The good news is the distribution will bump up almost immediately to $1.56, or .39 cents a share per quarter if only to kick in the incentive distribution rights for our GP (.388 is the threshold). The bad news is the incentive distribution rights entitle our GP to 50% of our operating surplus above there. I am by no means an expert in MLPS and someone who is, please opine here about whether this is normal and routine. Thank you.
Almost every MLP has a different IDR scheme between the GP and the LPs. IF you believe the GP has favourable terms then buy the GP's shares or vice versa with the LPs units. Here's a link to a two year overlay chart of Eneterprise Products GP <EPE> and the LP <EPD>. You'll see the GP has outperformed the LP.
An IDR of 50% has not been uncommon for MLPs, but there is a move toward eliminating the GP that collects it. SPH, BGH, NRGY and most recently EDP, among others, have or are buying their GPs or eliminating the IDR split.
As a newborn and controllee of CHK, I doubt CHKM can follow that pattern, however. CHK will likely drop down lots of assets to CHKM, because CHK wants/needs the cash. But CHK also will want the IDRs. I expect asset drop downs will benefit CHKM's distribution rates and market value, but that benefit will be less and less as they approach the "high splits". That'll probably be a good time to review my investment thesis on CHKM!
IDRs are distasteful but they are normal and routine. Established blue-chip MLPs like Kinder Morgan have been paying out max IDRs for several years. A few companies have begun taking the initiative and getting rid of them (like MMP), but they could do that because their GP was publicly traded and MMP could just buy them on the open market.
That said, CHKM is in better position than most. The IDR gets introduced on a sliding scale -- no IDR for the next 15% or so of distribution growth, then it starts at 15%, not 50%. It only hits 50% once the distribution gets to $2, so you get at least a couple years of faster growth.