Noble Energy Exits Marcellus Shale In $1.2 Billion Deal

[Editor's note: This story was updated at 3:20 p.m. CT May 11.]

Noble Energy Inc. (NYSE: NBL) is cashing in its Marcellus Shale assets to pay off debt and streamline its U.S. shale portfolio, the Houston-based company said May 2.

Noble said it signed an agreement to divest all of its upstream Marcellus assets in northern West Virginia and southern Pennsylvania for $1.225 billion, which includes an additional contingent payment of up to $100 million based on natural gas prices.

The buyer is HG Energy II Appalachia LLC, a subsidiary of privately-held HG Energy LLC based in Parkersburg, W.V., according to Noble's filings with the Securities and Exchange Commission.

Included in the divestment is current production of about 415 million cubic feet of equivalent per day (MMcfe/d), of which 88% is natural gas, and a 100% working interest in about 385,000 acres. Total proved reserves as of year-end 2016 related to these assets were 1.5 Tcfe, the company said.

Noble has been operating in the Marcellus since 2011, according to the company’s website.

Proceeds from the transaction will be used to pay down essentially all of the debt borrowings resulting from the Clayton Williams Energy transaction, which materially expanded the company’s core Delaware Basin position.

In January, Noble said it would acquire Midland, Texas-based Clayton Williams for $3.2 billion of equity, cash and debt. The deal included 71,000 net acres and 2,400 gross drilling locations in the core of the Southern Delaware Basin.

As a result of the combination, which closed April 25, Noble became the second-largest acreage holder in the Delaware Basin with nearly 120,000 net acres in the Delaware core, said David L. Stover, the company’s chairman, president and CEO.

As of first-quarter 2017, Noble’s debt totaled $7 billion, according to Wells Fargo Securities.

Tudor, Pickering, Holt & Co. (TPH) said Noble’s Marcellus sale was a positive due to the continued high-grading of the company’s portfolio and forthcoming leverage reduction

“Good to see company work leverage down towards peer-levels and expect to see continued monetizations over the next 12 months,” TPH said in a May 2 report, adding that divestiture targets might include the Tamar Field offshore Israel, dropdowns to Noble Midstream Partners LP (NYSE: NBLX) and noncore Denver-Julesburg (D-J) assets.

Overall, David Tameron, senior analyst at Wells Fargo Securities, views the sale as positive as well given that the asset no longer competed for capital in Noble's portfolio.

“We believe the transaction ascribes very little value to the company's undeveloped acreage as the price tag equates to $2,700 per thousand cubic feet equivalent per day [assuming no contingent payment],” Tameron said in a May 2 report. “We view this as fair given the declining volumes (already at 415 MMcfe/d vs. 433 MMcfe/d during first-quarter 2017) and acreage that is generally thought to be south of Marcellus core.”

As part of the sale agreement, the Marcellus acreage will retain its dedication to CONE Midstream (NYSE: CNNX) for natural gas gathering. Noble’s interest in CONE Midstream is not included in the transaction.

In addition, the buyer will assume responsibility for up to 430 million cubic feet per day of natural gas of the company's firm transportation, established to support Marcellus upstream production.

Stover said the company’s Marcellus exit will enable Noble to further focus on its highest-return areas that will deliver industry-leading U.S. onshore volume and cash flow growth.

“The Marcellus has been a strong performer for Noble Energy over the last few years, which is a direct result of the success of our employees’ efforts,” he said in a statement. “During the same time period, we have also significantly expanded the inventory of investment opportunities in our liquids-rich, higher-margin onshore assets, which has led us to now divest our Marcellus position.”

The transaction includes upfront cash of $1.125 billion and an additional contingent amount of $100 million, structured as three separate payments of $33.3 million.

The contingency payments kick in if the average annual price realization at Dominion South exceeds $3.30 per million British thermal units in the individual annual periods from 2018 through 2020.

Noble said it anticipates the transaction will close second-quarter 2017, with a Jan. 1 effective date. BofA Merrill Lynch was financial adviser to Noble and Porter Hedges LLP served as its legal counsel.

Noble also holds 352,000 net acres in the D-J Basin in Colorado and 35,000 net acres in the Eagle Ford Shale in South Texas. In addition, the company portfolio includes offshore assets in the U.S. Gulf of Mexico, Eastern Mediterranean and West Africa.

Emily Patsy can be reached at epatsy@hartenergy.com.