CNX Resources Corporation (NYSE: CNX) announced that it has reached an agreement to sell its Ohio Utica joint venture assets to Ascent Resources-Utica, LLC for net cash proceeds of approximately $400 million. The divestiture includes 50 net producing wells with an average net revenue interest of 48%; five 50% working interest wells the company recently completed and expects to turn-in-line in July; two 50% working interest wells for which the company has drilled the top hole; and approximately 26,000 net undeveloped acres. The divested assets, which are owned in conjunction with Hess Corporation ("Hess"), are located in the wet gas Utica Shale areas of Belmont, Guernsey, Harrison, and Noblecounties. The divested acres were not dedicated to CNX Midstream Partners LP (NYSE: CNXM) ("CNXM") and do not impact future dropdown opportunities.
Aside from the five recently completed wells, CNX did not have any additional activity associated with the divested assets in its future development plans. Starting on the effective date of the transaction of April 1, 2018, for the next twelve months, the company expects net production associated with these assets to be approximately 85 MMcfe per day, or 31 Bcfe, resulting in EBITDAX of approximately $50 million. The company expects full-year 2019 EBITDAX of approximately $25-$35 million. CNX will retain all related production and EBITDAX generated between the effective date and closing, which the company expects to be in the third quarter of 2018, subject to customary closing conditions and adjustments.
Cash proceeds from the transaction are expected to be used to:
- Pay down debt;
- Continue the ongoing share repurchase program;
- Invest in the drilling and completion activities; or
- Make bolt-on acreage acquisitions as opportunities become available.
"The sale of the Ohio Utica JV assets is only the most recent example of the disciplined capital allocation process that CNX has employed over the past several years," commented Nicholas J. DeIuliis, president and CEO. "This transaction is immediately accretive and brings forward the value of assets that were simply outranked by other options in CNX's opportunity set. We will evaluate the use of proceeds through the same capital allocation filter and be methodical in our decision-making. CNX remains committed to the share repurchase program and a healthy balance sheet, both of which we expect to be beneficiaries of this transaction."
As a result of the transaction, CNX expects to record a non-cash gain of approximately $135 million in the third quarter 2018, subject to post-closing adjustments. CNX does not expect to pay taxes on the transaction due to the utilization of existing net operating losses (NOLs).
Guidance Update
The company expects the divestiture to result in a 10 Bcfe reduction to 2018 production guidance based on Ohio wet Utica volumes previously planned between the expected third quarter 2018 close date and the end of the year. As a result, full-year 2018 production guidance is expected to be 490-515 Bcfe, compared to previous guidance of 500-525 Bcfe. Also, CNX expects a reduction of approximately $15 million to 2018 EBITAX attributable to CNX shareholders, or $810-$835 million, compared to the previous guidance of $825-$850 million.
For 2019 and 2020, the divestiture is expected to reduce total production volumes by 20-25 Bcfe and adjusted EBITDAX to CNX shareholders by $25-$35 million, for each year.
About CNX Resources
CNX Resources Corporation (NYSE: CNX) is one of the largest independent natural gas exploration, development and production companies, with operations centered in the major shale formations of the Appalachian basin. The company deploys an organic growth strategy focused on responsibly developing its resource base. As of December 31, 2017, CNX had 7.6 trillion cubic feet equivalent of proved natural gas reserves. The company is a member of the Standard & Poor's Midcap 400 Index. Additional information may be found at www.cnx.com.
