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Shell Divests Shale Gas Appalachia Assets to National Fuel

From an Article of the Energy Industry Review, May 12, 2020

Shell’s Appalachia operations are located in the predominately rural northern and western portions of Pennsylvania, where the company drills and produces dry gas from the Marcellus and Utica formations.

National Fuel Gas Company (NFG) announced that it has entered into a purchase and sale agreement with SWEPI LP, a subsidiary of Royal Dutch Shell plc, to acquire Shell’s upstream and midstream gathering assets in Pennsylvania for total consideration of approximately USD 541 million, less closing adjustments that are estimated to reduce the consideration provided at closing to approximately USD 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, NFG 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, NFG expects to fully integrate the assets into its existing operations in Tioga County, Pa.

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 USD 2.71 and USD 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.

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 USD 150 million in common equity to Shell at an agreed-upon price of USD 38.97 per share.

To further enhance its short-term liquidity position, the Company also closed on a USD 200 million unsecured 364-day credit facility arranged by JPMorgan Chase Bank, N.A. This new credit facility, in combination with the over USD 500 million currently available under the Company’s existing multi-year credit facility, provides significant liquidity as the Company pursues its permanent financing plans.

The transaction is part of divesting non-core assets and in line with Shell’s Shales strategy which focusses on development of higher margin, light tight oil assets.

The transaction includes the transfer of ~450,000 net leasehold acres across Pennsylvania, with approximately 350 producing Marcellus and Utica wells in Tioga County and associated facilities. The current net production is ~250 million standard cubic feet per day. The transaction also includes the transfer of the Shell owned and operated midstream infrastructure.

Shell’s Appalachia operations are located in the predominately rural northern and western portions of Pennsylvania, where the company drills and produces dry gas from the Marcellus and Utica formations. Shell entered the area in 2010 after acquiring 750,000 leasehold acres from East Resources. Shell has since grown its acreage leasehold to approximately 850,000 acres primarily in Pennsylvania, with additional acreage in Ohio and New York.

Shell is one of the largest leaseholders and producers over a nine-county area in the Appalachia Basin. Its Appalachian asset is divided into three focus areas: Tioga, Mercer and Bradford. The company operates over 300 dry gas wells, predominately in Tioga County and 1,500 shallow oil wells mainly in the Bradford area.

Shell is also a founding member of the Center for Sustainable Shale Development (CSSD), an independent organization that developed 15 performance standards, in conjunction with non-governmental organizations and nonprofits, to address air and water concerns. Shell Appalachia was certified in early 2015 for meeting all of the CSSD performance standards.

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Surprising number of conventional & abandoned wells in our region

Diversified Gas & Oil to acquire 900 Appalachian wells from EQT

From an Article of Kallanish Energy News, May 14, 2020

Alabama-based Diversified Gas & Oil PLC is purchasing 900 wells in West Virginia and Pennsylvania from gas giant EQT for $125 million, Kallanish Energy reports. The assets being purchased include 67 horizontal wells in western Pennsylvania and mostly shallow wells in West Virginia. In 2019, those assets produced net production of 9,000 barrels of oil equivalent per day, all in natural gas.

Diversified is also acquiring 6,100 net conventional wells in Tennessee, Kentucky and West Virginia, 4,700 miles of intrastate gathering pipeline and two natural gas storage fields with capacity for 3.5 billion cubic feet of natural gas. Those assets are being acquired from Carbon Energy Corp. in a deal that had been announced last month.

That deal is for $100 million. The price being paid by Diversified may increase if commodity prices rise. It will seek to raise $87 million through a placing of up to 64.3 million shares on the London market. It will raise $160 million to $165 million in a long-term amortising senior secured term loan with a 10-year maturity and a 6.50% coupon.

