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Consol spinoff Cone Midstream Partners generates $385M in IPO

David Conti | The Pittsburgh Tribune-Review (Greensburg, Pa.)

A down day on Wall Street could not deter investors on Thursday from trying to grab a piece of the shale oil and gas boom.

Shares of Cone Midstream Partners, a spinoff formed by Cecil-based Consol Energy Inc. and Houston driller Noble Energy Inc., surged 38 percent in their market debut. The stock closed at $30.40, its high for the day, after pricing at $22 a share.

The performance underscores the attraction of drilling-related companies and optimism for Cone, which will operate natural gas pipelines in the Marcellus and Utica shales. The companies set the initial public offering price above the starting range of $19 to $21 because of strong demand from investors.

“It looks like the market really likes what we’re providing,” David Khani, chief financial officer for Cone and Consol, told the Tribune-Review.

The company’s shares surged even as investors pummelled the broader stock market, sending the Dow Jones industrial average down 1.5 percent and the tech-laden Nasdaq stock market down nearly 2 percent. The NYSE energy index fell 1.8 percent.

“Part of the reason (Cone) did so well today is that the (company) has no need to raise outside funds for the next few years after the IPO, so that had the effect of pulling demand forward,” said Matthew J. Phillips, an analyst for Houston-based Clarkson Capital Markets.

Related: Consol Energy might be fined for spill from Marcellus shale well

Consol and Noble raised $385 million in the IPO from the sale of 17.5 million shares, a 29.4 percent stake in the partnership.

Khani said Cone received a positive reception from institutional investors for IPO shares because “they understood that we were going to be committed to being here for a long time.”

He noted that Consol is celebrating its 150th anniversary in Appalachia and Noble has been drilling for 75 years.

“They wanted to know about the sponsors’ commitment to the long-term growth … and both provided reassurance that they are long-term companies,” he said.

As a master limited partnership, Cone will remain under the control of Consol and Noble in Cecil. It will operate and seek to expand a “backbone” network of gathering pipelines that Consol and Noble have built, Khani said.

Consol and Noble have had a joint venture in drilling for several years. Forming the MLP follows a trend among energy companies to spin off these midstream assets into companies that can generate investment.

Khani said volatility in natural gas prices — which run lower in Appalachia because of a glut caused by record production — could challenge Cone’s future. But Consol and Noble showed investors that they have a record of staying profitable through price swings.

 

This article was written by DAVID CONTI from The Pittsburgh Tribune-Review and was legally licensed through the NewsCred publisher network.

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