Noble, CONSOL Team Up in $3.4B Marcellus JV
Noble Energy has signed definitive agreements which create a joint venture partnership with CONSOL for the development of their Marcellus Shale properties in southwest Pennsylvania and northwest West Virginia.
Under the arrangement, Noble Energy will purchase a 50 percent interest in 663,350 net undeveloped acres for $1.07 billion, payable in three equal annual installments beginning at closing. In addition, the Company will fund $2.13 billion of CONSOL's future drilling and completion costs. This funding obligation is expected to extend over an eight-year period and is limited to one third of CONSOL's drilling and completion costs with an annual cap of $400 million and a suspension of disproportionate funding at natural gas prices below $4 per million British thermal unit (MMBtu). The acreage value of $3.2 billion equates to a discounted present value of $7,100 per net acre. Noble Energy will also acquire a 50 percent interest in 70 million cubic feet equivalent per day (MMcfe/d) of existing Marcellus production and infrastructure for $219 million. The payments are anticipated to be funded from cash on hand and the Company's currently undrawn revolving credit facility. The effective date of the transaction is July 1, 2011. Closing is expected to occur by the end of September 2011, subject to customary adjustments and conditions.
Key operational aspects of the joint venture include:
- Acreage estimated to contain 7.4 trillion cubic feet equivalent (Tcfe) risked resources net to Noble Energy's interest, of which 400 billion cubic feet equivalent (Bcfe) were proven reserves at year-end 2010
- More than a decade of development activity anticipated, which includes the drilling of approximately 4,400 gross well locations
- Net production to Noble Energy's interest has the potential to reach 600 MMcfe/d in 2015 and is expected to continue growing into the next decade
- Leasehold position is over 85 percent held by production, almost entirely operated with close to 100 percent working and 88 percent net revenue interests
- A pre-defined long-term development plan forecasts drilling activity to increase from 4 rigs to 16 rigs in 2015
- Operations to be shared between the partners with Noble Energy's initial focus on the wet gas portion of the acreage
- Sharing of midstream infrastructure and access to water handling capabilities
Charles D. Davidson, Noble Energy's Chairman and CEO, commented, "Noble Energy is excited about the opportunity to establish a position in the Marcellus Shale, which is considered to be one of the most economically attractive developments in North America due to its enormous resource potential, its proximity and access to premium markets, and its competitive cost structure. This transaction will complement and further strengthen our U.S. portfolio by adding a high-quality asset with a substantial growth profile. The Marcellus, combined with our ongoing developments in the DJ basin and deepwater Gulf of Mexico, will provide important balance to our rapidly expanding international programs. Spreading the transaction costs over an extended time horizon creates better partner alignment on investment decisions and maintains our strong balance sheet."
David L. Stover, President and COO, added, "Noble Energy is fortunate to be partnering with CONSOL, a well-known and respected Appalachian operator. The joint oversight and operations are designed to create value through the sharing of best practices and expertise. Both companies are committed to operating in a safe, environmentally responsible manner while maintaining a good working relationship with the local communities."
J. Brett Harvey, CONSOL's Chairman and CEO, commented, "We are extremely pleased to have Noble Energy as our partner in the Marcellus. Noble Energy is a world-class operator that shares CONSOL's dedication to safety and compliance and they bring a strong technical and operational expertise to this partnership. This agreement will benefit the regional economy, the communities in which we operate, our employees, and our respective companies. Together we will be able to accelerate the development of this significant resource safely, efficiently and economically."
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