Consol Energy Inc. said Monday it has agreed to buy Dominion Resources Inc.'s Appalachian exploration and production business for $3.475 billion, substantially increasing its natural gas reserves and production capacity.
Once complete, the coal and natural gas company said it will take a leading position in the strategic Marcellus Shale, a rock bed the size of Greece that lies about 6,000 feet beneath New York, Pennsylvania, West Virginia and Ohio. It is potentially the country's most productive natural gas source.
Consol, which is based in Canonsburg, Pa., near Pittsburgh, also said its natural gas business is expected to account for as much as 35 percent of the company's total revenue. It needs to raise about $4 billion to fund the acquisition and is targeting a mix of equity and debt, the company said.
The transaction, subject to regulatory approvals, is expected to close by April 30.
Consol shares fell $4.21, or 7.8 percent, to $50.13 in morning trading. Dominion shares rose 25 cents to $30.94 after touching a 52-week high of $40.29 earlier in the session.
Dominion's exploration and production business is one of the oldest and most active drillers in Pennsylvania and West Virginia. Dominion is based in Richmond, Va.
Consol will acquire a total of 1.46 million oil and gas acres from Dominion along with over 9,000 producing wells, the company said.
The acquisition is a "strategically compelling transaction" that will transform Consol into a "leading diversified energy company with a strong position in natural gas as well as coal," CEO J. Brett Harvey said in a news release.
Consol, which has operations in West Virginia, Virginia, Kentucky, Pennsylvania and Utah, has responded to tougher environmental regulations of coal mining by expanding its gas business. At the start of the year, Harvey told Wall Street that he considered mining a cash cow that would be tapped to fund increased production from CNX Gas. Consol owns more than 83 percent of CNX, which already has a sizable stake in the Marcellus shale as well as coalbed methane wells in Virginia.
"The investments in coal operations are primarily in the efficiency area to maintain our position as a low cost producer," Chief Financial Officer Bill Lyons said during the company's earnings conference call in January. "The investments in the gas company are focused on growth with emphasis on expanding our Marcellus Shale acreage position, increasing drilling, and increasing production."
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