Marcellus Shale natural gas assets in north-central Pennsylvania will be developed through a joint development agreement (JDA), National Fuel Gas Co. said Dec. 2. Seneca Resources Corp., its E&P subsidiary, IOG CRV - Marcellus LLC and funds managed by affiliates of Fortress Investment Group LLC entered the JDA.

Up to 80 wells on about 10,500 acres in the Clermont/Rich Valley area spanning Elk, McKean and Cameron counties will be developed. IOG will have an 80% working interest and will participate in the first 42 wells.

It has an option to participate in the remaining 38 wells on or before July 1, 2016. IOG's obligation on the first 42 will reduce Seneca's net capex by about $200 million in fiscal year (FY) 2016, with a further $180 million reduction through FY 2017 for the remaining wells.

Seneca, the fee owner of the mineral rights, will retain a 7.5% royalty interest and the remaining 20% working interest in the first 42 wells. Seneca will be the program operator.

Production from all JDA wells will be gathered by National Fuel Gas Midstream Corp.’s Clermont gathering system.

IOG will share Seneca's contracted firm sales and firm transportation capacity. This includes 660 thousand dekatherms per day on the Niagara Expansion/Northern Access 2015 and Northern Access 2016 pipeline expansion projects built by National Fuel's pipeline and storage segment, moving area production to premium Northeast U.S. and Canadian markets.

Some of the 42 wells were either drilled or drilled and completed prior to the JDA’s execution. The rest will be developed through FY 2016 and FY 2017.

In FY 2016, Seneca plans to transfer about 150 billion cubic feet equivalent (Bcfe) of existing proved undeveloped natural gas.

Reflecting the JDA, National Fuel revised its FY 2016 capex, production, certain per-unit operating costs and financing guidance.

The E&P segment’s FY 2016 budget now ranges between $200 million and $250 million with a $200 reduction from the $400 million to $450 million range at the midpoint.

Seneca's net production could range between 139Bcfe and 202Bcfe, lower than the prior range of 161Bcfe to 232Bcfe. The reduction reflects IOG's share of anticipated production from JDA wells.

Consolidated financing will now range between $350 million and $450 million in FY 2016, down from the $500 million to $600 million range.

Jefferies LLC was Seneca’s financial adviser for the JDA. Kirkland & Ellis was its legal counsel. Jackson Walker LLP was IOG’s legal counsel.

IOG Capital LP is a Dallas-based energy private investment firm.