Noble shelves midstream IPO amid equity slump

(Daniel Acker/Bloomberg)
(Daniel Acker/Bloomberg)

HOUSTON — About one week after outlining the final details of its $237 million-plus midstream initial public offering, oil and gas producer Noble Energy has put the financing deal on indefinite hold.

Noble Energy said late Thursday it won’t follow through with the offering of Noble Midstream Partners LP, a master limited partnership it created to hold its midstream assets primarily in Colorado. The postponement is a surprising reversal from last week, when the Houston-based producer said it hoped to raise at least $237.5 million by selling investors 12.5 million shares priced between $19 and $21.

Not raising the money may not affect Noble Energy’s core business of drilling in U.S. shale and in offshore fields across the globe. But it does raise questions about how Noble will replace the funds it hoped to raise through the offering and about how the independent driller plans to monetize the network of infrastructure assets it has built over the years.

Noble said in a news release that it canceled the offering due to “unfavorable equity market conditions.” The company declined to comment further.

The unfavorable conditions likely include a slide in equity prices among the companies, known in the industry as midstream,  that transport and process oil and gas. The Alerian MLP Index, a broad gauge of the 50 largest master limited partnerships in the sector, has fallen by nearly 40 percent over the past year as investors have fled.

This sharp drop has made selling stock to raise money so expensive that even some of the largest, most financially stable midstream companies in North America no longer consider it worth their while.

Noble Energy didn’t say it would abandon the plan to market shares in its partnership, but didn’t present a timeline for an eventual offering either.

The company announced plans in October to raise $100 million by selling a 34 percent limited partner interest in the master limited partnership it controls, Noble Midstream. That pricing was subsequently boosted to at least $237.5 million.

Noble Midstream owns crude oil, natural gas and water infrastructure in the Colorado DJ Basin. Noble Energy, the upstream parent, owns about 500,000 acres in that play and produced a daily average of 115,000 barrels of oil equivalent in the early third quarter.

When originally announced, the offering looked like a way for Noble to raise money for expanding its network of pipes through the public equity markets.

Several other oil and gas producers have taken similar steps. In December of 2014, for example, oil supermajor Royal Dutch Shell spun a number of its pipelines into Shell Midstream Partners and then sold investors $920 million in equity in the company. That offering was a runaway success and raised Shell millions it could use to maintain and expand its midstream network.

Noble’s offering, however, appears to have missed the timing window that benefited Shell and others. By the time Noble’s shares were priced, midstream common stock had endured nearly a year of steep losses and investors appeared unwilling to buy in.

Investors typically value midstream companies based on their ability to pay a growing dividend into the future. Funding that dividend requires growth and an expanding network of infrastructure. Accordingly, a large part of Noble Midstream Partners will depend on the ability of its largest customer — Noble Energy — to continue pulling more oil and gas from its wells in the DJ Basin.

At a Barclays industry conference in September, Noble said it has at least three new infrastructure projects planned for the region through 2017. Those projects could be sold to into the partnership and provide a way for it to grow payouts to investors. However, Noble has also made significant cuts to its capital budget as prices have fallen, meaning it isn’t likely to drill at the pace it was before the price downturn.

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