WILLIAMSVILLE, N.Y.--(BUSINESS WIRE)--
National Fuel Gas Company (NYSE:NFG) (“National Fuel” or the “Company”)
announced today that Seneca Resources Corporation (“Seneca”), its wholly
owned exploration and production subsidiary, and IOG CRV - Marcellus,
LLC ("IOG"), an affiliate of IOG Capital, LP ("IOG Capital"), and funds
managed by affiliates of Fortress Investment Group LLC ("Fortress"),
have agreed to a modified extension of their joint development
agreement, which includes a commitment to develop additional Marcellus
Shale natural gas assets located in Elk, McKean and Cameron counties in
north-central Pennsylvania.
Under the terms of the revised joint development agreement, Seneca and
IOG commit to jointly participate in a program that will develop a total
of 75 Marcellus wells located in the Clermont/Rich Valley area in
Pennsylvania. In December 2015, IOG initially committed to developing 42
wells with an option to participate in 38 additional wells if elected
prior to July 1, 2016. The total number of wells and pad locations
included in the revised joint development agreement were modified to
reflect mutually beneficial changes in Seneca's drilling and completions
schedule resulting from adjustments to gathering infrastructure plans
and other operational factors. To date, 39 of the 75 joint development
wells have been either completed and turned to sales or drilled and in
the process of being completed, leaving an additional 36 wells to be
developed under the revised joint development agreement. IOG was also
granted an option to participate in a 7-well Marcellus pad that will be
completed prior to December 31, 2017. Should IOG choose to participate
in the 7-well Marcellus pad, the total commitment under the joint
development agreement would reach 82 wells.
IOG continues to hold an 80 percent working interest in all of the joint
development wells, with the remaining 20 percent working interest held
by Seneca. As part of the amended agreement, Seneca and IOG agreed to
make certain modifications to the royalty structure. Seneca's royalty in
the additional 36 wells was reduced from 10 percent to 7.5 percent,
resulting in a net revenue interest of 26 percent for Seneca and 74
percent for IOG. Consistent with the initial agreement, Seneca's working
interest will increase to 85 percent after IOG achieves a 15 percent
internal rate of return.
At Seneca's current Marcellus well costs, which have averaged an
industry-leading $650,000 per 1,000 feet of completed lateral fiscal
year-to-date, IOG's obligation on the remaining 36 wells is expected to
further reduce Seneca's net capital expenditures by approximately $35
million in fiscal 2016 and another $120 million spread across
fiscal 2017 and fiscal 2018. In total, IOG is expected to fund
approximately $325 million for its 80 percent working interest in the 75
joint development wells, which is approximately $55 million less than
what was projected under the initial joint development agreement. The
decrease from the initial agreement is due to the reduction in the total
well count and a $600,000 per well average improvement in Seneca's
actual well costs versus initial projections.
Seneca will continue to be the program operator, allowing it to maintain
planned activity levels and further optimize Marcellus drilling and
completion efficiencies. Production from all joint development wells
will be gathered by National Fuel's Gathering segment's Clermont
Gathering System. IOG will also continue to share in Seneca's contracted
firm sales and firm transportation capacity, including the 490,000
dekatherms per day of capacity on National Fuel's Pipeline & Storage
segment's Northern Access project that is expected to be placed
in-service by November 2017.
Ronald J. Tanski, President and Chief Executive Officer of National
Fuel, stated: "National Fuel is very pleased to extend our relationship
with IOG. The joint development arrangement provides a number of
operational and financial benefits to both parties. For National Fuel,
it allows us to leverage the competitive advantage of our low cost, fee
acreage in the Marcellus and reduce the level of capital investment in
our upstream business over the next two years, while maintaining
operational efficiencies and providing the throughput necessary to
support our pipeline expansion projects. Given National Fuel's large
Appalachian footprint and the alignment of our strategic goals, we think
there could be additional opportunities to work with IOG in the future
to accelerate value creation for our shareholders."
Marc Rowland, Founder and Senior Managing Director of IOG Capital,
stated: "IOG and its partners look forward to this expanded joint
development program with Seneca. Seneca has proven to be an effective
cost efficient operator since the establishment of our agreement at the
end of 2015. IOG’s capital permits operators to realize the full value
of their proven assets through development drilling, by reducing the
initial capital expenditure burden, and retaining the long term value of
a project.”
Capital Expenditure Guidance Update
The Company is revising its fiscal 2016 capital expenditure guidance to
reflect the impact of the joint development agreement. The Company's
Exploration & Production segment's fiscal 2016 capital budget is now
expected to be in the range of $120 million to $160 million, at the
midpoint a $35 million reduction from the previous guidance range of
$150 million to $200 million. Consequently, the Company's total
consolidated capital expenditure guidance for fiscal 2016 is now a range
of $415 million to $505 million.
