|View printer-friendly version|
|CONSOL Energy and Hess Corporation Enter into a Joint Venture for CONSOL's Utica Shale Acreage in Ohio; CONSOL Energy to Receive Aggregate Consideration of Approximately $593 Million|
PITTSBURGH, Sept. 7, 2011 /PRNewswire via COMTEX/ --
CONSOL Energy Inc. (NYSE: CNX) announced today that it has entered into an agreement with Hess Corporation (NYSE: HES) for the joint exploration and development of CONSOL's nearly 200,000 Utica Shale acres in Ohio for aggregate consideration to CONSOL of approximately $593 million.
"We are very pleased to have Hess Corporation as our partner in the Utica Shale," commented J. Brett Harvey, CONSOL's chairman and chief executive officer. "Hess Corporation is a global integrated energy company that shares CONSOL's dedication to safety and compliance, and they bring strong technical and operational shale expertise to this joint venture. Those skill sets coupled with CONSOL's deep footprint and history in northern Appalachia result in a powerful combination that will benefit the eastern Ohio economy, strengthen the communities in which we operate, and provide more opportunity for our employees, and our respective companies. Together we will explore and delineate what could be a significant resource in a safe, efficient, and economical manner."
"Of the nearly 200,000 Utica Shale acres in Ohio, approximately 80,000 acres were acquired decades ago by CONSOL, while the remaining 120,000 acres were acquired last year as part of the Dominion E&P acquisition. Today's transaction with Hess helps CONSOL's shareholders to realize value from some of our legacy assets, as well as from assets that were acquired just 15 months ago," continued Mr. Harvey. "We expect a pre-tax gain on the transaction, before fees, of $59 million."
"We are delighted with our entry into the Utica Shale, which enables us to build a strategic acreage position in an emerging unconventional play in the United States," said John Hess, Chairman and CEO of Hess Corporation. "We believe that this acquisition offers significant potential for future growth in reserves and production with most of the land either owned in fee or held by production with high net revenue interests. We are honored to partner with CONSOL, which has a long history and an excellent safety and operating record in the Appalachian basin. We believe that together our companies will build a profitable business and deliver important economic benefits for the residents of eastern Ohio."
The total aggregate consideration to be paid by Hess for an undivided 50% of CONSOL's fee and leased mineral interests in the Utica shale acres in Ohio is approximately $593 million, or $6,000 per net acre. Hess Corporation will pay approximately $59 million at closing. CONSOL and Hess will also enter into a joint development agreement pursuant to which Hess has agreed to pay 50% of CONSOL's working interest obligations relating to certain drilling and completion costs, up to total payments of approximately $534 million, as the acreage is developed. With this joint venture, CONSOL Energy will be able to explore and delineate its Ohio Utica Shale acreage for twenty-five cents on the dollar, while still retaining a 50 percent interest. It's a very low-risk form of exploration.
CONSOL's and Hess' plan of jointly developing the Utica Shale assets calls for Hess to generally operate in the liquids-rich window, which contains approximately 80,000 acres in Belmont, Harrison, Guernsey and Jefferson counties, and CONSOL to generally operate elsewhere in eastern Ohio, including Portage, Tuscarawas, Mahoning counties, in the oil window, as well as in Noble County. CONSOL and Hess anticipate commencing initial drilling operations in a few weeks, and will thereafter average 2 rigs in 2012, 3.5 rigs in 2013, and eventually plateau at an average of 5 rigs in 2015. The carry is expected to be fully utilized by year-end 2016.
CONSOL Energy reconfirms its 2015 production target of 350 billion cubic feet, net to the company. Any success in the Utica Shale will be additive.
The transaction, which is subject to customary adjustments and conditions, including customary adjustments to the aggregate consideration payable by Hess, is expected to close by October 21, 2011. The transaction excludes CONSOL's shallow rights in Ohio and its remaining Utica shale acreage in Pennsylvania and West Virginia.
CONSOL's financial advisor for this transaction was Jefferies & Company, Inc. CONSOL's legal advisors were Vinson & Elkins LLP and Wachtell, Lipton, Rosen & Katz.
Additional detail on the transaction is available from slides posted on the investor relations portion of the CONSOL Energy website, at www.consolenergy.com.
