NEW YORK (Reuters) - CONSOL Energy Inc agreed to buy Dominion Resources Inc's Appalachian natural gas properties for $3.48 billion in cash, giving CONSOL a leading position in the growing Marcellus Shale field.
CONSOL, which produces coal and natural gas, said the purchase would boost its proved reserves of gas by more than 50 percent to about 3 trillion cubic feet and double its potential reserves to about 41 trillion cubic feet.
CONSOL plans to raise about $4.0 billion through debt and equity to fund the purchase and development of the property.
The Marcellus Shale, which stretches from West Virginia across Pennsylvania and into New York, is one of the hottest natural gas fields under development, and analysts have said it may contain enough natural gas to supply the United States for a decade.
Under the deal, CONSOL will acquire 1.46 million oil and gas acres from Dominion along with more than 9,000 wells that are expected to produce more than 41 billion cubic feet equivalent in 2010, the companies said.
The deal is expected to close on April 30, and is expected to account for as much as 35 percent of CONSOL's total revenue.
For Dominion, which owns power utilities in North Carolina and Virginia as well as a liquefied natural gas terminal in Maryland, the sale will increase its regulated utility business to about 70 percent of its operating profits next year from less than 45 percent in 2006.
Dominion expects to receive after-tax proceeds of $2.2 billion to $2.4 billion, which will meet its equity needs for 2010 and 2011, allow it to repurchase common stock and fund the revenue credits to Dominion Virginia Power customers under a rate case settlement agreement.
The sale will reduce its on-going capital expenditures by $200 million per year.
Dominion is being advised in the sale by Barclays Capital Inc. and Baker Botts L.L.P. provided legal advice.
BofA Merrill Lynch acted as lead financial adviser to CONSOL Energy and Wachtell, Lipton, Rosen & Katz and Akin Gump Strauss Hauer & Feld LLP acted as legal counsel. Stifel, Nicolaus & Company, Incorporated acted as financial adviser and provided a fairness opinion.
CONSOL's shares fell 5.7 percent in premarket trade, while Dominion's shares rose 2 percent.
(Reporting by Matt Daily; Editing by Derek Caney, Dave Zimmerman)
