Less than two weeks after agreeing to sell its Marcellus Shale upstream assets, Noble Energy Inc. (NYSE: NBL) plans to complete its Appalachia exit with a deal to sell its midstream assets for triple its investment.

A Quantum Energy Partners’ portfolio company will buy Noble’s CONE Midstream Partners LP (NYSE: CNNX) gathering system for $765 million, the companies said May 18. The price comes in at about $300 million more than CONE’s May 18 value of $449 million, said Timothy Rezvan, managing director of Americas Research for Mizuho Securities USA LLC.

The sale more than offsets the cash portion of Noble’s April purchase of Clayton Williams Energy Inc.’s Midland Basin assets in April for $3.2 billion, Rezvan said.

“Following $1.9 billion of sales announced so far in May, pro-forma leverage declines to 1.98x vs. our prior estimate of 2.24x,” Rezvan said. Noble’s total proceeds may vary due to contingency payments.

On May 2, Noble agreed to sell its upstream Marcellus assets in northern West Virginia and southern Pennsylvania to HG Energy II Appalachia LLC—a separate Quantum portfolio company—for about $1.2 billion. The price includes contingency payments to Noble of up to $100 million based on natural gas prices.

The price is about 3x of Noble’s invested capital in CONE, said Scott Hanold, an analyst at RBC Capital Markets. Roughly $310 million of the sales value may be attributed to the incentive distribution rights (IDRs) of CONE’s general partner and interest in two development companies (DevCos).

Based on RBC's midstream research, the DevCos have $36 million in 2018 EBITDA—about $17 million net to Noble. Hanold said RBC estimates that price tag is about 24x Noble’s 2018 IDRs and 12x 2020 IDRs.

David L. Stover, Noble’s chairman, president and CEO, said its midstream venture had performed “exceptionally well” since its 2014 IPO.

“Including this transaction, Noble Energy will realize more than $1 billion in total value from our Marcellus midstream business, which represents [about 3x] our net invested capital. Going forward, our midstream efforts are focused on Noble Midstream Partners, supporting our D-J Basin and Delaware Basin growth areas.”

In addition to covering the cash costs of the Clayton Williams deal, proceeds will further strengthen the company’s balance sheet through debt reduction, Stover said. The funds will also add financial capacity and flexibility to support its U.S. onshore oil development.

Dheeraj Verma, president of Quantum Energy Partners, said the transaction follows an agreement by another of its portfolio companies to buy Noble’s upstream Appalachia position.

“We have a strong track record of sponsoring and growing both upstream and midstream companies across the Appalachian Basin and we look forward to partnering with CONSOL Energy Inc. in continuing the success of CONE Midstream,” Verma said.

Rezvan said he sees more sales coming.

“Management followed through on promises to de-lever the balance sheet after stating that it had about $700 million [of] divestiture pipeline during [first-quarter] earnings. We continue to expect a $200 million to $300 million drop of midstream assets to Noble Midstream Partners this year, which would put Noble comfortably ahead of those targets.”

By year’s end, Noble’s leverage could drop to 1.49x, excluding dropdowns.

In addition to dropdowns, Hanold said Noble could potentially divest other noncore assets, such as its 7.5% working interest in the Tamar Field offshore Israel, interests in the Gulf of Mexico, and in Equatorial Guinea.

Darren Barbee can be reached at dbarbee@hartenergy.com.

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