Weekly Update: Noble Energy ventures into Marcellus Shale via CONSOL Energy tie-up

Eoin Coyne
Evaluate Energy

Noble Energy made a major move into the Marcellus shale play this week in a $3.4 billion joint venture with CONSOL Energy. The deal was split into two transactions, with a 50% interest in the proved developed portion of CONSOL’s Marcellus play portfolio swapping hands for $219 million and a 50% interest in CONSOL’s 663,000 acres of undeveloped land in the play costing $3.2 billion. The undeveloped acreage acquisition is structured as a $1.07 billion upfront cash payment and a further $2.13 billion in the form of a cost carry, which is anticipated to extend over an 8 year period.

The cost for the undeveloped portion of acreage equates to $9,650 per acre, although after taking into account the present value (assuming a 10% discount rate) Noble Energy reports this figure as $7,100 per acre. Noble Energy has also managed to mitigate a portion of the risk posed by the currently supressed US gas prices by suspending the disproportionate funding when the price falls below $4 per btu. The deal is the largest for Noble since their acquisition of Patina Oil & Gas in 2005 for the same price of $3.4 billion, whilst for CONSOL the cash payment will strengthen a balance sheet that carried significant debt following large recent acquisitions from Dominion Petroleum and CNX Gas.

In the past two years the average price for an undeveloped Marcellus shale play acre has traded at $5,500 and it was clear from the share price impact for each company who the market thought got the better end of the deal. CONSOL Energy gained 8.8%, which contrasted with a 3% drop for Noble Energy following the deal announcement. The reaction from the Noble Energy’s shareholders is likely to have been further fuelled by another turbulent week on the equity markets on the back of further negative sentiment towards the state of the global economy, and a widespread aversion to risk even with almost non-existent interest rates across the major western economies offering attractive borrowing costs.

Despite the negatives the tie-up has the potential to contribute 600mcfe/d of production net to Noble by 2015 and with the location of the play next to the major markets the low transportation costs means the play can be economic at a lower gas price relative to mid-continent plays. Also the acreage is 20% “wet gas” which is likely to boost the average price realisations.

Other than the Noble-CONSOL joint venture it was an uneventful week for E&P deals with the next largest transaction coming from Swift Energy’s $53.5 million divestment of non-core US properties. With the assets containing 92.2 bcfe (15.37 million boe) of proved reserves, the cost equates to $3.48 per boe, a figure which is usually more akin to risked assets in unstable countries as opposed to a producing asset in the US, which although gas weighted still contains 35% liquids.

In the refining sector, San Miguel, traditionally a food and beverage company expanded on its refining and marketing division by acquiring ExxonMobil’s downstream assets in Malaysia for $610 million. San Miguel had previously entered the sector when they acquired a majority stake in Philippine’s largest refining company Petron during 2010. The acquisition will mark the company’s first non-food and beverage deal outside of its home country in the Philippines and will compose of a 65% in the 88,000 b/d Port Dickson refinery and 560 service stations.

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