Chevron (NYSE: CVX) unveiled that it submitted a proposal to acquire all the publicly traded units of Noble Midstream Partners(NYSE: NBLX) -- a master limited partnership (MLP) -- that it doesn't already own. The oil giant is offering to exchange its shares for all the remaining publicly traded units of its affiliate at a value of $12.47 per unit, which is the MLP's closing price the day before Chevron announced its proposal. The deal values the midstream company at $1.13 billion.
Chevron initially acquired a 62.5% interest in Noble Midstream when it bought the MLP's former parent Noble Energy in a $13 billion deal last year. That transaction made it Noble Midstream's largest customer, as the pipeline operator provides crude oil, natural gas, and water-related midstream services to Chevron and other producers in Colorado's DJ Basin and Texas's Delaware Basin.
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Chevron has been reviewing its options for Noble Midstream since it took control of that entity last fall. While it had considered selling its stake, analysts expected the company to offer to buy full control over the entity eventually. That will allow it to further integrate the business into its operations, which will reduce costs. It also gives it complete control over the infrastructure supporting Noble Energy's former operations, thus enhancing its flexibility to develop those assets.
Chevron's proposal is a starting point in negotiations with Noble Midstream, which might not end in a deal. However, given Chevron's sizable stake and importance to Noble Midstream, the MLP doesn't have much leverage in negotiations. Thus, it seems likely that they'll eventually reach an agreement since it's in their best long-term interests. While a merger makes sense, it's not investment thesis-altering for Chevron, which faces long-term headwinds from the energy transition to cleaner fuel sources.
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