National Fuel Gas Company (NYSE: NFG) (the “Company”) announced that it has entered
into a purchase and sale agreement with SWEPI LP, a subsidiary of Royal Dutch Shell plc (NYSE:
RDS.A) (“Shell”), to acquire Shell’s upstream and midstream gathering assets in Pennsylvania for
total consideration of approximately $541 million, less closing adjustments that are estimated to
reduce the consideration provided at closing to approximately $500 million. The transaction is
expected to close on July 31, 2020, with an effective date of January 1, 2020, and is subject to
customary closing conditions. The transaction is not contingent on financing conditions, and the
Company has taken appropriate steps to ensure it has ample liquidity and protections as it pursues
permanent financing for the acquisition.
As part of the transaction, the Company will acquire 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
approximately 215-230 MMcf/d, with shallow base declines and an average net revenue interest of
approximately 86.5%. In addition, the Company will acquire approximately 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 the
Company’s Empire pipeline system, with the potential to tie into the Company’s existing
Covington gathering system.
Post-closing, the acquired assets are expected to generate net natural gas production in the range of
70 to 75 Bcf over the following twelve months. Given their contiguous nature, the Company
expects to fully integrate the assets into its existing operations in Tioga County, Pa. This is
expected to drive immediate operating cost synergies in the E&P segment, with increased
production expected to reduce cash operating expenses by approximately $0.05 to $0.08 per Mcfe
on an annualized basis post-closing. The gathering and compression facilities included in this
transaction transport the entirety of the acquired production and are expected to generate
approximately $35 million in incremental EBITDA in the Gathering segment over the same
period.
In contemplation of this transaction, and in order to protect the highly accretive economics of the
acquisition, the Company has executed significant additional NYMEX natural gas hedges. For
fiscal years 2021 and 2022, the Company has entered into NYMEX hedges equivalent to
approximately 75% and 55% of the acquired PDP production, respectively, at average weighted
prices of $2.71 and $2.54, respectively. Overall, the Company currently has hedges and fixed price
physical sales in place for approximately 75% of its expected PDP production in fiscal 2021.
Further details on the Company’s updated hedging positions are provided in the Company’s May
2020 investor presentation.
“National Fuel’s acquisition of these high-quality assets in one of the most prolific areas in
Appalachia will provide the Company with a unique and highly strategic opportunity to further its
integrated development approach in the region,” said David P. Bauer, the Company’s President
and Chief Executive Officer. “With significant economies of scale provided by Shell’s large Tioga
County acreage footprint, which is contiguous to our existing development areas, along with
significant, integrated gathering facilities, and valuable pipeline capacity, Shell’s assets are a
perfect fit for the Company’s diversified business model, and provide meaningful synergies with
our existing operations.”
“We expect this transaction to be immediately accretive to the Company’s earnings per share and
to generate substantial incremental free cash flow over the next several years while providing
meaningful upside for the Company,” continued Bauer. “We believe that this cash flow generation,
along with our acquisition of significant flowing natural gas production and reserves at an
attractive valuation, and a financing strategy that protects and strengthens our balance sheet, will
leave National Fuel well-positioned for the long-term.”
Permanent financing is expected to be comprised of approximately equal proportions of equity,
including equity-linked securities, and long-term debt, a financing mix that will maintain the
Company’s strong balance sheet and investment-grade ratings. As part of the equity component of
the permanent financing, the purchase and sale agreement provides the Company with the right to
issue up to $150 million in common equity to Shell at an agreed-upon price of $38.97 per share,
the details of which are described further in the purchase and sale agreement filed as an exhibit to
the Form 8-K filed with the Securities and Exchange Commission in conjunction with this press
release. In addition, the Company has made a $27.1 million deposit that will be credited against the
purchase price at the closing of the transaction.
To further enhance its short-term liquidity position, the Company also closed on a $200 million
unsecured 364-day credit facility arranged by JPMorgan Chase Bank, N.A. This new credit
facility, in combination with the over $500 million currently available under the Company’s
existing multi-year credit facility, provides significant liquidity as the Company pursues its
permanent financing plans.
J.P. Morgan Securities LLC and Goldman Sachs & Co. LLC are serving as financial advisors to
National Fuel. Kirkland & Ellis LLP and Jones Day are acting as legal advisors to the Company.
