Consol Energy Inc. is offering to buy the nearly 17% of CNX Gas Corp. common stock it does not already own. The offer follows the recent announcement that Consol would acquire Dominion Resources Inc.'s exploration and production (E&P) business, making it the largest gas producer in Appalachia (see NGI, March 22).

Consol's tender offer for CNX is to begin May 5 at a price of $38.25/share. Consol also said it had struck an agreement with T. Rowe Price Associates Inc. to acquire about 9.5 million common shares of CNX, which represent about 37% of the 17% of overall shares the company does not already own.

The price of $38.25/share represents a 24% premium to the closing price of CNX on March 19, the last trading day prior to this announcement, and a 46% premium based upon the closing price of CNX on March 12, the last trading day prior to which Consol said it was mulling alternatives to facilitate the operation and development of the assets it was acquiring from Dominion, including acquisition of the shares of CNX it does not already own.

CNX shares surged nearly 24% to close to $38 last week on the news.

Consol currently owns about 83.3% of the approximately 151 million shares of CNX common stock outstanding. The company said it anticipates financing the acquisition of CNX shares with a mixture of internally generated funds, borrowings under its credit facilities and/or offerings of securities.

Last week Consol said it was issuing $2.75 billion of senior notes to help finance the $3.475 billion Dominion E&P deal. It also said it was issuing $1.75 billion of common stock for the same purpose.

Analysts at Tudor, Pickering, Holt & Co. Securities Inc. described the 46% premium offered for CNX as "whopping" and said it "begs [the] question on deal timing. [It's] worth watching CNX's plans to issue $1.75-2B of stock plus $2.75B of notes to fund [Dominion] and CXG [CNX Gas] purchases. How much is [the] market willing to continue to fund production growth?"

Also last week CNX announced production results from its latest horizontal well targeting the Marcellus Shale, the GH2BCV well in central Greene County, PA.

The well has been producing for 16 days at an average rate of 4.9 MMcf/d. Peak daily production was 5.7 MMcf, and current daily production is 5.5 MMcf. The well was drilled with a horizontal lateral of 2,035 feet and was hydraulically fractured with a seven-stage frac.

"Our latest horizontal Marcellus Shale well is achieving record company results," said CEO J. Brett Harvey.

The previous highest producing well was the CNX 3 well, which came online in October 2008. That well had cumulative production of 1 Bcf through February 2010, the company said.

CNX's current daily net Marcellus Shale production is 21 MMcf from 16 horizontal wells. The company has budgeted $110 million in 2010 for Marcellus drilling out of a total capital budget of $400 million. A second horizontal drilling rig for the company's Marcellus program will be arriving in April. CNX has an option to obtain a third rig later in the year.

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