Shell sells Appalachia assets to National Fuel for $541 million

Royal Dutch Shell PLC, through its affiliate SWEPI LP, has agreed to sell its Appalachia shale gas position to National Fuel Gas Co. (NFG) and its subsidiaries, Seneca Resources Co. LLC, National Fuel Gas Midstream Co. LLC, and NFG Midstream Covington LLC, for $541 million.

"Divesting our Appalachia position is consistent with our desire to focus our Shales portfolio," said Wael Sawan, upstream director at Shell. "While we maximize cash in the current environment, our drive for a competitive position in Shales continues. It is a core part of our upstream portfolio along with the deep water and conventional oil and gas businesses."

The sale includes transfer of about 450,000 net leasehold acres across Pennsylvania, with about 350 producing Marcellus and Utica wells. Included in the leasehold are over 200,000 net acres in Tioga County, with net proved developed natural gas reserves of approximately 710 bcf. At closing, these assets are expected to have flowing net production from both the Utica and Marcellus shale formations of 215-230 MMcfd, with shallow base declines and an average net revenue interest of 86.5%. Assets include some 142 miles of gathering pipelines and related compression, over 100 miles of water pipelines, and associated water handling infrastructure, all of which currently support Shell’s Tioga County production operations. These gathering facilities are interconnected with various interstate pipelines, including National Fuel’s Empire pipeline system, with the potential to tie into its existing Covington gathering system.

The consideration is intended to be paid in cash, but National Fuel has the option to provide up to $150 million of NFG common stock as consideration. If not paid fully in cash, there will be two contingent payments of up to $15 million for each of the years 2021 and 2022 depending on certain market conditions, in which the payment will be pro-rata reduced if National Fuel elects for less share compensation at close.

The transaction is expected to close on July 31, with an effective date of Jan. 1, and is subject to customary closing conditions.