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Consol Energy selling half its Marcellus rights for $3.4B

| Thursday, Aug. 18, 2011

Consol Energy Inc. shareholders should see a quicker return on their investment because of a $3.4 billion joint venture announced today to help ramp up the company's Marcellus shale production, executives said.

Houston-based Noble Energy Inc. will buy half of Consol's Marcellus development rights and existing wells in Pennsylvania and West Virginia.

The deal comes a little more than a year after Consol tripled its gas land holdings with an acquisition from Dominion Resources Inc., and the joint venture is designed to help the Consol drill all of that land, said Randy Albert, chief operating officer of the company's Energy Gas Division.

"We looked at what we had, all 750,000 acres, and there were places we wouldn't get to in the next 20 years," Albert said in conference call. "We just felt it was in the best interest of our company and shareholders. … We don't believe in pushing off the value of those assets to the next generation."

Consol is withholding some of its gas land in Ohio, so the deal involves 663,350 acres — and rights only to the Marcellus layer — in Pennsylvania and West Virginia. The joint venture will concentrate on developing three areas: Westmoreland and Indiana counties, Greene and Washington counties, and Marshall and Barbour counties in West Virginia, Albert said.

Noble Energy will be especially helpful in the West Virginia counties, which hold "wet gas," he added. Wet gas is a mixture of several different hydrocarbons that can be separated and sold, but Consol hasn't worked with those operations before. The expansion in West Virginia will be its first, Albert said.

"We were very excited about bringing a partner in that had expertise in handling liquids," he added.

Consol plans to double its Marcellus well rig count from four to eight this year, with plans to increase to 12 rigs by 2013 and 16 by 2015. Each rig has about 50 workers, but officials said they were not sure how many total jobs the expansion will bring to the region. Consol will be part of efforts to help train a new wave of Marcellus laborers, said spokesman Tommy Johnson.

"We're going to be the face of production here," he said. "So in terms of employment and capital allocation, that's going to be driven by Consol."

The deal is expected to close on Sept. 30 and includes $1.07 billion 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 help fund ongoing development, Consol said.

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. The company is likely to invest that money into further expansion, officials said.

At noontime, Consol shares rose 56 cents, trading at $42.98. Noble Energy shares dropped more than $4 to $83.95.

The deal marks Noble's entry into Marcellus shale development.

"Noble Energy is excited to be joining Consol Energy in the development of their outstanding acreage position in the Marcellus," said Charles Davidson, CEO of the exploration and production company. "We have spent considerable time looking for the right entry point into the Marcellus and I believe, with Consol, we have found the perfect partner that we have been searching for."

AP contributed.

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