Consol forms partnership with Houston energy firm Noble
Consol Energy took the first step to spin off pipeline and processing operations in the Marcellus shale through a publicly traded venture with Houston-based Noble Energy.
Cecil-based Consol said on Thursday that it intends to establish a master limited partnership, or MLP, with Noble and filed confidential paperwork with the Securities and Exchange Commission for an initial public offering. If it goes forward, the IPO is expected to be completed by the end of the year.
Consol did not disclose how much money it plans to raise or how many shares it will sell in the offering. The confidential filing allows certain companies to submit initial paperwork for SEC review without having to publicly disclose financial information. The venture could provide Consol capital to pay for building its business while offering higher yields for investors, analysts said.
Once the IPO closes, Consol and Noble will run the partnership's day-to-day operations though a joint venture, CONE Gathering LLC, and be majority investors. Such partnerships are popular among energy companies because MLPs are exempt from federal income taxes and can increase cash flow.
The announcement was made as Consol expects gas production in the Marcellus to grow 87 percent in 2014 and be the company's “growth engine” for a few years, executives said during an investor conference with analysts.
Forming the MLP with Noble would move the infrastructure operations from being an asset within Consol to a revenue- and investment-generating venture over which the company retains control. MLPs typically trade at higher valuations than their publicly traded parents and enable companies to raise money from a broader range of investors, Consol Chief Financial Officer David Khani said.
“As we're trying to unlock some of the parts value, we're giving you another currency here — the value of the midstream business,” Khani said.
Such partnerships have found success in the Marcellus. Downtown-based EQT Corp. in 2012 established EQT Midstream Partners to operate its pipeline systems. In April, the spin-off reported net income of $34.9 million in the first quarter, a 30 percent increase from a year before.
MLPs used to apply to a broader array of industries, but Congress restricted their use in the 1980s to primarily real estate and energy industries.
Lately, a confluence of events led to increased use among energy companies, analysts said.
Low interest rates left investors hungry for higher yields. With demands for infrastructure investment from the shale boom, MLPs provided a way to satisfy investor appetite and give oil and gas companies access to capital.
“Right now, you're getting 2 percent on a 10-year Treasury, and MLPs range anywhere between 5 and 7 percent,” said Nicholas Cacchione, director of energy equity research at IHS in Norwalk, Conn. “There's a huge yield that's attractive to investors.”
Consol and Noble joined forces three years ago when they established a 50-50 partnership to help Consol ramp up gas drilling in Pennsylvania and West Virginia. Noble paid $1.07 billion for half of Consol's properties in the Marcellus and $2.13 billion to fund ongoing development.
Beyond the few details revealed on Thursday, neither company has said much about the MLP venture. The draft SEC filing is confidential until Consol markets the IPO.
By classifying themselves as “emerging growth companies,” startup ventures can keep IPO information confidential under changes in SEC regulations passed two years ago as part of the Jumpstart Our Business Startups, or JOBS, Act. That way, startups can test interest in an IPO by getting feedback from the SEC and certain investors, and quietly back away if the prospects appear dim.
Chris Fleisher is a Trib Total Media staff writer. Reach him at 412-320-7854 or firstname.lastname@example.org.
Show commenting policy
TribLive commenting policy
You are solely responsible for your comments and by using TribLive.com you agree to our Terms of Service.
We moderate comments. Our goal is to provide substantive commentary for a general readership. By screening submissions, we provide a space where readers can share intelligent and informed commentary that enhances the quality of our news and information.
While most comments will be posted if they are on-topic and not abusive, moderating decisions are subjective. We will make them as carefully and consistently as we can. Because of the volume of reader comments, we cannot review individual moderation decisions with readers.
We value thoughtful comments representing a range of views that make their point quickly and politely. We make an effort to protect discussions from repeated comments either by the same reader or different readers.
We follow the same standards for taste as the daily newspaper. A few things we won't tolerate: personal attacks, obscenity, vulgarity, profanity (including expletives and letters followed by dashes), commercial promotion, impersonations, incoherence, proselytizing and SHOUTING. Don't include URLs to Web sites.
We do not edit comments. They are either approved or deleted. We reserve the right to edit a comment that is quoted or excerpted in an article. In this case, we may fix spelling and punctuation.
We welcome strong opinions and criticism of our work, but we don't want comments to become bogged down with discussions of our policies and we will moderate accordingly.
We appreciate it when readers and people quoted in articles or blog posts point out errors of fact or emphasis and will investigate all assertions. But these suggestions should be sent via e-mail. To avoid distracting other readers, we won't publish comments that suggest a correction. Instead, corrections will be made in a blog post or in an article.
- Alcoa putting $60M into Upper Burrell tech center expansion
- Fifth Third Bank selling Pittsburgh branches to First National
- Pa. business interests decry EPA ozone proposal as economic albatross
- PPG’s new CEO to push organic growth with existing clients
- Just Mayo has egg industry in a panic, emails show
- Housing bright spot as Beige Book survey shows Pittsburgh region’s growth slight
- Consumer Financial Protection Bureau gives alternative to customer service frustrations
- Stock indexes enter correction territory; bear market could be lurking
- Steady hiring pace increases odds of Fed action
- Coal company, UMW settle suit over use of non-union workers
- Shale gas violations down as DEP steps up inspections