Dominion Midstream Partners, a Dominion Unit, Prices IPO - Analyst Blog

Dominion Resources, Inc.'s (D) subsidiary, a Delaware limited partnership Dominion Midstream Partners, LP (Dominion Midstream) announced the pricing of its initial public offering of 17.5 million common units. The units representing limited partner interest in Dominion Midstream were priced at $21 per unit. Dominion Midstream also offered the underwriters a window of 30 days to purchase up to an additional 2.625 million units at the same price.

Dominion Midstream's units are expected to start trading on the New York Stock Exchange on Oct 15, 2014 under the ticker symbol "DM." The offering is expected to close on or about Oct 20, 2014, subject to customary closing conditions.

On closing of the initial public offering, Dominion Resources through its subsidiaries will either hold 72.6% or 68.5% interest in Dominion Midstream, subject to the underwriters' discretion to exercise their full option to purchase additional common units.

New fracking technology has resulted in a shale gas boom in the U.S. This has in turn driven demand for pipeline services. Hence, we see an urgency among energy companies to form midstream partnerships, primarily concentrating on pipeline services.

Construction of new pipelines is capital intensive. A portion of the proceeds generated from the IPO will therefore be directed towards laying down new pipelines and strengthening existing infrastructure.

Natural gas production in the U.S. is expected to gradually go up as the authorities are granting permission to export gas. Moreover, its clean burning nature will see increasing uptake, particularly among the electric utilities, as they are bound to meet stringent emission standards. The decision to form an MLP was taken by Dominion Resources last year to reap the above mentioned benefits (read: Dominion Going the MLP Route).

Increasing demand for pipeline services, assured return on investment and the tax benefits enjoyed by MLPs are some of the reasons that are attracting more U.S. energy companies this way. In June this year, CONSOL Energy Inc. (CNX) and Noble Energy Inc. (NBL) also decided to join the MLP bandwagon (read:CONSOL Energy and Noble Energy to form Midstream MLP).

Going forward, the U.S. pipeline service business has ample growth opportunities, which will not only accommodate the new entrants in this space but leave enough room for old pipeline operators like Plains All American Pipeline, L.P. (PAA) among others.

Dominion Resource currently has a Zacks Rank #3 (Hold).

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