CONSOL to sell half its Marcellus interest in $3.4B deal

Posted August 19, 2011

Pittsburgh Business Times - by Paul J. Gough

Canonsburg-based CONSOL Energy Inc. will sell half of its interest in Marcellus Shale acreage and half of its interest in Marcellus wells to Noble Energy Inc. in a transaction worth $3.4 billion, the companies said Thursday.

The deal will give Houston-based Noble Energy Inc. (NYSE: NBL) 50 percent of CONSOL's interest in leases on about 663,350 acres in the Marcellus Shale in Pennsylvania and West Virginia, and a 50 percent interest in CONSOL's Marcellus wells. Noble Energy will pay CONSOL (NYSE: CNX) $1.07 billion in cash for the lease acreage in three installments and another $2.13 billion in a joint agreement for the development of the Marcellus. CONSOL now has four rigs in the region, but expects the joint venture to have eight rigs in 2012 and 16 rigs in 2015. CONSOL currently has 35 wells in the region, a number expected to grow to 354 by 2015 under the joint venture. There's an annual cap of $400 million on the payments and other conditions based on gas prices.

CONSOL said the deal works out to about $9,650 per net acre. In terms of operating areas, CONSOL will operate the dry gas areas of 570,000 acres and 3,700 locations in a stretch from Jefferson and Clearfield counties through Westmoreland, Fayette and Greene counties and into West Virginia. Noble will operate 95,000 acres and 630 locations of wet gas regions that include the western half of Washington County into Marshall County, West Virginia, and elsewhere in West Virginia. It incorporates 859 bcf of proved reserves, the companies said.

The deal does not include CONSOL's acreage in the Utica shale or the Marcellus acreage in Ohio and southern West Virginia.

A 50 percent interest in CONSOL's Marcellus wells will be purchased for $160 million, and $59 million more will go to a 50 percent interest in Marcellus gathering assets. That works out to $1.80 per million cubic feet of proved developed producing reserves, CONSOL said.

"This agreement will benefit the regional economy, the communities in which we operate, our employees, and our respective companies," said J. Brett Harvey, CONSOL chairman and CEO, in a prepared statement. "Together, we will be able to accelerate the development of this significant resource safely, efficiently and economically."

The deal is expected to close Sept. 30.

In March 2010, CONSOL Energy bought Dominion Resources Inc.’s (NYSE: D) Marcellus acreage for $1.9 billion or $3,827 an acre. In a conference call with analysts and investors, Harvey said it took CONSOL some time to analyze the Dominion purchase's value in the marketplace and decide how to proceed, and find the right partner. That led to Noble, he said.

"The deal was made to rapidly expand the value of those assets and if you look at the structure of the deal, that's exactly what we do," Harvey told analysts. He said that Noble shared CONSOL's values in safety, capital discipline and technical expertise.

"I believe that we can go back to back with this partner moving forward on this great acreage that we bought from Dominion and take value for our shareholders," Harvey said.