National Fuel Gas’ Seneca Resources exploration and production unit has formed a joint venture with an affiliate of private equity firm IOG Capital and asset manager Fortress Investment Group to develop Marcellus Shale natural gas assets in Northcentral Pennsylvania.
The JV could save Seneca roughly $380 million in drilling costs over two years, Kallanish Energy understands.
Seneca and IOG will jointly participate in a drilling program to develop up to 80 Marcellus wells located on roughly 10,500 acres in Pennsylvania’s Clermont/Rich Valley area.
IOG will hold an 80% working interest, is obligated to participate in the first 42 wells and has a one-time option to participate in the remaining 38 wells that can be exercised on or before July 1, 2016.
IOG’s obligation on the first 42 wells is expected to reduce Seneca’s net capital expenditures by roughly $200 million in fiscal 2016, with an additional $180 million reduction spread across FY 2016 and 2017 if IOG participates in the remaining 38 wells. (National Fuel’s fiscal year ends Sept. 30.)
“During this period of lower commodity prices, where we are experiencing decreased cash flow in the upstream portion of our business, the drilling joint development agreement we announced today helps us move forward with our strategy,” said Ronald J. Tanski, CEO of National Fuel.
Tanski added the JV “significantly reduces” National Fuel/Seneca’s upstream capital requirements while allowing increased production from its acreage that will support the company’s growing pipeline, storage and gathering operations.
Seneca will be the drilling program operator. Production from all JV wells will be gathered by National Fuel Gas Midstream’s Clermont Gathering System.
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