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BP plc (ADR) (BP) Stock Looks for an IPO Gusher

As expected, BP plc (ADR) (NYSE:BP) has filed the necessary papers for the initial public offering of its U.S.-based pipeline business. The unit is called BP Midstream Partners LP, which is in the form of a Master Limited Partnership (MLP). The underwriters on the deal include Citigroup Inc (NYSE:C), Goldman Sachs Group Inc (NYSE:GS) and Morgan Stanley (NYSE:MS).

However, the filing does not provide details on the amount to be raised. But a good estimate would be over $500 million, in light of the scale of the business. BP also plans to list the shares on the NYSE, with the ticker of BPMP.

On the news of the filing, the impact on BP stock has been muted. But then again, the energy sector has been in a funk lately, as seen with the performances of other mega oil operators like Exxon Mobil Corporation (NYSE:XOM) and Chevron Corporation (NYSE:CVX).

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Background on BP Midstream Partners

BPMP, which is an entity that was recently formed, has assets that focus on transporting energy assets onshore to BP’s Whiting Refinery and offshore production to key refining market hubs. In all, there is one onshore crude oil pipeline, one onshore system for refined products, four offshore crude oil pipelines, an interest in an offshore gas pipeline and one onshore diluent pipeline network.

In terms of the monetization, much of the revenues are based on long-term agreements. According to the S-1 from BPMP: “[T]hese agreements will promote stable and predictable cash flows.”

MLP spin-offs have been popular during the past few years. Just some of the other energy operators that have pulled off deals include Royal Dutch Shell plc (ADR)(NYSE:RDS.A), Marathon Petroleum Corp (NYSE:MPC) and Valero Energy Corporation (NYSE:VLO).

One key advantage is taxes. The MLP structure allows for a pass-through of earnings to shareholders. All in all, this helps to maximize cash flows.

But of course, an MLP spin-off can be a good source of cash. And this is certainly important for BP. Even though the company has done a good job of dealing with the impact of the blowout of the Deepwater Horizon in 2010, the fact is that there are still ongoing payments for fines and legal judgments. During the latest quarter, they came to more than $4 billion.

And finally, an MLP spinoff can allow for more focus within the organization. Let’s face it, energy companies can be sprawling.

What’s more, as for the spin-off, the company should also have more ability to maneuver. Consider that the CEO of BPMP is Robert Zinsmeister who served as the chief operating officer for M&A (Mergers & Acquisitions) for BP.

In other words, there’s a good bet he’ll try to pump up growth with dealmaking.

Bottom Line Midstream Partners IPO

As I’ve noted in posts for InvestorPlace.com, I’ve been bullish on BP stock. No doubt, a big attraction is the 6.8% dividend yield.

Yet there is more to the story than this. Consider that BP stock is likely to get a lift from renewed growth in the core businesses. For this year, three of seven major projects have come online – and they have exceeded expectations. The company is also making investments in the Gulf of Mexico.

But another factor has been the effort to rationalize the assets. And the BPMP IPO should help with this.

OK then, how might the offering perform? Well, it’s really tough to say. While BPMP has quality assets, the pricing on the deal has not been set. Keep in mind that this will not happen until a couple months.

Although, if anything, the fact that BP has pulled the trigger on the IPO is a sign of overall confidence in the energy market – which should bode well for the deal.

Tom Taulli runs the InvestorPlace blog IPO Playbook and is also the author of High-Profit IPO StrategiesAll About Commodities and All About Short SellingFollow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.

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