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Hess – CONSOL Energy Enter Utica Shale JV

by Kenneth E. DuBose on September 7, 2011

Hess and Consol Energy have entered a joint venture (JV) in the Utica Shale of eastern Ohio in a deal worth $593 million. Hess will pay Consol $59 million upfront and then carry drilling costs up to $534 million over the next five years for a 50% interest in almost 200,000 acres in East Ohio. The deal equates to almost $6,000 per acre un-discounted. On a discounted basis, the value will be closer to $4,000-5,000 per acre. I’m not sure how well positioned the acreage is, but operators are now paying up to $4,000 per acre to lease in the hottest areas of the play. That makes the metrics sound attractive at this size.

Hess and Consol will share operations with Hess operating 40% of the acreage (80,000 acres) and Consol operating the remaining 60% (120,000 acres). This is likely the first of many deals to come. Chesapeake Energy is also courting JV partners in the Utica Shale.

Hess Corporation (NYSE: HES) announced today it has entered into an agreement with CONSOL Energy Inc. to acquire a 50 percent interest in CONSOL’s nearly 200,000 acres in the Utica Shale in eastern Ohio for aggregate payments of $593 million.

“We are delighted with our entry into the Utica Shale, which enables us to build a strategic acreage position in an emerging unconventional play in the United States,” said John Hess, Chairman and CEO of Hess Corporation. “We believe that this acquisition offers significant potential for future growth in reserves and production with most of the land either owned in fee or held by production with high net revenue interests. We are honored to partner with CONSOL, which has a long history and an excellent safety and operating record in the Appalachian basin. We believe that together our companies will build a profitable business and deliver important economic benefits for the residents of eastern Ohio.”

Hess will pay CONSOL $59 million at closing, which is expected in October, and $534 million in the form of a 50 percent drilling carry of certain CONSOL working interest obligations over a five year period. The joint exploration and development plan calls for Hess to operate approximately 80,000 acres in Jefferson, Harrison, Guernsey and Belmont counties while CONSOL will operate approximately 120,000 acres elsewhere in eastern Ohio, including Portage, Tuscarawas, Mahoning and Noble counties. Appraisal drilling is expected to commence in the fourth quarter.

Read the full press release at hess.com

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