The Company does not expect the revised joint development agreement to
have a material impact on Seneca's production guidance or the Company's
consolidated earnings per share guidance in fiscal 2016.
National Fuel is a diversified energy company headquartered in Western
New York that operates an integrated collection of natural gas and oil
assets across five business segments: Exploration and Production,
Pipeline and Storage, Gathering, Utility, and Energy Marketing.
Additional information about National Fuel is available at www.nationalfuelgas.com.
IOG Capital, LP is a Dallas, Texas based energy investment firm that
manages oil and gas real assets partnered with funds managed by
affiliates of Fortress Investment Group LLC (NYSE: FIG), and other
institutional investors. Founded in 2014, IOG now has approximately $1
billion in accessible capital. The Firm seeks to invest in upstream
development oil and gas projects located onshore in the United States
through non-operated joint development agreements and traditional joint
operating agreements. Additional information about IOG Capital is
available at www.iogcapital.com.
Jefferies LLC acted as the exclusive financial advisor to Seneca for
this transaction and Kirkland & Ellis acted as legal counsel. Jackson
Walker, LLP acted as legal counsel for IOG.
Certain statements contained herein, including statements identified by
the use of the words “anticipates,” “estimates,” “expects,” “forecasts,”
“intends,” “plans,” “predicts,” “projects,” “believes,” “seeks,” “will,”
“may” and similar expressions, and statements which are other than
statements of historical facts, are “forward-looking statements” as
defined by the Private Securities Litigation Reform Act of 1995.
Forward-looking statements involve risks and uncertainties, which could
cause actual results or outcomes to differ materially from those
expressed in the forward-looking statements. The Company’s expectations,
beliefs and projections contained herein are expressed in good faith and
are believed to have a reasonable basis, but there can be no assurance
that such expectations, beliefs or projections will result or be
achieved or accomplished. In addition to other factors, the following
are important factors that could cause actual results to differ
materially from those discussed in the forward-looking statements:
impairments under the SEC’s full cost ceiling test for natural gas and
oil reserves; changes in the price of natural gas or oil; financial and
economic conditions, including the availability of credit, and
occurrences affecting the Company’s ability to obtain financing on
acceptable terms for working capital, capital expenditures and other
investments, including any downgrades in the Company’s credit ratings
and changes in interest rates and other capital market conditions;
delays or changes in costs or plans with respect to Company projects or
related projects of other companies, including difficulties or delays in
obtaining necessary governmental approvals, permits or orders or in
obtaining the cooperation of interconnecting facility operators; factors
affecting the Company’s ability to successfully identify, drill for and
produce economically viable natural gas and oil reserves, including
among others geology, lease availability, title disputes, weather
conditions, shortages, delays or unavailability of equipment and
services required in drilling operations, insufficient gathering,
processing and transportation capacity, the need to obtain governmental
approvals and permits, and compliance with environmental laws and
regulations; changes in laws, regulations or judicial interpretations to
which the Company is subject, including those involving derivatives,
taxes, safety, employment, climate change, other environmental matters,
real property, and exploration and production activities such as
hydraulic fracturing; governmental/regulatory actions, initiatives and
proceedings, including those involving rate cases (which address, among
other things, target rates of return, rate design and retained natural
gas), environmental/safety requirements, affiliate relationships,
industry structure, and franchise renewal; changes in price differential
between similar quantities of natural gas or oil sold at different
geographic locations, and the effect of such changes on commodity
production, revenues and demand for pipeline transportation capacity to
or from such locations; other changes in price differentials between
similar quantities of natural gas or oil having different quality,
heating value, hydrocarbon mix or delivery date; the cost and effects of
legal and administrative claims against the Company or activist
shareholder campaigns to effect changes at the Company; uncertainty of
oil and gas reserve estimates; significant differences between the
Company’s projected and actual production levels for natural gas or oil;
changes in demographic patterns and weather conditions; changes in the
availability, price or accounting treatment of derivative financial
instruments; changes in economic conditions, including global, national
or regional recessions, and their effect on the demand for, and
customers’ ability to pay for, the Company’s products and services; the
creditworthiness or performance of the Company’s key suppliers,
customers and counterparties; economic disruptions or uninsured losses
resulting from major accidents, fires, severe weather, natural
disasters, terrorist activities, acts of war, cyber attacks or pest
infestation; significant differences between the Company’s projected and
actual capital expenditures and operating expenses; changes in laws,
actuarial assumptions, the interest rate environment and the return on
plan/trust assets related to the Company’s pension and other
post-retirement benefits, which can affect future funding obligations
and costs and plan liabilities; increasing health care costs and the
resulting effect on health insurance premiums and on the obligation to
provide other post-retirement benefits; or increasing costs of
insurance, changes in coverage and the ability to obtain insurance. The
Company disclaims any obligation to update any forward-looking
statements to reflect events or circumstances after the date thereof.
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Source: National Fuel Gas Company