Current NBL Stock Info

Noble Energy purchases Clayton Williams Energy for $3.2 billion, inclusive of debt; NBL’s new full company production for 2020 is expected to reach 600 MBOEPD assuming $50 oil
Noble Energy (ticker: NBL) announced Monday that the company has purchased Clayton Williams Energy (ticker: CWEI) in a cash and stock deal valued at $2.7 billion, plus the assumption of approximately $500 million in CWEI’s debt. The boards of both companies have unanimously approved and the companies have executed a definitive agreement that is expected to close in Q2 of...

Analyst Commentary

Johnson Rice & Company
As the midstream valuation is a large variable in the per acre calculation and likely how most investors will determine whether the sale was justified, we will outline some of the details of how NBL got to its $600mm. The asset consists of >100 miles each of pipeline for oil, gas, and water with ~6 mbbl/d of the 10 mbbl/d oil capacity being used and ~7 mmcf/d of the 10 mmcf/d of gas capacity being used (see NBL deck); the water gathering system is at 100% capacity (15 mbbl/d). In addition, the ability to easily expand the midstream was a key selling point and as NBL ramps up activity the company also plans to add 3-5 central gathering facilities in the long-term, which will each increase the midstream capacity by 20-30 mbbl/d of oil, 50-60 mmcf/d of gas, and 30-50 mbbl/d of water.

Noble Energy has plenty of dry powder. NBL will retire outstanding debt of Clayton Williams Energy assumed as part of the transaction at or following the closing ($500mm), resulting in total transaction cost $3.4 billion. This, along with G&A cost elimination, will result in annual cost savings of energy of ~$75 million to NBL. Because of the way the deal is structured, NBL’s debt ratio will remain mostly unchanged post deal.

CWEI announced it is to be acquired by NBL for a total consideration of ~$3.2 billion (includes assumption of ~$500 million in net debt). CWEI shareholders will receive 2.7874 shares of NBL common stock and $34.75 in cash for each share of CWEI common stock held, which equates to a transaction value of ~$139 per share of CWEI (or a ~34% premium to its January 13 closing price). Using only CWEI's 71K net acres and ~10 Mboepd in current production in the Southern Delaware, we estimate CWEI received ~$38K per acre for its assets (assumes $50K per flowing Boe), which is on the higher end of recent transaction prices in the region. Shareholders of CWEI are expected to own ~11% of pro-forma NBL following the transaction's expected close in 2Q17.

Drop down runway just got bigger and better. Distribution growth upside possible. Before accounting for any changes to our model from the CWEI acquisition, we model 22-23% in 2017 and 2018 with ~1.7x and ~2.0x full-year coverage, respectively. We believe the transaction enhances NBLX's drop down inventory, potentially accelerating the drop down schedule.

SunTrust Robinson Humphrey
The deal highlights the appetite in the industry for more deals/acreage acquisitions within the Permian basin. In our view, this will remain a theme throughout 2017 as companies look to block up contiguous acres and take advantage of economies of scale to drive operational/financial efficiencies. Other names to potentially be impacted by today’s news include Diamondback (FANG, $101.36, Buy), Cimarex Energy (XEC, $139.65, Buy), Concho Resources (CXO, $134.76, Buy), Matador Resources (MTDR, $24.32, Buy), Parsley Energy (PE, $36.56, Buy), and WPX Energy (WPX, $13.72, Buy) among others.  

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