This is threatening to become another record year for MLP IPO filings. The mark to shoot for was set last year, when 21 new MLPs went public. So far, this year has seen 18 (one of them outside the energy sector) and more than a dozen more have filed paperwork with the Securities and Exchange Commission.

Last week saw the announcement of two new filings: Azure Midstream (AZUR) in a $175 million filing and Smart Sand Partners (SSLP) filing to raise up to $100 million.

Azure actually filed its IPO paperwork confidentially on Oct. 3, but it was just made public last week. The partnership provides natural gas gathering, compression, treating and processing services in North Louisiana and East Texas in the Haynesville and Bossier shale formations, the Cotton Valley formation and the Travis Peak formation. Its midstream assets come mostly from the November 2013 acquisition of TGGT, a joint venture formed in 2009 by two of Azure Midstream’s largest customers, BG Group (London: BG) and EXCO Resources (NYSE: XCO). At the same time, Azure Midstream also acquired ETG, which comprises the remainder of its initial assets, from Tenaska Capital Management.

Initial assets will consist of a 40% limited partner interest in Azure Midstream Operating, as well as the general partner interest in Azure Midstream Operating. Through the ownership of Azure Midstream Operating’s general partner, the partnership will control all of Azure Midstream Operating’s assets and operations. Azure Midstream has a right to acquire the remaining 60% limited partner interest in Azure Midstream Operating from Azure Midstream Holdings prior to that interest being sold to a third party. Azure Midstream Operating’s gathering systems include pipelines spanning 1,365 miles, which gathered nearly 1 billion cubic feet/day of natural gas during the nine months ended Sept. 30.

During the same period, more than 90% of revenue was generated under long-term, fixed-fee and fixed-spread natural gas gathering and sales agreements. Contracted revenue under minimum volume and revenue commitments represented approximately 57% of revenue.

For the 12 months through Sept. 30, the partnership had revenue of $183 million and distributable cash flow attributable to Azure Midstream Partners of $18.7 million. For the 12 months through next  September, the partnership projects distributable cash flow to rise to $29.5 million.

Fracking sand MLPs Hi-Crush Partners (NYSE: HCLP) and Emerge Energy Services (NYSE: EMES) soared following their IPOs, and despite sharp corrections for both they are still up triple digits from their respective 2012 and 2013 IPOs. Smart Sand Partners is hoping to follow in their footsteps (minus of course the sharp correction).

Like the previous two fracking sand MLPs, SSLP produces Northern White frac sand from sand mines and a processing facility in Wisconsin. Its integrated facility has on-site rail infrastructure and wet and dry sand processing facilities, enabling the delivery of approximately 2.2 million tons of frac sand per year. As of June 30, SSLP had approximately 217 million tons of proven recoverable sand reserves and 64 million tons of probable recoverable sand reserves.

SSLP has contracted 96% of its production capacity under fixed price contracts with weighted average remaining contract life of 2.7 years. For the 12 months ended Sept. 30, the partnership had revenue of $52 million and estimated distributable cash flow of $16 million that would have been available to investors. For the 12 months ending next September the partnership projects that distributable cash flow will explode to $71 million. This increase is primarily attributable to the anticipated sale of 2.4 million tons of frac sand, up from just 500,000 tons sold in 2013.

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Portfolio Update

Alliance Still Turning Coal Into Fat Profits   

Alliance Holdings (NASDAQ: AHGP) and its coal mining operating affiliate Alliance Resources (NASDAQ: ARLP) delivered yet another quarter of strong results last month.

Coal sales tonnage was up 3.4%, pricing improved by 2.3%, while costs per ton fell by 2.6%, all year-over-year. While the Illinois Basin remains the partnerships’ biggest producer and main growth focus, this time it was the Tunnel Ridge mine near Wheeling, West Virginia that delivered much of the upside, cranking up low-cost, high-price production. ARLP raised its EBITDA guidance for the year.

Founder Joseph Craft did warn of coal market weakness in 2015 as a result of the unusually cool summer that reduced electricity demand, as well as slumping coal exports. He also noted that utilities fearful of new environmental regulations now prefer to purchase their coal quarter by quarter. As a result, while production at Alliance’s newest mine will still quadruple next year, Alliance will postpone further expansion there until demand improves.

But the partnership’s challenges, which also include railways clogged with oil and grain, shouldn’t be overstated. Consolidated distributable cash flow was up 28% year over year. That was more than enough to support a 10.5% year-over-year increase in AHGP’s distribution, for a yield of 5% at the current unit price.

The 8.5% increase in the distribution to ARLP limited partners still produced coverage of 1.75x. That makes it highly likely that Alliance will be able to continue increasing its payouts at a comparable pace well beyond next year.

More than 75% of next year’s likely coal production has already received pricing commitments, along with 55% or so of the plausible output in 2016. Craft said final pricing for 2015 should be only marginally lower than this year, in the neighborhood of 50 cents per ton, or less than 1%.

He also noted the partnership continues to consider “simplification” options given the convergence of the yields of AHGP and ARLP, despite AHGP’s stronger growth prospects as the harvester of generous incentive distribution rights that entitle it to a growing share of ARLP’s cash flow. The most obvious and practical simplification, in our opinion,  would be a buyout of AHGP by ARLP at a healthy premium.

The partnership’s balance sheet remains almost entirely unlevered with debt at less than one year’s EBITDA, which puts it in a great position to pick up additional assets should highly leveraged competitors need to sell or go into bankruptcy. Curtailment of unprofitable production should also provide a boost to coal prices.

The unit price rose nearly 9% over the last month. Buy AHGP below $77.

— Igor Greenwald