Noble Energy and Consol Energy have reached a $3.4 billion joint venture (JV) agreement where Noble will acquire a 50% interest in over 663,000 undeveloped acres in the Marcellus Shale. The position adds another long lived asset to Noble Energy’s core positions in Colorado’s Niobrara Shale and Israel’s offshore gas prospects. While spread over several years, the pure dollar value equates to over $10,000 dollars per acre, without consideration for production. Noble reports the discounted value is $7,100 per acre. Noble will also add 35 mmcfd of production when the deal closes. Projected well inventory numbers reach into the thousands and will provide a decade long drilling inventory for Noble and Consol Energy. Expectations are for the JV’s production to reach 1.2 Bcf per day by 2015, which is pretty amazing growth from 70 mmcfd today.
Noble Energy and Consol Energy will jointly operate the assets, but it is likely Noble will bring much more diversified experience to the table and should be able to create value through its operational knowledge.
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 Consol Energy had 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