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Based in Kansas City, Missouri, Inergy Midstream, L.P. (NRGM) scheduled a $320 million IPO with a market capitalization of $1.5 billion at a price range mid-point of $20 for Friday, December 16, 2011.

11 IPOs to raise $3.5 billion week of December 12, includes Zynga. See the full IPO calendar.

SUMMARY &VALUATION

NRGM has a strong "parent" -- Inergy, L.P. (NRGY) ($3.1 billion market cap). We believe it is important for an L.P. to have a strong operating parent, rather than a private equity firm.

NRGM LP intends to pay an annual yield of 7.4%, which compares favorably with other mid-stream L.P., including Copano Energy (NASDAQ:CPNO) (6.8%), Kinder Morgan Energy (NYSE:KMP) (5.9%), DCP Midstream (NYSE:DPM) (5.7%), Enterprise Productions (NYSE:EPD) (5.4%), although Energy Transfer (NYSE:ETP) pays 8.1%. (Source: Google Finance)

One caveat concerns NRGM’s planned incentive distributions, where 50% in excess of the minimum quarterly distribution goes back to the general partner.

We believe NRGM is ok to take on the IPO if it helps your broker, but we are not particularly enthusiastic about it.

BUSINESS

NRGM was formed by Inergy, L.P., $3.1 billion market cap) to own, operate, develop and acquire midstream energy assets.

NRGM’s current asset base consists of natural gas and NGL storage and transportation assets located in the Northeast region of the United States.

NRGM owns and operate four natural gas storage facilities located in New York and Pennsylvania that have an aggregate working gas storage capacity of 41.0 Bcf with high peak injection and withdrawal capabilities.

NRGM also own natural gas pipelines located in New York and Pennsylvania with 30 MMcf/d of intrastate transportation capacity and, upon completion of two pipeline projects that are currently under development, NRGM will own 875 MMcf/d of interstate transportation capacity.

In addition, NRGM will own and operate a 1.5 million barrel NGL storage facility located near Bath, New York.

NRGM’s near-term strategy is to continue to develop a platform of interconnected natural gas assets that can be operated as an integrated Northeast storage and transportation hub.

PARENT

Inergy, L.P. owns and operates a retail and wholesale propane supply, marketing and distribution business.

It also owns and operates a growing midstream business that includes four natural gas storage facilities, including Stagecoach, Steuben, Thomas Corners and Tres Palacios; a liquefied petroleum gas storage facility (Finger Lakes LPG); a natural gas liquids business, and a solution-mining and salt production company (U.S. Salt).

During the fiscal year ended September 30, 2010 (fiscal 2010), it sold and physically delivered 340.2 million gallons of propane to retail customers and 415.3 million gallons of propane to wholesale customers.

On October 14, 2010, it completed the acquisition of Tres Palacios Gas Storage, LLC. On October 19, 2010, it completed the acquisition of the propane operating assets of Schenck Gas Services, LLC. On November 15, 2010, it completed the acquisition of the propane assets of Pennington Energy Corporation.

INITIAL QUARTERLY DISTRIBUTION

  • NRGM plans on paying an initial quarterly distribution of $0.37 per unit for each complete quarter, or $1.48 per year. This equates to an aggregate cash distribution of $27.7 million per quarter, or $110.7 million per year.
  • Annualized rate is 7.4% at the price range mid-point of $20

S-1, page 50

COVERAGE OF 2012’s DISTRIBUTION

NRGM believes its estimated available cash for distribution for the twelve months ending December 31, 2012 will not be less than $121.0 million.

This amount of estimated minimum available cash for distribution is $47.8 million, or 65%, more than the unaudited pro forma available cash for distribution for the fiscal year ended September 30, 2011.

Substantially all of this increase in available cash for distribution is attributable to additional storage and transportation capacity NRGM recently acquired or expects to place into service and for which NRGM has secured contracts for substantially all incremental capacity

INCENTIVE DISTRIBUTION

As of the date of the IPO, NRGY (the parent) will hold the incentive distribution rights, which entitle the holder to 50.0% of the cash we distribute in excess of $0.37 per unit per quarter.

COMPETITION

The oil and natural gas industry is intensely competitive, and NRGM competes with other companies in the industry that have greater resources than NRGM, especially in NRGM’s focus areas. Many of these companies not only explore for and produce oil and natural gas, but also carry on refining

USE OF PROCEEDS

Of $297 million plus expected borrowings of $83 million

  • Pay $300 million of debt
  • Balance to fund a cash distribution to NRGY

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Source: IPO Preview: Inergy Midstream, L.P.