Noble Midstream Partners LP announced it has entered into a definitive agreement to acquire additional interests in Colorado River DevCo LP and Blanco River DevCo LP for $270 million from Noble Energy, Inc. The acquisition will increase Noble Midstream’s interest in Colorado River DevCo to 100% from 80%, and in Blanco River DevCo to 40% from 25%. Noble Energy will retain the remaining 60% interest in Blanco River DevCo.
Commenting on the acquisition, Terry R. Gerhart, Chief Executive Officer of the general partner of Noble Midstream, said, “We are very pleased to further the Partnership’s exposure to the Delaware Basin through this accretive acquisition of additional interests in Blanco River DevCo, ahead of the significant growth anticipated from Noble Energy in the Delaware Basin. Additionally, acquiring the remaining interest in Colorado River DevCo adds immediate scale to the Partnership and complements our growth outlook as we continue to gather an increasing share of Noble Energy’s DJ Basin production.”
Blanco River DevCo
Blanco River DevCo holds Noble Midstream’s Delaware Basin in field gathering dedications on approximately 111,000 acres for oil and produced water gathering, with substantially all of the acreage also dedicated for gas gathering.
The Partnership estimates approximately 40% to 50% of its 2017 gross capital budget will be allocated to Blanco River DevCo as it constructs four central gathering facilities and backbone pipeline infrastructure to support Noble Energy’s Delaware Basin activity. The first facility is estimated to be complete mid-year 2017, the second in the fourth quarter 2017, and the following two in the first half of 2018.
The four central gathering facilities are expected to provide oil capacity expandable up to 120 thousand barrels per day by the end of 2018, and the oil, gas and produced water gathering systems are expected to consist of approximately 180 miles of pipelines by the end of 2018.
Colorado River DevCo
Colorado River DevCo consists of gathering systems across Noble Energy’s Wells Ranch and East Pony development areas and generated all of the Partnership’s first quarter 2017 gathering revenue. Noble Midstream provides oil, natural gas and produced water gathering, as well as fresh water delivery services in Wells Ranch, and oil gathering in East Pony through Colorado River DevCo.
Colorado River DevCo is expected to generate greater than 15% oil and gas throughput growth in the second quarter 2017 as compared to the first quarter of 2017. Assets held by Colorado River DevCo include the Wells Ranch central gathering facility, with approximately 45 thousand barrels of daily oil capacity, and approximately 125 miles of oil, gas and produced water gathering pipelines combined in Wells Ranch and East Pony.
Accretive Acquisition
The acquisition is expected to be immediately accretive to distributable cash flow per unit of the Partnership, based on a transaction value representing 8.2 – 9.2 times the next twelve months estimated earnings before interest, taxes, depreciation and amortization (“EBITDA”) of the acquired interests.
Noble Midstream’s management has recommended to the board of directors of Noble Midstream GP LLC, the Partnership’s general partner (the “Board of Directors”), a second quarter distribution per unit increase of 8.5% above the first quarter distribution per unit of $0.4108, as compared to the previously announced 4.7% quarterly growth target. In addition, Noble Midstream’s management has also recommended to the Board of Directors that the Partnership re-confirm its 20% distribution per unit annual growth target following the proposed second quarter distribution.
Financing and Liquidity
As consideration for the acquisition, the Partnership has agreed to pay Noble Energy $270 million, consisting of $245 million in cash and 562,430 common units representing limited partner interests in the Partnership (“common units”). Noble Midstream expects to fund the cash consideration with approximately $143 million of net proceeds from a concurrent private placement of common units and $102 million of borrowing under the Partnership’s credit facility.
Total borrowing under the Partnership’s credit facility is expected to be $192 million as of the end of the second quarter of 2017, including the expected borrowing for the acquisition. Pro forma for the acquisition and the consummation of the concurrent private placement of common units, the Partnership’s liquidity position is expected to be $178 million as of June 30, 2017, consisting of approximately $158 million available under its credit facility and approximately $20 million of cash on hand.
Upon closing of the acquisition and the private placement, Noble Energy is expected to own a 50.1% limited partner interest in Noble Midstream. The acquisition is expected to close prior to the end of the second quarter, subject to the satisfaction of customary closing conditions.
The terms of the transaction were approved by the Board of Directors following a unanimous recommendation for approval from the conflicts committee of the Board of Directors, which consists entirely of independent directors. The conflicts committee was advised by Evercore on financial matters and Baker Botts L.L.P. on legal matters.
