Still laboring under the yoke of lower crude prices, E&Ps may look to divest midstream assets to fund growth, according to a recent report from Cowen & Co. Refiners are likely buyers, as they are currently stronger financially thanks to lower priced feedstocks.

“The E&P group is facing a cash shortfall at $50 while the refining group has an expanded operating platform, free cash flow and a desire to grow a higher multiple business,” the Cowen Energy Team, led by Sam Margolin, noted in a research report in late July.

Investors and financiers are watching E&Ps closely to gauge whether they will return to their outspending habits of days gone by rather than paring back operations to remain within cash flow. Yet, there is little E&Ps dislike as much as cutting production, and with commodity prices not expected to rise significantly for some time—and service cost reductions already factored in—they have few options.

One way to raise some money to maintain growth is via asset sales, whether noncore assets, or, as Cowen analysts suggest, midstream holdings. And refiners have the wherewithal and motivation to step up.

“The refining peer groups’ expanded operating platforms following mergers, incentive to return third-party costs or transfer them to owned subsidiaries, and continued push to expand higher multiple midstream earnings make them natural buyers of E&P midstream assets,” the Cowen group said.

As an early sighting of this trend, Cowen pointed to the announcement by Laredo Petroleum Inc. in late July that it is exploring the sale of its 49% interest in Medallion Gathering & Processing LLC’s Medallion-Midland Basin system. Wholly owned subsidiary Laredo Midstream Services LLC owns the interest.

In three scenarios, Cowen explored how such divestments might manifest. It said a potential buyer for the Medallion holdings would be Valero Energy/Valero Energy Partners. The latter is a natural acquirer, Cowen said, “as it processes between 260,000 barrels per day and 420,000 barrels per day of light crude in its Texas USGC system, while the acquired logistics would give it better control over its crude diet and bring VLO’s third-party costs into VLP.” The analysts calculate the potential price for Laredo’s interest could be $1 billion; the entire system could fetch $2.1 billion.

A second scenario envisions Rice Energy Inc. selling its Rice Midstream Holdings assets to Marathon Petroleum Corp.’s MPLX partnership following Rice’s merger into EQT Corp. The price could be $1.1 billion for the EQT/RICE ownership; or $2.9 billion for the total Rice Midstream share. The deal would allow Marathon to capture growth within the dedicated acreage and grow its relationship with Gulfport Energy Corp. through the Strikeforce JV, among, other benefits, according to the analysts.

A third scenario has Apache Corp. divesting its Alpine High midstream infrastructure to Phillips 66 and Phillips 66 Partners LP. Cowen noted that Apache is “set to outspend in 2017/18 at greater than $50 crude,” so it could monetize up to $1.8 billion of support assets for its undeveloped Alpine play. Phillips could capture the opportunity to be a “first mover” in the vast play and connect to existing fractionation, export and petchem facilities, the analysts said.

“An acquisition of the assets by PSXP would generate $0.3 billion including Phillips 66 participation in equity issuance to maintain its 60% ownership.”

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