Replies to post #935 on The Rising Influence of Rising Affluence

[DewDiligence]

Who’s Next in the Marcellus?

http://blogs.wsj.com/deals/2010/05/28/who-is-next-to-sell-out-of-the-marcellus-shale

›May 28, 2010, 11:53 AM ET

There’s gas in them hills.

Today, Shell became the latest big energy company to make a grab for natural gas supplies in the U.S. The company is paying nearly $5 billion for closely held East Resources, which owns 1.2 million acres of the Marcellus Shale, an underground gas bubble stretching from Ohio to West Virginia and into Pennsylvania and New York.

There are at least 15 other such deals being discussed related to the Marcellus Shale, according to a person familiar with the discussions. Recent deals have included joint ventures, acquisitions of acreage and leasing rights or purchase of entire companies, like the Shell deal. The proximity of Marcellus to the natural gas guzzling customers in the Northeast make it an extremely hot commodity at the moment.

Now Exxon, Shell and Total have staked out their territories on shale gas. That means Chevron and ConocoPhillips will also likely be adding positions, according to an energy banker. China will also likely increase its position in North America, especially in Canada, says Ralph Eads, Chairman of Energy Investment Banking at Jefferies, which initiated and advised East Resources on the deal.

Since natural-gas producers in the Marcellus aren’t exactly household names, Deal Journal thought it would give you a cheat sheet on five of the big, publicly-traded players that may be in play:

• Cabot Oil & Gas operates 200,000 acres in the Marcellus Shale and has an active drilling program in the area, installing 12 wells in the first quarter. The company plans to drill a total of 81 wells in the Marcellus in 2010.

• Chesapeake Energy leases 1.5 million acres, making it the largest leaseholder in the Marcellus. In the first quarter, its net gas production in the area increased 40% from the previous quarter. Chesapeake expects to operate a total of 170 wells in 2010.

• Range Resources operates 1.3 million acres, with 900,000 of them located in what Marcellus buffs call the “Fairway,” or most productive area, of the shale in Pennsylvania. The company is predicting aggressive production growth to increase 19% this year form 2009 and increase 25% in 2011.

• Rexx Energy: In the first quarter, the company increased its holdings in Marcellus 21% from the third quarter to 60,000 acres. RBC Capital Markets analyst Leo Mariani wrote on May 6 that Rexx had ramped up two Marcellus wells, and one was a “clear outperformer.”

• Exco Resource Inc. The company has pemits to drill 60 wells in the shale this year. On May 10, Exco entered a JV with PG Group that will own 186,000 acres in the Marcellus. BG Group, a U.K-based energy company, paid Exco $950 million for a 50% stake in the JV.‹

[DewDiligence]

Shale-Gas M&A Reaches an All-Time High

http://www.ft.com/cms/s/0/914b7fac-cbef-11df-bd28-00144feab49a.html

›By Sheila McNulty in Houston
September 30, 2010

Companies spent a record $21bn on acquisitions in the first half of 2010 to gain access to the US shale gas boom [this excludes the XOM-XTO deal, even though that deal closed in June 2010] in a trend that shows no signs of slowing, according to a new report by Wood Mackenzie.

The investments were up sharply from the $2bn spent in the first half of 2009 and beat the $19.7bn spent in 2008, the energy research group said in the report, to be released on Thursday.

Investments dropped off last year, when the US was in the depths of a financial crisis and oil and gas prices were lower. And while prices are still off their highs of 2008 and the economy has yet to fully recover, those with money to spend are eager to get into what appears to be a long-term growth prospect.

“A resource opportunity of this scale is a game-changer,’’ said Luke Parker, manager of Wood Mackenzie’s M&A research service. “It is something that everyone will want to be involved in.’’

The gas boom has increased projected US supplies at current usage to 100 years, up from 30 years a few years ago. It has been fuelled by a technological breakthrough enabling producers to extract gas viably from shale rock.

The technology, which combines horizontal drilling with hydraulic fracturing of the rock, is expensive and Wood Mackenzie said the high, upfront costs associated with the initial testing and subsequent full-scale development of shale gas resources were in many cases prohibitive.

This is particularly true for companies with high levels of debt and cash constraints, which fits the description of many of the small, independent producers in the US that have been in on the ground floor of the boom.

It is this need for capital that gave rise to the shale gas partnerships, which Wood Mackenzie said underpinned much of the recent merger and acquisition activity.

In May, for example, Temasek, the Singapore state investment fund, and Hopu Investment Management, a Beijing-based group, agreed to buy $600m of convertible preferred stock in Chesapeake Energy. This followed other deals by Chesapeake with Total of France, the UK’s BP and Norway’s Statoil Hydro to help fund development.

Many of the companies forming partnerships were doing so to divert capital towards opening up new shale plays, Wood Mackenzie said, with the latest trend being a shift toward shale oil projects [i.e. the Bakken].

The increased need for financing gives the well-funded majors strong buying opportunities. This year, ExxonMobil completed its $41bn acquisition of XTO Energy and Shell announced a $4.7bn acquisition of East Resources.

Wood Mackenzie did not include the Exxon deal in its acquisition figure.‹