Asset Acquisitions and Divestitures

12 Months Ended

Sep. 30, 2020

On July 31, 2020, the Company completed its acquisition of certain upstream assets and midstream gathering assets in Pennsylvania from SWEPI LP, a subsidiary of Royal Dutch Shell plc (“Shell”) for total consideration of $506.3 million. The purchase price, which reflects an effective date of January 1, 2020, was reduced for production revenues less expenses that were retained by Shell from the effective date to the closing date. As part of the transaction, the Company acquired over 400,000 net acres in Appalachia, including approximately 200,000 net acres in Tioga County, Pennsylvania. The proved developed and undeveloped natural gas reserves associated with this acquisition amounted to 684,141 MMcf. In addition, the Company acquired gathering pipelines and related compression, water pipelines, and associated water handling infrastructure, all of which support the acquired Tioga County production operations. These gathering facilities are interconnected with various interstate pipelines, including the Company’s Empire pipeline system, with the potential to tie into the Company’s existing Covington gathering system. Post-closing, the Company has integrated the assets into its existing operations in Tioga County, which has resulted in cost synergies. This transaction was accounted for as an asset acquisition as substantially all the fair value of the gross assets acquired is concentrated in a single asset under the screen test comprised of Proved Developed Producing Reserves and the attached Gathering Property, Plant and Equipment. The purchase consideration, including the transaction costs, has been allocated to the individual assets acquired based on their relative fair values. The following is a summary of the asset acquisition (in thousands):


Purchase Price						$	503,908
Transaction Costs						2,350
Total Consideration						$	506,258

	Allocation of Cost of Asset Acquisition:
	Exploration and Production Reporting Segment			Gathering Reporting Segment				Total
Property, Plant and Equipment	$	281,648	(1)(2)	$	223,369	(2)		$	505,017
Inventory	1,132			109				1,241
Total Accounting	$	282,780		$	223,478			$	506,258

(1)Includes $241,134 in Proved Developed Producing Properties and $277,832 capitalized in the full cost pool.

(2)The Company utilized an income approach and market based approach to determine the fair value of the acquired property, plant and equipment in the Exploration and Production reporting segment. The Company utilized a cost approach and an income approach to determine the fair value of the acquired property, plant and equipment in the Gathering reporting segment.

The acquisition of the upstream assets and midstream gathering assets from Shell was financed with a combination of debt and equity, as discussed in Note H — Capitalization and Short-Term Borrowings. The purchase and sale agreement with Shell was structured, in part, as a reverse like-kind exchange pursuant to Section 1031 of the Internal Revenue Code, as amended (“Reverse 1031 Exchange”). In connection with the Reverse 1031 Exchange, the Company, through a subsidiary, assigned the rights to acquire legal title to certain oil and natural gas properties to a VIE formed by an exchange accommodation titleholder. A subsidiary of the Company operates the properties pursuant to a lease agreement with the VIE. As the Company is deemed to be the primary beneficiary of the VIE, it has been included in the consolidated financial statements of the Company

since its formation. Once the timber sale (discussed below) is completed, the affected properties will be conveyed to the Company and the VIE structure will be terminated.

On August 5, 2020, the Company entered into a purchase and sale agreement to sell substantially all timber and other assets in Pennsylvania to Lyme Emporium Highlands III LLC and Lyme Allegheny Land Company II LLC for $115.7 million, subject to closing adjustments. The transaction is expected to close before the end of calendar 2020. The Company intends to use the proceeds from this sale to complete the Reverse 1031 Exchange discussed above. At September 30, 2020, these assets, amounting to $53.4 million and consisting entirely of timber and other assets net of accumulated depletion, have been presented as Assets Held for Sale, Net on the Consolidated Balance Sheet. They previously were recorded as Net Property, Plant and Equipment. These assets are a component of the Company’s All Other category and do not have a major impact on the Company’s operations or financial results. Accordingly, the planned sale does not represent a strategic shift in focus for the Company and the financial results associated with operating these assets has not been reported as discontinued operations.

On August 1, 2020, the Company completed the sale of NFR’s commercial and industrial gas contracts in New York and Pennsylvania and certain other assets to Marathon Power LLC. The sale did not have a material impact to the Company’s financial statements. The divestiture reflects the Company’s decision to focus on other strategic areas of the energy market.

On May 1, 2018, the Company completed the sale of its oil and gas properties in the Sespe Field area of Ventura County, California, receiving net proceeds of $38.2 million (included in Net Proceeds from Sale of Oil and Gas Producing Properties on the Consolidated Statement of Cash Flows). The divestiture of the Company’s oil and gas properties in the Sespe Field reflects continuing efforts to focus West Coast development activities in the San Joaquin basin, particularly at the Midway Sunset field in Kern County, California. Under the full cost method of accounting for oil and gas properties, the sale proceeds were accounted for as a reduction of capitalized costs. Since the disposition did not significantly alter the relationship between capitalized costs and proved reserves of oil and gas attributable to the cost center, the Company did not record any gain or loss from this sale.

The Company also sold certain properties under a joint development agreement with IOG CRV - Marcellus, LLC that provided proceeds of $17.3 million in fiscal 2018. These proceeds were accounted for as a reduction of capitalized costs and are included in Net Proceeds from Sale of Oil and Gas Producing Properties on the Consolidated Statement of Cash Flows for fiscal 2018.