Noble, CONSOL Team Up in $3.4B Marcellus JV

- Noble, CONSOL Team Up in $3.4B Marcellus JV

Thursday, August 18, 2011
Noble Energy Inc.

Noble Energy has signed definitive agreements which create a joint venture partnership with CONSOL for the development of their Marcellus Shale properties in southwest Pennsylvania and northwest West Virginia.

Under the arrangement, Noble Energy will purchase a 50 percent interest in 663,350 net undeveloped acres for $1.07 billion, payable in three equal annual installments beginning at closing. In addition, the Company will fund $2.13 billion of CONSOL's future drilling and completion costs. This funding obligation is expected to extend over an eight-year period and is limited to one third of CONSOL's drilling and completion costs with an annual cap of $400 million and a suspension of disproportionate funding at natural gas prices below $4 per million British thermal unit (MMBtu). The acreage value of $3.2 billion equates to a discounted present value of $7,100 per net acre. Noble Energy will also acquire a 50 percent interest in 70 million cubic feet equivalent per day (MMcfe/d) of existing Marcellus production and infrastructure for $219 million. The payments are anticipated to be funded from cash on hand and the Company's currently undrawn revolving credit facility. The effective date of the transaction is July 1, 2011. Closing is expected to occur by the end of September 2011, subject to customary adjustments and conditions.

Key operational aspects of the joint venture include:

• Acreage estimated to contain 7.4 trillion cubic feet equivalent (Tcfe) risked resources net to Noble Energy's interest, of which 400 billion cubic feet equivalent (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 percent held by production, almost entirely operated with close to 100 percent working and 88 percent 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

Charles D. Davidson, Noble Energy's Chairman and CEO, commented, "Noble Energy is excited about the opportunity to establish a position in the Marcellus Shale, which is considered to be one of the most economically attractive developments in North America due to its enormous resource potential, its proximity and access to premium markets, and its competitive cost structure. This transaction will complement and further strengthen our U.S. portfolio by adding a high-quality asset with a substantial growth profile. The Marcellus, combined with our ongoing developments in the DJ basin and deepwater Gulf of Mexico, will provide important balance to our rapidly expanding international programs. Spreading the transaction costs over an extended time horizon creates better partner alignment on investment decisions and maintains our strong balance sheet."

David L. Stover, President and COO, added, "Noble Energy is fortunate to be partnering with CONSOL, a well-known and respected Appalachian operator. The joint oversight and operations are designed to create value through the sharing of best practices and expertise. Both companies are committed to operating in a safe, environmentally responsible manner while maintaining a good working relationship with the local communities."

J. Brett Harvey, CONSOL's Chairman and CEO, commented, "We are extremely pleased to have Noble Energy as our partner in the Marcellus. Noble Energy is a world-class operator that shares CONSOL's dedication to safety and compliance and they bring a strong technical and operational expertise to this partnership. This agreement will benefit the regional economy, the communities in which we operate, our employees, and our respective companies. Together we will be able to accelerate the development of this significant resource safely, efficiently and economically."

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Consol Pitches Gas Role to Industry

Consol Pitches Gas Role to Industry

Thursday, May 05, 2011
Knight Ridder/Tribune Business News
by Kim Leonard, The Pittsburgh Tribune-Review

Consol Energy Inc.'s big move into natural gas production last year puts it in line to sell gas to chemical companies that could locate in the Pittsburgh region, as well as utilities and other industries that need the fuel, CEO J. Brett Harvey said on Wednesday.

"We think the utilities will build out the next round of generating (plants) for gas," Harvey told shareholders at the company's annual meeting at the Hyatt Regency hotel in Findlay. "We also believe chemical companies will come and build plants here because the fuel and water are here."

Regional leaders have approached five chemical makers about building gas "cracking" plants in Southwest Pennsylvania or northern West Virginia, said Dennis Yablonsky, CEO of the Allegheny Conference on Community Development.

A plant with cracking furnaces that turn ethane into ethylene typically costs $1 billion, and employs about 250 people, Yablonsky said.

The Energy Alliance of Greater Pittsburgh, which the conference and business investment group Innovation Works formed two years ago, is pushing the idea that the "wet" gas -- rich in ethane, butane and propane -- that comes from Marcellus shale and other wells is ideal for making ethylene. The compound is used in coatings, adhesives and other products.

Harvey is one of 16 energy company CEOs advising the alliance as it tries to entice new businesses to the region.

Yablonsky wouldn't say which chemical companies have been contacted but, "The response has been pretty good," he said.

Cecil-based Consol focused on coal for most of its 150-year history, but now views natural gas as a "perfect hedge," Harvey said, considering environmental policies that discourage coal use.

"And if you push against coal," he said, "the fuel that comes back to mind in terms of acceptance is natural gas."

Consol last year bought the 16.7 percent of CNX Gas Corp. that it didn't already own, and it paid $3.5 billion for Dominion Resources Inc.'s Appalachian Basin natural gas exploration-production business. The company controlled 3.7 trillion cubic feet of gas reserves as of Dec. 31.

Record revenue last year resulted in a $347 million profit, Harvey said, but Consol's stock performance was disappointing. "The acquisition of the gas piece confused the marketplace," he said.

Consol stock traded at around $56 in January 2010 and dipped to around $32 in midsummer before rebounding. Shares closed at $51.03 yesterday, down $1.23.

Shareholders approved Ernst & Young as Consol's independent auditor, and shareholders also approved advisory votes on executive pay. One shareholder, who declined to be named, criticized Harvey's 16 percent pay boost and other executives' raises in 2010, while stock returns dipped.

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