Hess will assume a 50% interest in Consol’s 200,000 acres in the Utica play, 120,000 of which Consol acquired when it bought Dominion Resources’ exploration and production business in March of last year.

Hess will operate about 80,000 acres in the liquids-rich window of the play spanning Belmont, Harrison, Guernsey and Jefferson counties, acreage that Consol says it acquired “decades ago”.

Consol will operate in the play’s oil window in eastern Ohio, which includes Portage, Tuscarawas, Mahoning counties. It will also operate properties in Noble county.

Hess will pay Consol $59 million upon the deal’s closing, expected to come next month, and will pay half of Consol’s obligations related to certain drilling and completion costs up to $534 million though 2016.

The Utica is one of the hottest emerging shale plays in the US, though very few wells have been drilled to date.

Onshore giant Chesapeake Energy says it is ramping up its operations there, and believes the play is “analogous, but economically superior” to the prolific Eagle Ford shale in Texas.

Hess chief executive John Hess said he was “delighted" with his company's entry into the Utica shale, a move he said "enables us to build a strategic acreage position in an emerging unconventional play in the United States”.

Consol said the deal values its Utica assets at about $6000 per acre.

“Today's transaction with Hess helps Consol’s shareholders to realise value from some of our legacy assets, as well as from assets that were acquired just 15 months ago," Consol chief executive Brett Harvey said.

Consol said the deal will enable it to explore and delineate its Ohio Utica Shale acreage for $0.25 on the dollar, while still retaining a 50% interest.

“It's a very low-risk form of exploration,” the company added.

Brandon Blossman, an analyst with energy investment bank Tudor, Pickering, Holt & Co, said the deal is “all upside from zero valuation” for Consol.

Blossman said Consol did not include the Utica acreage in its investor presentation when it acquired the properties from Dominion last year. At the time, Consol attributed “very little value” to that acreage, Blossman said.

Consol “would not have devoted a whole lot of resources to it (the Utica) in the near term”, Blossman told Upstream, but the Hess deal now allows Consol to be “quite a bit more aggressive on its development”.

Hess and Consol plan to begin appraisal drilling in a few weeks. They expect to average two rigs next year, three and a half rigs in 2013, and eventually plateau at an average of five rigs in 2015.

Consol said the joint venture does not include the company’s shallow rights in Ohio or its remaining Utica shale acreage in Pennsylvania and West Virginia.

Published: 07 September 2011 17:38 GMT  | Last updated: 07 September 2011 18:53 GMT