2nd UPDATE:U.K.'s BG Enters U.S. Shale Sector With EXCO Stake
June 30 2009 - 12:16PM
Dow Jones News
BG Group PLC (BG.LN) Tuesday became the latest European energy
company to buy into a U.S. shale-rock natural gas field, agreeing
to pay $1.06 billion for a stake in EXCO Resources Inc.'s (XCO)
acreage.
The proceeds will bolster EXCO's balance sheet and sent shares
of natural gas producer soaring. Shares recently traded nearly 18%
higher at $13.08 apiece.
The deal underscores how, despite lower oil and gas prices,
international companies still view U.S. shale - hydrocarbon-rich
rock formations - as economically attractive. It's also an
opportunity to test their mettle in a relatively new energy
frontier.
This continued interest is a boon to U.S. natural gas producers
troubled by the sharp downturn in prices and the tightening of
credit markets. The price decline has put pressure on EXCO and
others to sell stake in shale fields to shore up their balance
sheets and defray drilling costs.
EXCO, like other natural gas producers, "is a company that had
dramatic amounts of debt," said Leo Mariani, an analyst with RBC
Capital Markets.
The company on Monday agreed to sell some assets in the
mid-continent and East Texas to Encore Acquisition Co. (EAC) for
$375 million. The BG and the Encore deals will help EXCO cut its
debt from $3 billion to $1.6 billion, Mariani said.
BG said that, on top of the $1.06 billion acreage deal, it also
had an agreement to negotiate the acquisition of a 50% interest in
related EXCO gas-gathering and distribution assets for $249
million.
BG said it would acquire a 50% interest in 120,000 net acres in
Texas and Louisiana, adding 2.6 trillion standard cubic feet to its
resources.
The properties include a slice of the Haynesville shale project
stretching across the two states, which as a whole could hold
around 200 trillion cubic feet of natural gas. That's the
equivalent of 33 billion barrels of oil, or 18 years' worth of
current U.S. oil production.
BG said the acquired properties' current net production of 78
million standard cubic feet a day are expected to increase to
around a net 250 million standard cubic feet a day in 2012.
It said it would pay $655 million upfront and the remainder as a
cost carry on future costs to develop the Haynesville shale
gas.
"BG has a fantastic record of capital investment over the long
term and I suspect this will go down as another great deal," said
Malcolm Graham-Wood, a director at U.K. broker HansonWesthouse, who
rates BG a buy.
BG shares fell 1.8%, or 19 pence, to GBP10.18.
Oil-producing countries have said lower crude prices - still at
half their peak of $147 a barrel last year - could make
unconventional resources like oil shale uneconomic.
Yet, BG's deal signals that shale basins, or water-tight rock
formations, remain financially attractive thanks to new
technologies.
The company is joining a stream of international oil companies
that have invested in U.S. shale reservoirs amid the sharp downturn
in natural gas prices. Natural gas prices have plunged more than
70% since hitting a high last summer above $13 a million British
thermal units.
In May, Italy's Eni SpA (E) entered a $280 million alliance with
independent producer Quicksilver Resources Inc. (KWK) to develop
acreage in the Barnett Shale.
The Barnett Shale gas field in North Texas is credited with a
sizable portion of the recent boom in domestic U.S. gas
production.
The U.S. Department of Energy said in an April report that by
2011, 50% to 60% of U.S. gas reserves growth will come from
unconventional shale reservoirs.
Last year, BP PLC (BP) agreed to buy Chesapeake Energy Corp.
(CHK) assets in Oklahoma's Woodford Shale and in Arkansas'
Fayetteville Shale for $1.75 billion and $1.9 billion,
respectively.
Chesapeake also sold a stake in the Marcellus Shale - a largely
undeveloped natural gas field that stretches from West Virginia to
New York - to StatoilHydro ASA (STO) for $3.4 billion.
Anglo-Dutch oil major Royal Dutch Shell PLC (RDSB.LN) also
continues working on Colorado oil shale, one of its biggest
research and development projects to date.
The U.S. shale deal is the latest for BG, which launched a
string of large acquisition efforts last year after originally
focusing on organic growth.
Though lower than in mid-2008, oil prices have risen from a low
of around $32 a barrel in December last year on growing hopes of
economic recovery.
So oil companies are trying to secure bargains, from Iraqi
Kurdistan to Africa, before asset prices rise again.
Company Web site: http://www.bg-group.com
By Benoit Faucon and Jason Womack, Dow Jones Newswires;
+44-20-7842-9266; benoit.faucon@dowjones.com