Monday, March 15, 2010

CONSOL Buys A Piece of Dominion for $3.5 Billion

Pittsburgh based CONSOL Energy has agreed to buy the Appalachian exploration and production business of Dominion Resources, Inc. for $3.475 billion in cash. The acquisition increases CONSOL Energy's total proved gas reserves by more than 50 percent from 1.9 trillion cubic feet to approximately 3 trillion cubic feet and doubles its potential gas resource base to approximately 41 trillion cubic feet. CONSOL Energy will acquire a total of 1.46 million oil and gas acres from Dominion along with more than 9,000 producing wells that are expected to extract more than 41 Bcfe in 2010. CONSOL currently has two Marcellus Shale horizontal drilling rig with a second to be delivered in a few weeks and a third to be delivered by September. Company CEO Brett Harvey says they will increase the number of rigs by 2013 to 10 and hope to have 170 wells drilled by 2014 as they take advantage of their new assets. Brett says, “This acquisition will substantially increase natural gas reserves and production capacity - further enhancing CONSOL Energy's position as a leading diversified energy company with a balanced portfolio of coal and natural gas.” The acquisition will give CONSOL Energy approximately 750,000 acres in the strategic Marcellus Shale fairway. Currently Dominion is doing very little with it’s shale assets and is focusing on shallow gas wells on its land holdings. Brett stress that although upon completion of the transaction, CONSOL Energy's natural gas business is expected to account for as much as 35 percent of it’s total revenue, the company is not turning its back on coal. Harvey says, “In the last 10 years we have invested over $5 billion into improving or expanding our mines. Now is the time for our share holders to realize the benefits from those investment.” He adds, "In addition to bolstering our gas platform, this transaction will also result in a more balanced energy portfolio, improving the Company's risk profile and positioning it to deliver sustainable long-term growth and increased value to shareholders." CONSOL says it will absorb the 193 Dominion employees associate with the assets. The Company expects to raise approximately $4.0 billion and is targeting a balanced mix of equity and debt to fund the acquisition and development of the acquired acreage. Brett says, “We kept our powder dry to do a big deal like this and we have the balance sheet to do it.”

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