Transocean partnership files for $350M IPO

HOUSTON – An ultradeep-water drillship operator that spun out of Transocean Ltd. is planning to hit public markets for $350 million, the firm said Monday.

Scotland-based Transocean Partners LLC, a master limited partnership, owns 51 percent stakes in two drill ships under contract with Chevron to drill in 12,000 feet of water in the Gulf of Mexico. The partnership also owns 51 percent of a semi-submersible offshore drilling rig contracted by BP to drill in 7,500 feet of water in the Gulf.

Master limited partnerships, corporate structures more commonly used by energy infrastructure companies, don’t pay corporate taxes, enabling them to shell out high cash distributions to investors. MLPs combine high yields and continuous growth to garner some of the largest returns on the market – the big reason Royal Dutch Shell and others have recently opted to spin off certain assets into new publicly traded firms.

Drilling partnerships are a new breed among MLPs, but  so far, they’ve paid off for investors, said Greg Reid, a managing partner at investment firm Salient Partners who heads up the firm’s MLP investment business in Houston.

“You wouldn’t have had that five years ago,” said Reid, who said Salient has $4 billion in assets under management to invest in the $720 billion energy MLP sector. “But we’ve basically been seeing companies widen the playing field. You’ve got a high growth market with a lot of IPO activity.”

The new MLP was part of Transocean’s deal with billionaire activist investor Carl Icahn late last year to bolster the company’s shareholder value and boost its cash flow. It also follows offshore driller Seadrill Ltd.’s spinoff of a similar business, Seadrill Partners LLC, in late 2012. Wall Street investors have embraced the Seadill Partners MLP, and have sent its unit price up 32 percent since its public debut — “a good investment,” Reid said.

As the Federal Reserve keeps interest rates low, yield-starved investors have flocked to MLPs.

Transocean Partners said it plans to add to its fleet by acquiring more rigs from Transocean Ltd. or other players, which will “enable us to increase our quarterly distributions,” the company said.

The Swiss rig contractor, owner of the Deepwater Horizon rig, would be required to give Transocean Partners a chance to make an offer on the drillships and the semi-submersible it operates, and a controlling stake in four under-construction drillships that are already contracted for deep-water work.

That’s how most MLPs that originate from other companies find much of their growth, Reid said.

They “essentially tell the market they’re going to do an orderly sale of future assets in the future, which will create accretion and cash flow growth,” he said. That growth “is what makes it attractive for investors.”

In regulatory filings, the firm said, “we have one of the most capable and technologically advanced fleets in the industry. We plan to invest both in growing our modern and reliable fleet and in continually maintaining the quality and operational integrity of our assets.”

The firm made $189 million in net income last year on $526 million in operating revenue. Its common units will trade on the New York Stock Exchange under the symbol “RIGP,” it said in regulatory filings on Monday.

The firm did not disclose Monday how many units it would sell, or for what price, in its initial public offering. It also did not confirm how many units its sponsor Transocean would own at the end of the IPO.