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Noble Energy, Carrizo Oil & Gas sales show they see best assets close to home

Noble Energy Inc.'s agreement to sell approximately 1.1 million gross acres in Texas, Oklahoma and North Dakota to Black Stone Minerals Co. LP for a reported $340 million made it the second Houston-based company in as many days to drop assets out of state in favor of profitable ones closer to home.

The sale involves holdings in the Bakken Shale, the Powder River Basin in Wyoming and the SCOOP play in Oklahoma, as well as assets in the Permian Basin and the Granite Wash in Texas.

"We're acquiring a sizable and diverse mineral and royalty package that substantially expands our Permian and other positions, complements our overall existing asset base extremely well, and is immediately accretive to our distributable cash flow per unit," Black Stone CEO Thomas Carter said Nov. 27. "We see a great opportunity to actively manage these assets to generate lease bonus and move more lands into development. I am confident these assets will contribute to the growth of our partnership for years to come."

For Noble, on the other hand, the Delaware Basin and Eagle Ford Shale, with their higher liquids content, have moved to the front of the line for the company when it comes to receiving capital.

"You can see that as we continue to allocate our capital to really just the highest-return, highest-margin projects, again focused on oil in the DJ [Basin] and the Delaware [Basin], [and] very high-rate wells in the Eagle Ford, it really is driving a substantial increase in cash flow," Executive Vice President of Operations Gary Willingham said in Nov. 16 presentation.

Morningstar Analyst David Meats said the sales made by Noble in 2017 as it reduces its asset base is a part of "high-grading the portfolio." The company "sold some DJ stuff [in Colorado] from the back of the drilling queue, and some Marcellus stuff last year as well," he said. "The Texas stuff, especially in the Permian, is front of the queue and the sales raise capital for growth of the higher-priority assets."

Williams Capital Group analyst Gabriele Sorbara told S&P Global Market Intelligence the deal with Black Stone was for assets Noble had acquired in a previous deal and have changed hands before. "These were random assets packaged together," he explained. "Noble acquired these assets through the deal for Clayton Williams earlier this year, and Clayton picked it up back in 2014."

The deal was the second in as many days involving a Houston-based company looking to consolidate its asset base. Carrizo Oil & Gas Inc. sold its assets in the DJ Basin to an unnamed buyer for an estimated $140 million. Carrizo is now centralizing its activities in Texas as well, also in the Eagle Ford and Delaware Basin. Like Noble, Carrizo has cut overhead while focusing on liquids.

"The combination of cash in the door and a more focused Texas-centric portfolio leaves Carrizo in a better place moving forward," Capital One Securities Inc. analysts said Nov. 27. "The company is now anchored by just two key assets in the Eagle Ford and the Delaware."