Consol Energy Inc. said Thursday that it will sell half of its interest in its Marcellus Shale holdings in Pennsylvania and West Virginia for $3.4 billion in a deal that gives Noble Energy Inc. access to the lucrative Marcellus natural gas market.
Under the deal, Houston-based Noble Energy will buy half of Consol's Marcellus development rights and existing wells in those states. The deal involves 663,350 acres that Consol has under lease in both states.
The Marcellus Shale is one of the biggest natural gas fields in the world, stretching from New York through West Virginia. It has been a hotbed of activity for energy companies in recent years as extraction of natural gas from shale deposits has accelerated with a process known as "fracking." While oil and gas companies insist the process is safe, environmentalists have expressed concerns about groundwater contamination from chemicals used to get to the gas.
Consol's chairman and chief executive officer J. Brett Harvey said in a statement that the two companies "will be able to accelerate the development of this significant resource safely, efficiently and economically."
Consol said it will double its Marcellus well rig count from four to eight this year. It plans to go up to 12 rigs by 2013 and 16 by 2015. Despite splitting its drilling interests with Noble, Consol still expects to meet its production target of 350 billion cubic feet by 2015.
"This transaction affirms the value we saw in the Marcellus Shale when we acquired Dominion's Appalachian exploration and production business just 15 months ago," Harvey said.
The deal marks Noble's entry into the Marcellus Shale development.
Charles Davidson, the exploration and production company's chairman and chief executive officer, said the partnership with Consol is "the right entry point into the Marcellus" for his company.
Analysts Michael McAllister and Tim Rezvan with Sterne, Agee & Leach Equity Research said the deal looked like a good one from Noble's perspective "as the terms are neither indicative of overpaying nor are they onerous." The deal works out to about $7,100 per acre, which the analysts said was "in line with what Chevron paid for Atlas Energy," in a $4.3 billion acquisition in February.
For Consol, the deal was a chance to cash in on the acreage acquired from Dominion last year and "fund something else in their portfolio," the analysts said.
Consol expects to pay down debt, issue dividends or buy back stock with any excess cash from the Noble deal.
The deal is expected to close on Sept. 30 and includes $1.07 billion payable over three years for 50 percent of Consol's undivided interest in Marcellus Shale acreage. The bulk of the deal will see Noble pay $2.13 billion to carry 33 percent of Consol's costs over the next eight years.
Noble Energy will also pay $160 million for existing Consol Marcellus wells and another $59 million for 50 percent interest in Consol's pipelines connecting the wells to interstate gas transmission pipelines.
Consol shares rose 27 cents at $42.69. Early gains evaporated amid a broad sell-off in the stock markets. Noble shares fell $4.65 or 5.3 percent, to $83.29 in morning trading.