Marcellus / Shale Daily / NGI The Weekly Gas Market Report / Northeast

Consol, Noble Prep for Marcellus Midstream Spin-Off

Consol Energy Inc. and Noble Energy Inc. plan to form a master limited partnership (MLP) with midstream gathering assets that serve growing production from the companies’ 50/50 joint venture in the Marcellus Shale, they said Thursday.

Both companies said a confidential draft registration statement has been filed with the Securities and Exchange Commission (SEC). They also stressed that any initial public offering (IPO) of common units in the MLP would be subject to SEC review, market conditions and the approval of Noble Energy's board of directors.

Pending those factors, the offering is expected to be completed late in the third quarter or early in the fourth.

When asked what the MLP's asset base would consist of, Consol said federal securities laws prohibit both parties from discussing such details, but an official said it factors into their own growth strategy, which is now focused more heavily on natural gas than coal (see Shale Daily, Jan. 31).

"With limited exceptions, what we can say from Consol's perspective is that the MLP option provides an effective source of financing [and] offers valuation transparency for our midstream assets as we execute our [exploration and production] growth strategy we outlined in late 2013," the company said in an emailed statement. "[It] allows us, together with our joint venture partner, to retain control of our midstream operations, which is key to successfully executing our growth plan."

The move comes at a time when IPOs for midstream MLPs are on the rise as operators look for investments to build out infrastructure, further monetize existing assets and create more shareholder value. Last year, 24 energy-related IPOs raised about $10.9 billion, of which 20 were MLPs with proceeds of $5.2 billion, according to the consulting firm PwC (see Daily GPI, Feb. 14).

Both Noble and Consol have reported increasing production in the Appalachian Basin. Last Quarter, Noble reported record volumes of 227 MMcfe/d from the Marcellus (see Shale Daily,April 24), while Consol nearly doubled its year-over-year first quarter production in the formation to 20.7 Bcfe (see Shale Daily, April 8). The companies have 345,151 net acres under their joint venture.

The number of common units to be offered under the MLP and their price range will be determined after the SEC completes its review. Once the IPO has closed, Consol and Noble will control the general partner of the MLP, CONE Gathering LLC, which will have distribution rights and own the limited partner interests.

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