CNX Resources Corp. agreed to sell its 95% interest in the Shirley-Pennsboro gathering system to CNX Midstream Partners LP for $265 million, according to a Feb. 7 news release.
The system, which currently has about 180 MMcfe/d of flowing production, gathers and transports gas from the core wet gas region of the Marcellus Shale in West Virginia. Both parties, in connection with the acquisition, have agreed to amend the existing gathering agreement to provide for a minimum volume commitment with respect to the system.
The transaction represents the initial dropdown of assets by CNX Resources, or CNX, to CNX Midstream, or CNXM, following the former's acquisition of Noble Energy Inc.'s 50% membership interest in CONE Gathering LLC, which holds general partnership interest and incentive distribution rights in CNXM before it was rebranded. CNXM, intends to fund the transaction, expected to close before the end of the first quarter, with cash on hand and through debt financing.
At the closing, the Shirley-Pennsboro System, currently held in CNX's 95% owned CNX Midstream DevCo III, will be transferred to CNXM's 100% owned subsidiary, CNX Midstream DevCo I. Following the deal close, CNX will continue to own 95% interests in each of CNX Midstream DevCo II LP and CNX Midstream DevCo III LP, with CNXM owning the remaining 5% in each.
CNX continues to hold about 34.2% of CNXM common units, along with 100% of the general partner interest and the incentive distribution rights in CNXM.
"The timing of the transaction is ideal for CNXM as it is able to capture the volume growth as it executes near-term capacity expansion projects, with CNX volumes rapidly filling that capacity. The transaction is substantially de-risked through the [minimum volume commitment], which covers approximately 70% of CNX's planned production in the Shirley-Pennsboro operating area, resulting in approximately $400 million in revenue for CNXM through 2031," said Nicholas DeIuliis, CEO of CNX and CNXM. "This transaction is expected to add $22 million to $24 million of 2018 EBITDA for CNXM on a full year pro forma basis, with substantial EBITDA growth expected beyond 2018. CNX expects a negligible impact to 2018 EBITDA guidance since a transaction was contemplated in its prior guidance numbers."
Latham & Watkins LLP served as legal adviser to CNX. The conflicts committee of CNXM's board was advised by Evercore on financial matters and Baker Botts LLP on legal matters.
CNX is an independent natural gas exploration, development and production company with operations centered in the major shale formations of the Appalachian basin.
