Industry experts are split on whether Chevron Corp. will sell or keep pipeline unit Noble Midstream Partners LP after the supermajor acquires independent producer Noble Energy Inc., even as public and private midstream companies remain hesitant to engage in corporate-level mergers and acquisitions.
During a July 20 conference call about Chevron's $13 billion bid for Noble Energy, Chairman and CEO Michael Wirth declined to go into any detail about plans for the master limited partnership, but stated that it is "tightly integrated with the production operations in both the Permian and the DJ, and it's important for the efficient development of those areas." But even though Wirth said Chevron is holding off on divesting any Noble Energy assets that do not fit into its portfolio, some analysts are confident that Noble Midstream will ultimately be up for sale.
CBRE Clarion Securities portfolio manager Hinds Howard said in an email that "it is likely [Chevron] will attempt to sell [Noble Midstream] and its stake [in it]," while analysts at Scotiabank told clients July 20 that "there is a good chance that CVX takes NBLX private, but we think it would be prudent to gauge private equity interest in the assets."
Noble Midstream, whose stock price spiked 13.6% on July 20 after the agreement was announced, has been on the auction block before. The MLP's November 2019 simplification deal came after months of speculation that Noble Energy was putting it for sale — reportedly attracting interest from Williams Cos. Inc. and private equity firm Global Infrastructure Partners for a take-private transaction. At the time, some analysts said the best-case scenario for Noble Energy "could have been [a] full midstream exit," including its current 45% stake in Noble Midstream.
Since March when oil prices plummeted and COVID-19 shelter in place orders clobbered demand for fuels, Noble Midstream's equity value has taken a nose-dive. The partnership slashed its quarterly distribution by 73% to 18.75 cents per unit and announced a $75 million capital reduction for 2020.
Even though M&A is possible, industry consultant Ethan Bellamy said Noble Midstream would have to compete with other midstream MLPs for potential suitors.
"[Noble Midstream] might be for sale, but ... it's just as likely that they roll it up," he said in an email. "This isn't exactly a sellers' market, particularly in areas outside of the Permian. Both [Western Midstream Partners LP] and Enable Midstream Partners are likely available."
Henry Hoffman, a partner at the energy-focused investment firm SL Advisors LLC, agreed in an email that Chevron is more likely to keep Noble Midstream and roll it up than attempt a sale. Andrew Dittmar, a senior M&A analyst at energy data and analytics firm Enverus, also noted there is no urgency for Chevron to unload Noble Midstream, unlike when Occidental Petroleum Corp. acquired Anadarko Petroleum Corp. and tried to hand off Western Midstream.
"It's pretty different from OXY-Anadarko where we knew going into it that OXY was going to have to start selling off pieces of the business to pay for the deal because they were a little bit stretched on the financing," he said in an email. "In this case it's no trouble at all for Chevron."