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NRC Report: Unknown Oil near Mannington, WV
Description: Incident Type: STORAGE TANK – NRC Report ID: 1269615 – Medium Affected: LAND – Suspected Responsible Party:
Incident Date/Time: 2020-01-26 14:20:00
Tags: NRC, oil, release

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PA Permit Violation Issued to Diversified Oil & Gas Llc in South Huntingdon Twp, Westmoreland County
Description: Environmental Health & Safety violation issued on 2020-04-24 to Diversified Oil & Gas Llc in South Huntingdon Twp, Westmoreland county. OGA3218.4(B) – CORROSION CONTROL REQUIREMENTS – OTHER STRUCTURES – Failure to comply with corrosion control requirements for permanent tanks.
Incident Date/Time: 2020-04-24 00:00:00

PA Permit Violation Issued to Diversified Oil & Gas Llc in South Huntingdon Twp, Westmoreland County
Description: Environmental Health & Safety violation issued on 2020-04-24 to Diversified Oil & Gas Llc in South Huntingdon Twp, Westmoreland county. OGA3218.4(D) – CORROSION CONTROL REQUIRMENTS – PROCEDURES – Failure to carry out or direct corrosion control requirements by a person qualified in corrosion methods.
Incident Date/Time: 2020-04-24 00:00:00

PA Permit Violation Issued to Diversified Oil & Gas Llc in South Huntingdon Twp, Westmoreland County
Description: Environmental Health & Safety violation issued on 2020-04-24 to Diversified Oil & Gas Llc in South Huntingdon Twp, Westmoreland county. 78a65(a)1 – SITE RESTORATION – Post Drilling – Owner or operator failed to restore the land surface within 9 months after completion of drilling a well, in accordance with a restoration plan and remove all drilling supplies, equipment, primary containment and secondary containment not necessary for production or needed to safely operate the well.
Incident Date/Time: 2020-04-24 00:00:00

PA Permit Violation Issued to Diversified Oil & Gas Llc in South Huntingdon Twp, Westmoreland County
Description: Environmental Health & Safety violation issued on 2020-04-24 to Diversified Oil & Gas Llc in South Huntingdon Twp, Westmoreland county. SWMA 302(B)3 – DISPOSAL, PROCESSING AND STORAGE OF RESIDUAL WASTE – Person failed to design, construct, operate or maintain facilities and areas in a manner that do not adversely effect affect or endanger public health, safety and welfare or the environment or cause a public nuisance.
Incident Date/Time: 2020-04-24 00:00:00

PA Permit Violation Issued to Diversified Oil & Gas Llc in South Huntingdon Twp, Westmoreland County
Description: Environmental Health & Safety violation issued on 2020-04-24 to Diversified Oil & Gas Llc in South Huntingdon Twp, Westmoreland county. 78A57(A)___ – CONTROL, STORAGE AND DISPOSAL OF PRODUCTION FLUIDS – Operator discharged brine and other fluids on or into the ground or into the waters of this Commonwealth.
Incident Date/Time: 2020-04-24 00:00:00

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PA Permit Violation Issued to Eqt Prod Co in Nottingham Twp, Washington County
Description: Environmental Health & Safety violation issued on 2020-05-15 to Eqt Prod Co in Nottingham Twp, Washington county. 78.57(a) – CONTROL, STORAGE AND DISPOSAL OF PRODUCTION FLUIDS – Operator failed to collect the brine and other fluids produced during operation, service and plugging of the well in a tank, pit or a series of pits or tanks, or other device approved by the Department or Operator discharged brine or other fluids on or into the ground or into waters of the Commonwealth.
Incident Date/Time: 2020-05-15 00:00:00

PA Permit Violation Issued to Eqt Prod Co in Nottingham Twp, Washington County
Description: Environmental Health & Safety violation issued on 2020-05-15 to Eqt Prod Co in Nottingham Twp, Washington county. 91.34(A) – ACTIVITIES UTILIZING POLLUTANTS – Failure to take necessary measures to prevent the substances from directly or indirectly reaching waters of this Commonwealth, through accident, carelessness, maliciousness, hazards of weather or from another cause.
Incident Date/Time: 2020-05-15 00:00:00

