CONSOL Energy Inc. (NYSE: CNX) and Noble Energy Inc. (NYSE: NBL) have agreed to separate their Marcellus Shale 50-50 Joint Venture (the "Exchange Agreement"). The two companies have negotiated a separation of the Joint Venture that was formed in 2011 for the exploration, development, and operation of primarily Marcellus Shale properties in Pennsylvania and West Virginia.
Following the separation, each party will own and operate a 100% interest in its properties and wells in two separate operating areas, and each party will have independent control and flexibility with respect to the scope and timing of future development over its operating area. In addition, all acreage operated by CONSOL Energy and Noble Energy Inc. in their respective operating areas will remain fully dedicated to CONE Midstream Partners LP (NYSE: CNNX).
"Even though we have seen much success together, we have agreed that we must both have the ability to adapt to a changing energy landscape. The separation of the Joint Venture is consistent with CONSOL's transitional journey to a pure-play exploration and development company, and the company's commitment to future growth, in what is now a more robust and actionable stacked pay opportunity set,” said Nicholas J. DeIuliis, CONSOL Energy president and CEO.
David L. Stover, Chairman, president and CEO of Noble Energy, added, "Today's agreement between CONSOL Energy and Noble sets a clear path for both companies into the future. It provides us with greater control and flexibility over the future pace of development in the Marcellus.”
Prior to the Exchange Agreement, the Joint Venture collectively operated approximately 669,000 Marcellus acres. CONSOL Energy and Noble Energy Inc. each held 50% working interest. As of the effective date of the Exchange Agreement on October 1, 2016, total flowing production to the Joint Venture was 1.07 billion cubic feet per day of natural gas equivalents.
Subsequent to closing of the Exchange Agreement, the acreage and production of the prior Joint Venture will be as follows:
- CONSOL Energy will operate a 100% working interest in approximately 306,000 Marcellus acres with associated production of approximately 620 million cubic feet per day of natural gas equivalents. The majority of the acreage operated by CONSOL Energy resides in Pennsylvania.
- Noble Energy Inc. will operate a 100% working interest in approximately 363,000 Marcellus acres with associated production of approximately 450 million cubic feet per day of natural gas equivalents. The majority of the acreage operated by Noble Energy, Inc. resides in West Virginia.
In addition to the acreage and production realignment between the two companies, Noble Energy Inc. will also remit a cash payment of approximately $205 million to CONSOL Energy at closing. The exchange of properties and cash result in the elimination of the remaining outstanding carry cost obligation due from Noble Energy Inc. to CONSOL Energy.
While the Exchange Agreement creates independent ownership interests in the acreage and production currently gathered by CONE, it does not change the total acreage dedicated to CONE, the gathering rates, or other fundamental terms for the services provided by CONE. CONSOL Energy and Noble Energy, Inc. remain as co-sponsors of CONE and shippers on CONE's gathering systems, while retaining their respective general partnership and limited partner ownership interests in CONE.
Completion of the Exchange Agreement is subject to a number of conditions. The closing of the Exchange Agreement is not subject to a financing condition and is expected to close in the fourth quarter of 2016.
Following the news, Cowen and Company analyst called the deal a “a win-win situation for both companies,” as the two companies “have disagreed on development pace in the Marcellus for a number of years.” Going forward, “Noble Energy will now turn its focus to Delaware, DJ Basin, and Eagle Ford. Noble is giving up 85 MMcfed in production and paying $205mm to exit the JV. The new NBL net "new" acreage is better than JV acreage as the uneconomic central PA is eliminated,” the analysts continued.