After five years of collaboration in the Marcellus Shale, Consol Energy Inc. (NYSE: CNX) and Noble Energy Inc. (NYSE: NBL) are going their separate ways.
The companies agreed Oct. 31 to break up their Marcellus joint venture (JV) in Pennsylvania and West Virginia. As part of dismantling the JV, Noble will pay $205 million to Consol to eliminate its remaining carry cost obligations.
Noble and Consol joined forces in August 2011 to work about 669,000 acres in the Marcellus Shale. The deal called for Noble to make aggregate payments to Consol totaling $3.4 billion in exchange for 50% of Consol’s Marcellus interests and existing wells.
Consol exits the JV with a larger Marcellus footprint in Pennsylvania as it takes another step toward becoming a pure-play E&P operator. For Noble, the agreement frees the company to pursue spend capital elsewhere, including the Utica Shale.
Kevin Smith, energy analyst with Raymond James, said Noble has been inactive in the region for some time. The separation appears to be a push from Consol to increase activity given it solely operates in the Marcellus.
“This agreement gives Consol the ability to do this without the need for Noble—which has focused its attention toward other basins over the past couple of years—to commit any capital,” Smith said in an Oct. 31 report.
Now, Consol will operate a 100% working interest on 306,000 acres primarily in Pennsylvania with natural gas production of about 620 million cubic feet per day (MMcf/d). Noble will operate a 100% working interest in 363,000 acres primarily in West Virginia producing 450 MMcf/d of natural gas.
The breakup is a “bittersweet moment” for Consol, Nicholas J. DeIuliis, the company’s president and CEO, said during a conference call on Oct. 31.
“On one hand, Noble has been a tremendous partner and we've enjoyed a successful collaborative relationship over the past five years... On the other hand, despite the joint venture's success, as our companies have changed and evolved over the years, our priorities have changed as well,” DeIuliis said.
The JV produces about 1.07 billion cubic feet equivalent per day (Bcfe/d) and includes 75 drilled but uncompleted wells.
Consol comes out of the deal with 9% fewer net future drilling locations—2,550 compared with 2,790 before the breakup, Smith said. The company also raised its 2016 production guidance range by 3% to 390 Bcfe and 395 Bcfe from 380 Bcfe to 385 Bcfe.
Noble secured large potential in the Utica shale play of West Virginia’s Northern Panhandle, Jonathan D. Wolff, equity analyst with Jefferies LLC, said in an Oct. 31 report.
Noble has more capital to test the deep Utica play in the Northern Panhandle of West Virginia and the Marcellus in Pennsylvania is much more de-risked, Wolff said.
“Early results in Marshall County have been promising [NBL had bought an acreage interest from CNX] as deep rights were not included in the original JV format,” he said.
All acreage operated by Consol and Noble will remain fully dedicated to Cone Midstream Partners LP (NYSE: CNNX). The companies will remain co-sponsors of Cone and use its gathering systems while retaining their respective general partnership and limited partner ownership interests.
Closing is expected in fourth-quarter 2016. The effective date of the agreement is Oct. 1. Latham & Watkins LLP represented Consol in the transaction.
Emily Moser can be reached at emoser@hartenergy.com.
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