$1.6 billion cash and stock deal by Noble Energy

Houston-based Noble Energy Inc.  and its Noble Midstream Partners LP  master limited partnership announced a $1.6 billion cash-and-stock deal that will simplify the companies’ midstream operations.

The deal, which closed Nov. 14, is the conclusion of Noble Energy’s strategic review of its midstream business, according to Nov. 15 press releases. It includes the MLP acquiring all of Noble Energy’s remaining midstream interests and the elimination of the latter’s incentive distribution rights.

The MLP will pay Noble Energy an estimated $670 million in cash and 38.5 million of newly issued common units of NBLX valued at $930 million. That brings Noble Energy’s ownership in the MLP to 56.5 million units, or about 63 percent, and it retains ownership and control of the MLP’s general partner. Noble Energy has a 180-day lock-up period in which it cannot sell its NBLX units.

According to the two press releases, Noble Midstream acquired:

  • The remaining 60 percent interest in Blanco River DevCo LP in the Delaware Basin portion of the Permian Basin, including oil, gas and produced water in-field gathering
  • The remaining 75 percent interest in Green River DevCo LP, including oil, gas and produced water in-field gathering as well as fresh water delivery, in the Mustang area of the Denver-Julesburg Basin
  • The remaining 75 percent interest in the San Juan River DevCo LP, which provides fresh water delivery in the East Pony area of the DJ Basin
  • A 100 percent working interest in the East Pony area natural gas gathering and processing system

“With a significant amount of the backbone infrastructure complete and Noble Energy’s deep drilling inventory in both the DJ and Delaware basins, these assets are expected to further drive our capital efficiency beyond our successful 2019 levels,” Noble Midstream CEO Brent Smolik said in his company’s release. Smolik became CEO after Terry Gerhart resigned in August along with former COO John Nicholson, according to a filing with the U.S. Securities and Exchange Commission.

The acquired assets’ 2020 earnings before interest, taxes, depreciation, depletion and amortization were expected to be about $160 million, according to Noble Energy. Additionally, the eliminated incentive distribution rights would have distributed an estimated $40 million to Noble Energy.

“The transaction announced today highlights significant midstream value within Noble Energy, while simplifying the structure of Noble Midstream,” Noble Energy Chairman and CEO David Stover said in a release. “Retaining ownership of these assets through the NBLX structure enhances our business with steady and growing cash flow with lesser volatility from commodity prices. Noble Midstream will continue to play a critical role in Noble Energy’s execution and capital-efficient development onshore, where we have a deep inventory of high-return upstream investment opportunities.”

The deal immediately lowers the MLP’s cost of capital and enhances the companies’ alignment, Noble Midstream CFO Tom Christensen said in the other release.

“This transaction results in a self-funding midstream entity with increased exposure to two high-return onshore basins as well as promising equity barrel value opportunities,” Christensen said in the release. “By recalibrating our distribution, we retain a leading distribution growth rate relative to peers while better aligning the distribution with midstream investor expectations.”

The board of directors of Noble Midstream GP LLC was advised by BofA Securities on financial matters and Mayer Brown LLP on legal matters, the board’s conflicts committee was advised by Baird on financial matters and Baker Botts LLP on legal matters, and Noble Energy was advised by Citi on financial matters and Vinson & Elkins LLP on legal matters.

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