Noble Midstream to Acquire Interest from Noble Energy (NBL)

Noble Energy, Inc. NBL and Noble Midstream Partners LP NBLX signed a definitive agreement, as per which the latter will acquire additional interests worth $270 million in Colorado River DevCo LP and Blanco River DevCo LP from the former. Notably, Noble Midstream is a growth-oriented master limited partnership formed by Noble Energy to own, operate, develop and acquire domestic midstream infrastructure assets.

Post this acquisition, Noble Midstream's (or Partnership) stake in Colorado River DevCo will increase from 80% to 100% and in Blanco River DevCo from 25% to 40%. After the completion of the acquisition Noble Energy will still hold 60% interest in Blanco River DevCo.

Terms of the Agreement

Per the deal, Noble Energy will gain $270 million from Noble Midstream, including $245 million in cash and 562,430 common units which will represent limited partner interests in the Partnership ("common units"). To fund this amount, the partnership plans a concurrent private placement of common units worth $143 million and the rest of $102 million in terms of borrowing under the Partnership's credit facility.

On closure of the acquisition, Noble Energy will own a 50.1% limited partner interest in Noble Midstream. The acquisition is expected to close before the end of the second quarter, subject to the satisfaction of customary closing conditions.

What Comes Next

Noble Midstream plans to allocate about 40%–50% of its gross capital budget of 2017 for the construction of four central gathering facilities and backbone pipeline infrastructure at Blanco River DevCo. This will also benefit Noble Energy in its Delaware Basin activity. The four central gathering facilities' oil capacity is expected to go as high as 120 thousand barrels per day (MBOE/D) by 2018 end.

Colorado River DevCo has an approximate capacity of 45 MBOE/D and Noble Midstream expects that its oil and gas throughput growth will increase by 15% in the second quarter of 2017 as compared with the first quarter.

Recent Activities by Noble Energy

Noble Energy is currently focusing on best-return assets and cost savings is helping to bolster results. In this line, Noble Energy's Rosetta Resources acquisition has enhanced its presence in the resource-rich Eagle Ford Shale and Permian Basin. Additionally, the acquisition of Clayton Williams Energy has further strengthened its position in onshore U.S. The company expects production volumes to improve sequentially due to higher number of wells brought online in the DJ Basin, Eagle Ford and the Delaware area.

On the other hand, Noble Energy is shifting its focus to oil-rich basins where drilling cost is low. Toward this end in May 2017, the company announced the sale out of its stake in CONE Gathering LLC for $765 million cash to Quantum Energy Partners. Per the terms of the sale, the company will hand over 50% of interest in CONE Gathering along with 21.7 million common and subordinated limited partnership units to Quantum Energy Partners. These 21.7 million limited partnership units signified 33.5% ownership of Noble Energy in CONE Midstream Partners LP CNNX. (Read more: Noble Energy to Sell Marcellus Assets to Quantum Energy)

Price Movement

In the last one month shares of Noble Energy have reported a loss of 8.7% narrower than Zacks categorized Oil and Gas - Exploration and Production – United States Industry's loss of 11.5%.

A stringent drilling regulations and lack of adequate infrastructure facilities near its drilling zones might have impacted the performance of the company.

Zacks Rank and Other Stock to Consider

Noble Energy currently has a Zacks Rank #3 (Hold). A better-ranked stock in the same space is W&T Offshore, Inc. WTI, carrying a Zacks Rank 2 (Buy). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.

W&T Offshore, Inc. delivered a positive earnings surprise of 77.78% in the first quarter. Its Zacks Consensus Estimate for 2017 moved up by 36.2% to 79 cents per share in the last 60 days.

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