Units of midstream master limited partnership Noble Midstream Partners (NASDAQ:NBLX) jumped as much as 17% when the trading day began on July 20. By roughly 10:30 a.m. Wall Street time, it was still hanging on to most of those gains, up around 14%. There was no news out of Noble Midstream, but there was big news out of Chevron (NYSE:CVX) that could end up changing Noble Midstream's long-term outlook.
Noble Midstream is a partnership created by Noble Energy (NASDAQ:NBL) to own and operate midstream energy assets, specifically pipelines. Noble Energy is the general partner, meaning it runs the partnership, and has a roughly 45% interest in Noble Midstream. All of this is relevant today because Noble Midstream's long-term growth is tied to the prospects for Noble Energy and the assets that the energy company is likely to sell to it (known as a dropdown in the industry). Specifically, Noble Midstream has the right of first refusal (ROFR) for five of Noble Energy's midstream assets.
On July 20, integrated oil giant Chevron announced that it was buying Noble Energy in an all-stock deal worth $5 billion. Noble Midstream isn't directly involved in this acquisition. But assuming the deal is consummated as planned, it would mean that Noble Midstream will end up being run by one of the largest and strongest energy companies in the world. That materially increases the likelihood that Noble Midstream's future will be a good one.
There are a great many things that could happen from here, so the Chevron/Noble Energy deal itself probably isn't the best reason to buy Noble Midstream, even if it hints at a brighter future for the partnership. That's especially true given the swift unit-price advance of Noble Midstream in early trading. Indeed, the last time Chevron tried to buy a company, it was eventually outbid and the "winner" (Occidental Petroleum) ended up struggling to carry the debt it took on. If that were to happen here, then Noble Midstream's outlook would likely end up decidedly worse than it was prior to Chevron's announcement. Another option is that the deal simply falls through, which would leave Noble Midstream back where it started. Most investors should probably accept that they've missed the big gains here and reevaluate the name when Chevron's bid to buy Noble Energy has closed.