CONSOL Energy Inc announced today that it has entered into an agreement with Noble Energy, Inc for the joint development of CONSOL's 663,350 Marcellus Shale acres in Pennsylvania and West Virginia for aggregate payments to CONSOL of approximately USD 3.4 billion. Under the agreement, Noble Energy will acquire 50% of CONSOL's Marcellus Shale interest including a 50% interest in CONSOL's existing Marcellus Shale wells.
Mr J Brett Harvey chairman and CEO of CONSOL said that "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 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.”
Mr Harvey continued that "This transaction affirms the value we saw in the Marcellus Shale when we acquired Dominion's Appalachian exploration and production business just 15 months ago.”
Mr Charles D Davidson chairman and CEO of Noble Energy said that "Noble Energy is excited to be joining CONSOL Energy in the development of their outstanding acreage position in the Marcellus. We have spent considerable time looking for the right entry point into the Marcellus and I believe, with CONSOL, we have found the perfect partner that we have been searching for. CONSOL is a highly established and respected operator in the region with a strong reputation for working cooperatively with all stakeholders. This reputation and their focus on safe and efficient operations closely aligns with Noble's values. Both partners will be contributing their considerable technical and operational expertise to accelerate the development of this important national resource thus creating considerable value for both of our companies as well as the communities we touch."
Upon closing, Noble Energy will acquire 50% of CONSOL's undivided interest in the Marcellus Shale acres held by CONSOL in exchange for USD 1.07 billion, payable in three equal installments. CONSOL and Noble will also enter into a joint development agreement pursuant to which Noble will pay USD 2.13 billion in the form of a 1/3 drilling carry of certain CONSOL working interest obligations as the acreage is developed. Also, Noble Energy will pay USD 160 million at closing for CONSOL's existing Marcellus Shale wells, which have proved developed producing reserves, of 89 billion cubic feet net to Noble. Finally, Noble Energy will pay USD 59 million to acquire a 50% interest in Marcellus gathering assets.
The joint development plan calls for the rig count to increase from four rigs currently drilling in the Marcellus to 8 rigs in 2012 and 12 rigs in 2013, eventually reaching a plateau of 16 horizontal rigs in 2015. CONSOL will operate in the dry gas areas of the acreage, and after a transition period, Noble Energy will operate the wet gas acreage, comprising approximately 20% of the acreage. Noble Energy is expected to operate a portion of the dry gas area after the wet gas area has been fully developed.
Importantly, CONSOL Energy reconfirms its 2015 production target of 350 billion cubic feet, net to the company, despite entering into the agreement with Noble Energy. The incremental drilling that is expected to occur as a result of the development plan combined with improvements in type curves and drilling completion technology is allowing CONSOL to maintain the original production goal set forth at the time of the Dominion acquisition.
The closing of the transaction is subject to customary adjustments and a number of conditions. CONSOL will commence a consent solicitation today seeking consent from holders of CONSOL's outstanding senior notes clarifying that the contemplated transaction is permitted under the indentures. With respect to each of the three series of notes, only the holders of a majority in aggregate principal amount of the notes need to approve the amendment to the respective indentures.
The transaction is effective as of July 1st 2011 and is expected to close on September 30th 2011.
