Source:
Noble Energy Inc
Presentation
Noble Energy Inc [NYSE:NBL] fell by 6.2% after it announced
its
all-stock purchaseof Rosetta
Resources Inc [NYSE:ROSE]. Each share of Rosetta Resources will
convert into 0.542 share of Noble Energy, and the deal is valued
around $2 billion. Noble Energy will take on Rosetta's $1.8 billion
debt load, and in return Noble Energy will acquire acreage in two
prolific shale plays. Rosetta produced 66,000 BOE/d in Q1 2015 with
a 60% liquids production mix from its 56,000 net acre position
in the Permian Basin and its 50,000 net acre position in
the Eagle Ford. With 1,800 potential drilling locations on
that acreage, Noble Energy has grown its growth runway
substantially. While Noble Energy paid a hefty 38% premium for the
company, Rosetta is down 45% over the past year, which points
towards Noble trying to bolster its growth proposition [for when
oil prices are higher] through the relatively cheap purchase of
quality acreage. The Delaware Basin [where the majority of its
new Permian position is located] is one of the
lowest-cost shale regions to develop, with companies like EOG
Resources [NYSE:EOG] able to break-even [meaning 10% ATROR] when
realizing $40 per barrel of oil or even lower in some
parts. It varies on where you drill, but the Eagle Ford also has a
low break-even cost as well.
However, Wall Street apparently doesn't like this deal [at least
so far, but things may change] and punished the stock for it. This
could be partly due to investors questioning Noble Energy's
reasoning considering its sizable operations in the Utica/Marcellus
and the DJ Basin [primarily Niobrara and
Codell] shale plays and its Gulf of Mexico growth plans.
Potentially, this could be a sign that Noble Energy is questioning
its own growth runway and bought Rosetta Resources out of fear that
its shale assets will run out of oomph. I personally don't think
that is the case. I think Noble Energy saw a good value
opportunity in front of it and decided to take action. These are
two low-cost plays that Noble Energy was able to buy in a way that
didn't significantly impact its balance sheet other than the
relatively small debt position Noble took on. The deal is expected
to close by Q3 2015, and either by then or shortly after I
think Wall Street will give Noble Energy more credit over its
strategic purchase.
Disclosure: Callum Turcan, the author, does not own a position
in any of the companies mentioned above. Always do your own due
diligence before investing.