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Carbon Natural Gas buys Appalachian assets through newly formed company

Carbon Natural Gas Co. has finalized the LLC agreement of Carbon Appalachian Co. LLC.

Carbon Appalachia, with an initial equity commitment of $100 million, was formed by Carbon Natural Gas and two institutional investors to acquire producing assets in southern Appalachia, according to an April 4 news release. It completed the acquisition of natural gas producing assets mostly located in Tennessee for about $20 million.

Carbon Appalachia has a daily net production of about 3.6 MMcfe/d, 92% of which is gas, from the acquired assets. As of Feb. 1, the company said it estimates that the properties contain 20.4 Bcfe of proved developed producing reserves and 3.4 Bcfe of proved developed nonproducing reserves, based on its qualified reserves evaluator using SEC pricing.

The asset buy also includes natural gas gathering lines and related compression facilities. Carbon Appalachia will fund an inventory of field development and enhancement projects and general working capital and expects to begin the initial field production enhancement projects during the second half of 2017.

Carbon Natural Gas holds a 2% equity interest in the new company, with the possibility to earn up to an additional 20% after certain return thresholds are met. Carbon also gave a portion of its working interest in undeveloped properties in Tennessee to the new company for an additional 1% carried interest in the entity. If the new company agrees to drill horizontal Chattanooga shale wells in the undeveloped properties, they will pay 100% of the costs of drilling and completion of the first 20 wells to earn 75% working interests in such properties.

Carbon Natural Gas is the sole manager of Carbon Appalachia.