CNXM’s Strategic Transaction with CNX and HG Energy


The transaction was approved by the CNXM’s Board of Directors’ Conflicts Committee, which consists entirely of independent directors. The Conflicts Committee was advised by Evercore on financial matters and Baker Botts L.L.P. on legal matters. Latham & Watkins LLP served as the legal advisor and CIBC Capital Markets served as the financial advisor to CNX. Kirkland & Ellis LLP served as the legal advisor to HG.

CNXM execute a strategic transaction in connection with its sponsor, CNX Resources Corporation (NYSE: CNX) (“CNX”) and an exchange transaction with HG Energy II Appalachia, LLC (“HG”). The transaction includes the amendment of CNXM’s gas gathering agreements with both HG and CNX.

This transaction strengthens CNXM’s asset portfolio and outlook, resulting in the following:

Extends de-risked 15% distribution growth to 2022, from 2020, based solely on minimum well commitments (“MWCs”) and minimum volume commitments (“MVCs”).

Extends 15% distribution growth target to 2023 from 2022.

Provides for the additional dedication of 16,100 Utica acres in DevCo I by CNX in Southwest Pennsylvania (SWPA) and Central Pennsylvania (CPA) in exchange for the release from dedication of approximately 18,000 HG net acres, the majority of which are in less developed, lower return DevCo’s II and III.

Increases MWCs by 52 wells. This brings CNXM’s total well commitments to 192 wells for the next 5 years.

Receives a 20″ high-pressure pipeline into DevCo I, which expands CNXM’s business services and customer base with a fee-based pipeline into Markwest’s Majorsville processing facility.

This pipeline provides additional diversification to CNXM’s portfolio of customers by adding third-party revenues that will add up to $4 million in annual EBITDA. Initial service for this growth project will begin in the second quarter of 2018.

Receives approximately $2 million in cash.

Enhancement of both risk profile and growth trajectory should positively impact credit ratings and cost of capital, further supporting CNXM’s ability to continue to grow its business.

In exchange for the incremental Utica acreage dedication, MWCs, and high-pressure pipeline with third-party revenue, CNXM has agreed to relinquish its 5% interest in the midstream assets of DevCo II and the Moundsville midstream assets located in DevCo III. CNX and CNXM have also released from dedication approximately 275,000 acres in DevCo’s II and III, in which CNXM has a 5% interest, or approximately 14,000 net acres, and in which CNX has a 95% interest, or approximately 261,000 net acres. Most of these previously dedicated acres were located in DevCo II across Lewis, Upshur, Harrison, Taylor, and Barbour counties, West Virginia. The amendment to the gathering agreement with HG also provides for the release from dedication of approximately 4,200 scattered acres located in DevCo I. HG continues to be a significant customer of CNXM, which will continue to gather HG’s existing production in DevCo I as well as potential new wells on acreage that is within the revised acreage commitment boundary. The transaction includes an amended gas gathering agreement with HG in the DevCo I area, providing CNXM more control over the DevCo I expansion and operating strategy.

Baker Botts L.L.P. represented the Conflicts Committee of the board of directors of the general partner of the Partnership with a team including Joshua Davidson (Picture, Houston); Leslie Daniel (Associate, Houston) and Scott Looper (Senior Associate, Houston)

Involved fees earner: Joshua Davidson – Baker Botts; Leslie Daniel – Baker Botts; Scott Looper – Baker Botts;

Law Firms: Baker Botts;

Clients: CNX Midstream Partners LP;

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Author: Ambrogio Visconti