), the bottom of the range for the companies which are more comparable.

OILT may be a sleeper that edges up, even though comparable companies listed below showed an average slight decrease for the three months ended July 7.

Mrkt

Price-to-

Stock Price

StockPrice

3 month

Cap (mm)

Yield

book ratio

April 7 '11

July 7 '11

change

Oiltanking L.P. ("OILT")

$800

6.8%

3.1

Mid stream limited partnerships

Current yield

SORTED BY YIELD

Energy Transfer LP (NYSE:ETP)

$10,250

7.3%

2.1

$53.18

$49.18

-7.5%

Oiltanking L.P. (NYSE:OILT)

$800

6.8%

3.1

Copano Energy LLC (NASDAQ:CPNO)

$2,310

6.6%

2.1

$35.66

$34.98

-1.9%

Kinder MorganEnrgy LP (NYSE:KMP)

$23,490

6.2%

3.3

$74.17

$73.66

-0.7%

DCP Midstream Prtnrs (NYSE:DPM)

$1,840

6.1%

3.1

$40.96

$41.74

1.9%

Enterprise Prod L.P. (NYSE:EPD)

$37,040

5.5%

3.3

$43.48

$43.40

-0.2%

Williams Partners L.P. (NYSE:WPZ)

$15,870

5.3%

3.1

$53.00

$54.76

3.3%

Average 3 month price change

-0.01

SORTED BY PRICE-TO-BOOK VALUE

Kinder MorganEnrgy LP

$23,490

6.2%

3.3

$74.17

$73.66

-0.7%

Enterprise Prod L.P.

$37,040

5.5%

3.3

$43.48

$43.40

-0.2%

Oiltanking L.P.

$800

6.8%

3.1

DCP Midstream Prtnrs

$1,840

6.1%

3.1

$40.96

$41.74

1.9%

Williams Partners L.P.

$15,870

5.3%

3.1

$53.00

$54.76

3.3%

Energy Transfer LP

$10,250

7.3%

2.1

$53.18

$49.18

-7.5%

Copano Energy LLC

$2,310

6.6%

2.1

$35.66

$34.98

-1.9%

Sources: Google Finance, OILT's S-1

OILT is a growth-oriented Delaware limited partnership formed to engage in the terminaling, storage and transportation of crude oil, refined petroleum products and liquefied petroleum gas. Within the energy industry, storage and terminaling services are the critical logistical midstream link between the exploration and production sector and the refining sector.

The general partner is Oiltanking Holding Americas, Inc., a wholly owned subsidiary of Oiltanking GmbH, based in Hamburg, Germany. Oiltanking GmbH is the world’s second largest independent storage provider for crude oil, refined products, liquid chemicals and gases.

OILT is projectiing a minimum cash distribution of $0.3375 per unit for each complete quarter, or $1.35 per unit on an annualized basis, or $53.6 million per year, which is a 6.8% annualized return at the price range mid-point of $20.

The pro-forma coverage ratio was 111% for the year ended December 31, 2010: $59.6mm / $53.6mm. The forecast coverage ratio for the 12 months ending June 30, 2012 is 114%: $61.6mm / $53.6mm. See pages 45 & 46 in the S-1 filing.

OILT’s Houston and Beaumont terminals collectively provide storage and terminaling services to a broad mix of customers including major integrated oil companies, refiners, marketers, distributors and chemical and petrochemical companies.

As of December 31, 2010, OILT’s Houston terminal had 17 customers with terminal services agreements and its Beaumont terminal had 16 customers with terminal services agreements. For the year ended December 31, 2010, OILT’s five largest customers were affiliates of BP p.l.c. (NYSE:BP), LyondellBasell Industries (NYSE:LYB), Enterprise Products Partners, Exxon Mobil Corporation (NYSE:XOM) and Royal Dutch Shell plc (NYSE:RDS.B), which accounted for a total of 61% of revenues, with each customer individually representing 14%, 12%, 12%, 12%, and 11%, respectively, of revenues during that period. No other customer accounted for more than 10% of OILT’s revenues during the year ended December 31, 2010.

OILT’s Houston and Beaumont terminals contract with their customers to provide firm storage and terminaling services, for which they charge storage services fees, throughput fees and ancillary services fees.

The terminal services agreements at OILT’s Houston and Beaumont terminals typically have terms of five to 20 years, and one to five years, respectively. OILT’s general contracting philosophy at both Houston and Beaumont is to commit a high percentage of available storage capacity to multi-year terminaling services agreements at attractive rates, while simultaneously contracting for terminal services with non-storage customers based on throughput volumes.

As of March 31, the weighted-average remaining tenor of OILT’s existing portfolio of terminal services agreements is 7.1 years at the Houston terminal and 4.4 years at the Beaumont terminal.

OILT believes the weighted-average life of customer contracts at the Beaumont terminal is shorter than at the Houston terminal because a significant portion of Beaumont terminal customers are traders and marketers of vacuum gas oil, who tend to seek shorter term storage contracts as compared to end-users such as refineries.

Many of OILT’s customers are currently in the renewal portion of their contracts, which typically constitutes a year-to-year timeframe. Although these customers are year-to-year, they have been customers at the terminals, in some cases, for more than 10 years.

The main competition at OILT’s Houston terminal location for OILT's crude oil handling and storage are two other terminals operated by Enterprise Products Partners and Houston Fuel Oil Terminal Company. OILT currently operates the only independent vacuum gas oil and clean petroleum products handling and storage service businesses in the Beaumont/Port Arthur petrochemical and refining complex. OILT anticipates that any competition in those areas would come from the entry of a new competitor into the region.

Use of Proceeds of $183mm:
• Repay $119.5 million of intercompany indebtedness owed to Oiltanking Finance B.V.
• Reimburse Oiltanking Finance B.V. for $7.1 million of fees incurred in connection with repayment of such indebtedness.
• Make a distribution to OTA in the amount of $33.0 million.
• Provide working capital of $23.4 million.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Source: IPO Preview: Oiltanking Partners, L.P.