Asset Acquisitions and Divestitures

12 Months Ended

Sep. 30, 2022

On June 30, 2022, the Company completed the sale of Seneca’s California assets, all of which are in the Exploration and Production segment, to Sentinel Peak Resources California LLC for a total sale price of $253.5 million, consisting of $240.9 million in cash and contingent consideration valued at $12.6 million at closing. The Company pursued this sale given the strong commodity price environment and the Company’s strategic focus in the Appalachian Basin. Under the terms of the purchase and sale agreement, the Company can receive up to three annual contingent payments between calendar year 2023 and calendar year 2025, not to exceed $10 million per year, with the amount of each annual payment calculated as $1.0 million for each $1 per barrel that the ICE Brent Average for each calendar year exceeds $95 per barrel up to $105 per barrel. The sale price, which reflected an effective date of April 1, 2022, was reduced for production revenues less expenses that were retained by Seneca from the effective date to the closing date. Under the full cost method of accounting for oil and natural gas properties, $220.7 million of the sale price at closing was accounted for as reduction of capitalized costs since the disposition did not alter the relationship between capitalized costs and proved reserves of oil and gas attributable to the cost center. The remainder of the sale price ($32.8 million) was applied against assets that are not subject to the full cost method of accounting, with the Company recognizing a gain of $12.7 million on the sale of such assets. The majority of this gain related to the sale of emission allowances. The Company also eliminated the asset retirement obligation associated with Seneca’s California oil and gas assets. This obligation amounted to $50.1 million and was accounted for as a reduction of capitalized costs under the full cost method of accounting.

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 reflected 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”).

On December 10, 2020, the Company completed the sale of substantially all timber properties in Pennsylvania to Lyme Emporium Highlands III LLC and Lyme Allegheny Land Company II LLC for net proceeds of $104.6 million. These assets were a component of the Company’s All Other category and did not have a major impact on the Company’s operations or financial results. After purchase price adjustments and transaction costs, a gain of $51.1 million was recognized on the sale of these assets. Since the sale did not represent a strategic shift in focus for the Company, the financial results associated with operating these assets as well as the gain on sale have not been reported as discontinued operations.

The sale of the timber properties completed the Reverse 1031 Exchange related to the Company’s acquisition of certain upstream assets and midstream gathering assets in Pennsylvania from Shell, as discussed above. 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 Variable Interest Entity ("VIE") formed by an exchange accommodation titleholder. The Company evaluated the VIE to determine whether the Company should be considered as the primary beneficiary having a controlling financial interest. It was determined that the Company had the power to direct the activities of the VIE and the obligation to absorb significant losses of that entity or the right to receive significant benefits from that entity. Therefore, the Company was considered to be the primary beneficiary. From July 31, 2020 to December 10, 2020, a subsidiary of the Company operated the properties pursuant to a lease agreement with the VIE. As the Company was deemed to be the primary beneficiary of the VIE, the VIE was included in the consolidated financial statements of the Company. Upon completion of the sale of the timber properties on December 10, 2020, the affected properties were conveyed to the Company and the VIE structure was terminated.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. This sale, in conjunction with the turn back of NFR's residential customers to Distribution Corporation, effectively ended NFR's operations. 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.