PA Permit Violation Issued to Eqt Prod Co in Nottingham Twp, Washington County
Description: Environmental Health & Safety violation issued on 2020-05-15 to Eqt Prod Co in Nottingham Twp, Washington county. SWMA 301 – MANAGEMENT OF RESIDUAL WASTE – Person operated a residual waste processing or disposal facility without obtaining a permit for such facility from DEP. Person stored, transported, processed, or disposed of residual waste inconsistent with or unauthorized by the rules and regulations of DEP.
Incident Date/Time: 2020-05-15 00:00:00

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PA Permit Violation Issued to Diversified Oil & Gas Llc in Cumberland Twp, Greene County
Description: Environmental Health & Safety violation issued on 2020-05-19 to Diversified Oil & Gas Llc in Cumberland Twp, Greene county. SWMA 301 – MANAGEMENT OF RESIDUAL WASTE – Person operated a residual waste processing or disposal facility without obtaining a permit for such facility from DEP. Person stored, transported, processed, or disposed of residual waste inconsistent with or unauthorized by the rules and regulations of DEP.
Incident Date/Time: 2020-05-19 00:00:00

PA Permit Violation Issued to Diversified Oil & Gas Llc in Cumberland Twp, Greene County
Description: Environmental Health & Safety violation issued on 2020-05-19 to Diversified Oil & Gas Llc in Cumberland Twp, Greene county. SWMA 302(A) – DISPOSAL, PROCESSING AND STORAGE OF RESIDUAL WASTE – Person disposed, processed, stored, or permitted the disposal, processing or storage of residual waste in a manner which is contrary to the rules and regulations of DEP or to any permit or to the terms or conditions of any permit or any order issued by DEP.
Incident Date/Time: 2020-05-19 00:00:00

PA Permit Violation Issued to Diversified Oil & Gas Llc in Cumberland Twp, Greene County
Description: Environmental Health & Safety violation issued on 2020-05-19 to Diversified Oil & Gas Llc in Cumberland Twp, Greene county. 78A57(A) – CONTROL, STORAGE AND DISPOSAL OF PRODUCTION FLUIDS – Operator used open top structure(s) to store brine and other fluids produced during operation of the well.
Incident Date/Time: 2020-05-19 00:00:00

PA Permit Violation Issued to Diversified Oil & Gas Llc in Cumberland Twp, Greene County
Description: Environmental Health & Safety violation issued on 2020-05-19 to Diversified Oil & Gas Llc in Cumberland Twp, Greene county. 78a56(a) – TEMPORARY STORAGE – Operator failed to contain regulated substances and wastes used at or generated at a well site in a tank, series of tanks or other storage structures approved by the Department.
Incident Date/Time: 2020-05-19 00:00:00

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PA Permit Violation Issued to Eqt Prod Co in Forward Twp, Allegheny County
Description: Environmental Health & Safety violation issued on 2020-05-19 to Eqt Prod Co in Forward Twp, Allegheny county. SWMA 301 – MANAGEMENT OF RESIDUAL WASTE – Person operated a residual waste processing or disposal facility without obtaining a permit for such facility from DEP. Person stored, transported, processed, or disposed of residual waste inconsistent with or unauthorized by the rules and regulations of DEP.
Incident Date/Time: 2020-05-19 00:00:00

PA Permit Violation Issued to Eqt Prod Co in Forward Twp, Allegheny County
Description: Environmental Health & Safety violation issued on 2020-05-19 to Eqt Prod Co in Forward Twp, Allegheny county. 78a57(a) – CONTROL, STORAGE AND DISPOSAL OF PRODUCTION FLUIDS – Operator failed to collect brine and other fluids produced during operation of the well in a tank, series of tanks, or other device approved by the Department for subsequent disposal or reuse.
Incident Date/Time: 2020-05-19 00:00:00

PA Permit Violation Issued to Eqt Prod Co in Forward Twp, Allegheny County
Description: Environmental Health & Safety violation issued on 2020-05-19 to Eqt Prod Co in Forward Twp, Allegheny county. 78A57(A)___ – CONTROL, STORAGE AND DISPOSAL OF PRODUCTION FLUIDS – Operator discharged brine and other fluids on or into the ground or into the waters of this Commonwealth.
Incident Date/Time: 2020-05-19 00:00:00

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