National Fuel Gas Co.'s exploration and production segment Seneca Resources Company LLC sold its California oil and gas assets to Sentinel Peak Resources California for total consideration of between $280 million and $310 million.

Consideration includes $280 million in cash at closing and up to three annual contingent payments between 2023 and 2025 that can equal up to $30 million depending on oil prices.

"Just as the spring of 2020 was a great time for us to acquire natural gas assets, we think the current oil price environment is the right time for us to sell our California properties," National Fuel President and CEO David Bauer said during the company's May 6 earnings call. "The regulatory environment in California makes it difficult to grow those operations. Plus, as our Appalachian businesses have grown, our California assets were increasingly noncore."

Bauer said the California assets have generated cash flow that funded a "good amount" of National Fuel's upstream and midstream growth in Appalachia since 2010.

National Fuel has been increasingly focused on its Appalachian operations as it looks to position its businesses amid the evolving energy transition. The company issued a report in March that said its natural gas production, transmission and distribution segments can continue operating profitably under emissions-reduction scenarios.

"We have been successful at selling responsibly sourced gas — certified gas — at a premium," Bauer told analysts on the call, referring to gas that meets certain emission intensity thresholds and other environmental, social and governance standards. Bauer said the premium price on certified gas remains limited, but the premium could increase with regulatory support for the differentiated product.

Bauer touted the low methane intensity of Appalachian natural gas production and said the region's production is advantageously positioned. "To the extent there's a way to kind of capture that more and define it and certify it better, I think there's an opportunity that can develop around that," Bauer said. "I think we're early, and it will keep evolving."

National Fuel will use the proceeds from the transaction to accelerate its deleveraging efforts and for additional financial flexibility in the near term. The transaction was effective April 1 and is expected to close June 30, subject to customary closing conditions. Kirkland & Ellis LLP was legal adviser to National Fuel, while Lazard Capital was financial adviser in relation to the transaction.

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