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Mizuho analyst paints rosy outlook for Noble Midstream

GivenNoble Midstream Partners LP'ssupportive sponsor and its path toward new volumes and increased distributions,Mizuho Securities USA Inc. initiated coverage of the partnership with a "buy"rating on Oct. 10.

Mizuho'sBrian Zarahn highlighted Noble Midstream's attractive position underinvestment-grade driller NobleEnergy Inc. in the DJ and Permian Basins as reasons for his bullishoutlook, and forecast compound annual distribution growth of 20% from 2017through 2020. Zarahn estimated a 3-year compound annual growth rate in AdjustedEBITDA of 48% and a 3-year CAGR in distributable cash flow of 42%. He expectsthe master limited partnership's coverage ratio to reach a four-year peak of1.59x in 2019.

"Ourestimates … are supported by organic projects and asset drop-downs from parent[Noble Energy]," Zarahn said in an Oct. 10 note, pointing to $500 millionof midstream capital expenditures earmarked over the next five years, and $960million of drop-downs to the partnership from Noble Energy from 2017 through2020. The $500 million investment aims to support Noble Energy's drillingprogram.

"Webelieve [Noble Midstream] has upside potential from higher-than-expected drillingactivity in the DJ Basin and additional third-party customers if crude oilfundamentals continue to improve," the analyst wrote.

About88% of Noble Midstream's 340,000 of net acreage dedications are in the DJBasin, while 12% lies in the Delaware Basin. Zarahn believes that thepartnership will see future growth in the Delaware Basin as Noble Energy rampsup drilling in Texas.

"Weexpect organic gathered volumes in [Noble Midstream's] acreage to grow at ~38%CAGR from 2017-2021," his report said.

TheMLP, after postponingits IPO in November 2015, tookthe plunge in September with an offering at $22.50 per unit. It was the firstMLP to go public after more than a year of zero midstream IPO activity, and its shares by more than 16% onSept. 15, its first day on the NYSE.