Colorado's Proposition 112, the initiative that would dramatically increase oil and gas drilling setbacks from homes, businesses and waterways, was defeated Tuesday night following a contentious campaign in which the industry spent tens of millions of dollars to derail the measure. Following the election outcome, Bank of America Merrill Lynch analyst Dennis Coleman upgraded Western Gas Partners (WES) to Buy from Neutral, while his peer at Raymond James upgraded Noble Energy (NBL) to Outperform, saying that the rejection by Colorado voters of Proposition 112 removes an overhang.

PROPOSITION 112 REJECTED: Colorado voters rejected Proposition 112 in the state's first referendum on oil and gas setbacks. Had Proposition 112 passed, Colorado would have voted in the country's largest mandatory buffer between new wells and homes, schools, waterways and other areas deemed "vulnerable": 2,500 feet, five times the existing standard of 500 feet. The measure would not have applied to Colorado's nearly 50,000 existing wells but would have made it much harder to drill new wells on nonfederal land. Western Gas Partners, Noble Midstream (NBLX), NGL Energy Partners (NGL), Summit Midstream (SMLP), DCP Midstream (DCP) and SemGroup (SEMG) have the highest exposure to Colorado, Wells Fargo analyst Michael Blum previously told investors in a research note.

BUY WESTERN GAS, NOBLE ENERGY: This morning, Bank of America Merrill Lynch's Coleman upgraded Western Gas to Buy from Neutral and raised his price target on the stock to $51 from $48 after Colorado voters rejected Proposition 112, the ballot initiative that would have increased the oil and gas development setback from buildings and waterways to 2,500ft from 500ft. Coleman also added that Western Gas has strong sponsor support from Anadarko Petroleum (APC), improved growth outlook, and its well-integrated asset network warrant a premium. Alongside Western Gas, the analyst believes DCP Midstream, Noble Midstream, and NGL Energy Partners have the most exposure to Proposition 112 issue and expects these names to react positively after the news. Nonetheless, he noted that the issues brought forward by Prop 112 proponents could be a recurring overhang in Colorado, and a similar ballot measure may manifest in the next general election in 2020. Meanwhile, his peer at Raymond James also upgraded Noble Energy to Outperform from Market Perform with a $40 price target on the shares. Analyst John Freeman said the rejection by Colorado voters of Proposition 112 removes an overhang and the risk/reward in shares is skewed "very favorably" following meaningful underperformance. Additionally, Freeman noted that Noble Energy reported "robust" third quarter results and is well positioned for 2020 when Permian takeaway constraints are mostly alleviated and its "massive" Leviathan natural-gas project ramps up to full production in the Mediterranean, which should result in substantial free cash flow generation.

PRICE ACTION: In morning trading, shares of Western Gas have jumped almost 13% to $46.30, while Noble Energy's stock has gained just over 6% to $28.67. Also, higher are shares of Noble Midstream, NGL Energy Partners, Summit Midstream, DCP Midstream, and SemGroup.