Various statements in this release, including those that express a belief, expectation or intention, may be considered forward-looking statements (as defined in Section 21E of the Exchange Act) that involve risks and uncertainties that could cause actual results to differ materially from projected results. Accordingly, investors should not place undue reliance on forward-looking statements as a prediction of actual results. The forward-looking statements may include projections and estimates concerning the timing and success of specific projects and our future production, revenues, income and capital spending. When we use the words "believe," "intend," "expect," "may," "should," "anticipate," "could," "estimate," "plan," "predict," "project," or their negatives, or other similar expressions, the statements which include those words are usually forward-looking statements. When we describe strategy that involves risks or uncertainties, we are making forward-looking statements. The forward-looking statements in this press release, if any, speak only as of the date of this press release; we disclaim any obligation to update these statements. We have based these forward-looking statements on our current expectations and assumptions about future events. While our management considers these expectations and assumptions to be reasonable, they are inherently subject to significant business, economic, competitive, regulatory and other risks, contingencies and uncertainties, most of which are difficult to predict and many of which are beyond our control. These risks, contingencies and uncertainties relate to, among other matters, the following: deterioration in economic conditions in any of the industries in which our customers operate, or sustained uncertainty in financial markets cause conditions we cannot predict; an extended decline in prices we receive for our coal and gas affecting our operating results and cash flows; our customers extending existing contracts or entering into new long-term contracts for coal; our reliance on major customers; our inability to collect payments from customers if their creditworthiness declines; the disruption of rail, barge, gathering, processing and transportation facilities and other systems that deliver our coal and gas to market; a loss of our competitive position because of the competitive nature of the coal and gas industries, or a loss of our competitive position because of overcapacity in these industries impairing our profitability; our inability to maintain satisfactory labor relations; coal users switching to other fuels in order to comply with various environmental standards related to coal combustion emissions; the impact of potential, as well as any adopted regulations relating to greenhouse gas emissions on the demand for coal and natural gas, as well as the impact of any adopted regulations on our coal mining operations due to the venting of coalbed methane which occurs during mining; foreign currency fluctuations could adversely affect the competitiveness of our coal abroad; the risks inherent in coal and gas operations being subject to unexpected disruptions, including geological conditions, equipment failure, timing of completion of significant construction or repair of equipment, fires, explosions, accidents and weather conditions which could impact financial results; our focus on new gas development projects and exploration for gas in areas where we have little or no proven gas reserves; decreases in the availability of, or increases in, the price of commodities and services used in our mining and gas operations, as well as our exposure under "take or pay" contracts we entered into with well service providers to obtain services which if not used could impact our cost of production; obtaining and renewing governmental permits and approvals for our coal and gas operations; the effects of government regulation on the discharge into the water or air, and the disposal and clean-up of, hazardous substances and wastes generated during our coal and gas operations; the effects of stringent federal and state employee health and safety regulations, including the ability of regulators to shut down a mine or well; the potential for liabilities arising from environmental contamination or alleged environmental contamination in connection with our past or current coal and gas operations; the effects of mine closing, reclamation, gas well closing and certain other liabilities; uncertainties in estimating our economically recoverable coal and gas reserves; costs associated with perfecting title for coal or gas rights on some of our properties; the outcomes of various legal proceedings, which are more fully described in our reports filed under the Securities Exchange Act of 1934; the impacts of various asbestos litigation claims; increased exposure to employee related long-term liabilities; increased exposure to multi-employer pension plan liabilities; minimum funding requirements by the Pension Protection Act of 2006 (the Pension Act) coupled with the significant investment and plan asset losses suffered during the recent economic decline has exposed us to making additional required cash contributions to fund the pension benefit plans which we sponsor and the multi-employer pension benefit plans in which we participate; lump sum payments made to retiring salaried employees pursuant to our defined benefit pension plan exceeding total service and interest cost in a plan year; acquisitions that we recently have completed or may make in the future including the accuracy of our assessment of the acquired businesses and their risks, achieving any anticipated synergies, integrating the acquisitions and unanticipated changes that could affect assumptions we may have made and divestitures we anticipate may not occur or produce anticipated proceeds; the anti-takeover effects of our rights plan could prevent a change of control; increased exposure on our financial performance due to the degree we are leveraged; replacing our natural gas reserves, which if not replaced, will cause our gas reserves and gas production to decline; our ability to acquire water supplies needed for gas drilling, or our ability to dispose of water used or removed from strata in connection with our gas operations at a reasonable cost and within applicable environmental rules; our hedging activities may prevent us from benefiting from price increases and may expose us to other risks; and other factors discussed in the 2010 Form 10-K under "Risk Factors," as updated by any subsequent Form 10-Qs, which are on file at the Securities and Exchange Commission.
SOURCE CONSOL Energy Inc.