It appears that Loews Corp
CNX Gas is a spin-off of CONSOL Energy
The Peabody assets are largely coal bed properties, but there is also a shale gas play nestled within the purchase. Management classified this New Albany Shale acreage as the core, Tier I property in the deal. When we consider its conservative estimate of unproved reserves within this play, CNX investors may just cry tiers of joy.
CNX is acquiring 114,500 acres at New Albany Shale, a play within the Illinois Basin, an area in which the company already had a growing presence. One rule of thumb for estimating probable reserves for conventional natural gas acreage is to assume 5 billion cubic feet equivalent (bcfe) of gas per thousand acres. CNX's expectation of 258 bcfe of reserves falls right in line with this metric. To stay grounded here, let's just assign the full purchase price to this one property, and consider the other 922,500 acres pure gravy.
Now, we can't directly compare this $0.26 per thousand cubic feet equivalent (mcfe) purchase price with other recently reported deals, because those were for proved reserves fetching roughly $2.50/mcfe to $3.00/mcfe, or $1.64/mcfe in Loews' case. CNX's estimate would have to be risked by a full 90% -- in other words, divided by ten -- to bring the purchase price in line with deals on proved assets. To my mind, this adds up to a very compelling deal for CNX.