National Fuel Extends Marcellus Shale Joint Development Agreement with IOG Capital, Pa.

Published: June 15, 2016 |

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National Fuel Gas Company’s wholly owned exploration and production subsidiary, Seneca Resources Corporation, and IOG CRV - Marcellus, LLC, an affiliate of IOG Capital, LP, and funds managed by affiliates of Fortress Investment Group LLC, 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, 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.

“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,” said Ronald J. Tanski, president and chief executive officer of National Fuel.

“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,” added Tanski.

“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,” said Marc Rowland, founder and senior managing director of IOG Capital.

About National Fuel
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.

To stop by National Fuel’s website, CLICK HERE

About IOG
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, 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.

To stop by IOG’s website, CLICK HERE

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