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CONSOL Energy (CNX), Noble (NBL) Enter $3.4B Marcellus Shale Development Agreement

August 18, 2011 7:09 AM EDT
CONSOL Energy Inc. (NYSE: CNX) has entered into an agreement with Noble Energy, Inc. (NYSE: NBL) for the joint development of CONSOL's 663,350 Marcellus Shale acres in Pennsylvania and West Virginia for aggregate payments to CONSOL of approximately $3.4 billion.

Under the agreement, Noble Energy will acquire 50% of CONSOL's Marcellus Shale interest including a 50% interest in CONSOL's existing Marcellus Shale wells.

Closing is expected at the end of September 2011.

Upon closing, Noble Energy will acquire 50% of CONSOL's undivided interest in the Marcellus Shale acres held by CONSOL in exchange for $1.07 billion, payable in three equal installments. CONSOL and Noble will also enter into a joint development agreement pursuant to which Noble will pay $2.13 billion in the form of a 1/3 drilling carry of certain CONSOL working interest obligations as the acreage is developed. Also, Noble Energy will pay $160 million at closing for CONSOL's existing Marcellus Shale wells, which have proved developed producing reserves, of 89 billion cubic feet net to Noble. Finally, Noble Energy will pay $59 million to acquire a 50% interest in Marcellus gathering assets.

The joint development plan calls for the rig count to increase from four rigs currently drilling in the Marcellus to 8 rigs in 2012 and 12 rigs in 2013, eventually reaching a plateau of 16 horizontal rigs in 2015. CONSOL will operate in the dry gas areas of the acreage, and after a transition period, Noble Energy will operate the wet gas acreage, comprising approximately 20% of the acreage. Noble Energy is expected to operate a portion of the dry gas area after the wet gas area has been fully developed.

Importantly, CONSOL Energy reconfirms its 2015 production target of 350 billion cubic feet, net to the company, despite entering into the agreement with Noble Energy. The incremental drilling that is expected to occur as a result of the development plan combined with improvements in type curves and drilling completion technology is allowing CONSOL to maintain the original production goal set forth at the time of the Dominion acquisition.


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