Drilling for natural gas in Pennsylvania will continue to expand unabated if a pair of substantial independent energy firms have their way. Noble Energy and CONSOL Energy said today they have a partnership agreement in place that will boost their drilling rigs in the state’s Marcellus Shale from four to sixteen in the next four years.
Noble Energy will pay $1.07 billion for a 50% interest in CONSOL’s 663,350 net undeveloped acres of natural gas properties in Pennsylvania and West Virginia as part of a total deal worth $3.4 billion to CONSOL. Noble will pay development costs up to a $400 million cap each year, with funding linked to the price of natural gas. Noble is paying for the deal out of its cash and currently untouched revolving credit facility.
CONSOL, a traditional coal giant in Pennsylvania and West Virginia, has been diversifying as its natural gas portfolio has steadily become an increasingly central component of the company’s asset base. Hydraulic fracturing, although not a new technology, has become widespread in CONSOL’s operating region and resulted in massive upward reevaluations of total available natural gas reserves in areas like the Marcellus Shale.
For more on how natural gas reserve estimates are reached, read: Finding Natural Gas Takes Science, And Luck.
The firms said production of natural gas from the CONSOL fields has the capacity to grow into the next decade as they grow the number of active drill rigs and take advantage of technology improvements. CONSOL is sufficiently confident in its production expansion plans it maintained its 2015 production target of 350 billion cubic feet of natural gas even excluding the share that will now go to Noble under the new partnership.
The CEOs of both firms emphasized safety in their announcements of the deal, reflecting continued concerns in the state following a high-profile spill at a Chesapeake Energy operation in the state. For more on the natural gas debate in Pennsylvania, read our second quarter Natural Gas Review.
The partnership transaction is retroactively effective as of July 1, 2011 and expected to close on September 20, 2011.
The law firm Vinson & Elkins represented CONSOL in the complex transaction, led by partners Jeff Munoz and Robin Fredrickson.