Friday, August 19, 2011

Noble enters Marcellus shale in a $3.4 billion JV with Consol Energy.

Consol Energy has agreed with Noble Energy 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.
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. Noble will also pay $2.13 billion in the form of a 1/3 drilling carry of certain Consol working interests 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 Bcf and production of 35 MMcfe/d, net to Noble. Finally, Noble Energy will pay $59 million to acquire a 50% interest in Marcellus gathering assets.

Key operational aspects of the joint venture include:
  • Acreage estimated to contain 7.4 Tcfe risked resources net to Noble Energy's interest, of which 400 Bcfe were proven reserves at year-end 2010
  • More than a decade of development activity anticipated, which includes the drilling of approximately 4,400 gross well locations
  • Net production to Noble Energy's interest has the potential to reach 600 MMcfe/d in 2015 and is expected to continue growing into the next decade
  • Leasehold position is over 85% held by production, almost entirely operated with close to 100% working and 88% net revenue interests
  • A pre-defined long-term development plan forecasts drilling activity to increase from 4 rigs to 16 rigs in 2015 
  • Operations to be shared between the partners with Noble Energy's initial focus on the wet gas portion of the acreage
  • Sharing of midstream infrastructure and access to water handling capabilities.
Accelerated Development Plan:
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. In terms of operating areas, Consol will operate the dry gas areas of 570,000 acres and 3,700 locations in a stretch from Jefferson and Clearfield counties through Westmoreland, Fayette and Greene counties and into West Virginia. Noble will operate 95,000 acres and 630 locations of wet gas regions that include the western half of Washington County into Marshall County, West Virginia, and elsewhere in West Virginia.

Noble Energy- Expands international operations and plans to divest non core assets
Noble Energy, with its core operations in Africa and East Mediterranean, has started expanding its international operations in US. In the last two years, Noble Energy accumulated approximately 430,000 net acres in the Niobrara shale at a low entry cost of $480/acre. Noble Energy has allocated $875 million to develop its properties in the Denver Julesburg basin, where the company is working on the Niobrara formation. The company plans to drill 70 horizontal wells in 2011 targeting this formation.

Now, Noble Energy has targeted another unconventional play- Marcellus Shale. The $3.4 billion deal marks Noble's entry into the Marcellus Shale development. What's next in Noble Energy’s target list???

Noble Energy had been hesitant to move the company into the Marcellus. However, the area has become a hub of natural gas production as advanced methods, including hydraulic fracturing and horizontal drilling, have allowed energy producers to extract oil and gas from dense shale rock. Now, Noble has entered Marcellus area and considers this $3.4 billion JV opportunity beneficial due to its enormous resource potential, its proximity and access to premium markets, and its competitive cost structure.

In a conference call, Noble executives said the company would consider selling some of its North American assets to focus its drilling program on the Marcellus, the Gulf of Mexico and the DJ Basin in the western United States.

A fair deal by Consol Energy:
In April 2010, Consol paid $1.88 billion for Dominion’s Marcellus acres, or $3,827 per acre. Now the same acreage is being sold by Consol to Noble for ~9,650/acre. Over the past 15 months, Consol has largely de-risked these acres which made the $/acre increase by $5,823.

Source: Consol Energy

The following table summarizes the metrics of the recent major Marcellus deals. The adjusted $/acre denotes the value of the acreage after allocating some value to the reserves, production or midstream assets.

Announcement Date Heading Deal Value ($MM) Quick $/Acre Adjusted $/Acre
6/2/2011 Exxon acquires Marcellus Shale assets for $1.7B 1,690 5,331 4,280

5/16/2011 Enerplus sells certain Marcellus assets for $575M 575 6,319 5,982
12/21/2010 EXCO and BG acquire Marcellus assets from Chief Oil & Gas and partners for $459M 459.4 9,188 7,055
11/9/2010 Chevron acquires Atlas Energy for $4.3B 4,300 8,848 2,836

5/28/2010 Shell acquires Marcellus acreage from East Resources for $4.7B 4,700 7,231 6,462

5/25/2010 Williams acquires Marcellus acreage from Alta Resources for $501M 501 11,929 11,929

5/10/2010 BG forms $950M JV with EXCO to develop Marcellus Shale 950 10,215 7,809
4/9/2010 Atlas Energy forms $1.7B JV with Reliance to develop Marcellus Shale 1,699 14,158 14,158


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