BG Group Announces US Appalachian Basin Joint Venture with EXCO
BG Group today announced that it has entered into further joint venture arrangements with its US shale partner, EXCO Resources, Inc. (EXCO - NYSE:XCO).
BG Group will acquire a 50% interest in companies that hold EXCO's producing and non-producing assets in the Appalachian Basin, located primarily in Pennsylvania and West Virginia, USA. Under the terms of the transaction BG Group will:
-
acquire a 50% interest in a total of 654 000 net acres in the Appalachian Basin;
- increase its estimated net gas resources by 2.4 trillion standard cubic feet (tcf); and
- pay a total consideration of $950 million, equating to an estimated unit resource cost of $0.40 per thousand cubic feet (mcf).
BG Group and EXCO will establish a 50-50 joint venture company to operate the upstream assets and a 50-50 midstream joint venture company to invest in gathering and transportation, both to be based in Pittsburgh. The management board of the operator joint venture company will be made up of an equal number of executives from BG Group and from EXCO.
BG Group will also acquire approximately 5 900 shallow producing wells owned and operated by EXCO, many of which secure ongoing ownership of deeper Marcellus rights. These shallow assets are currently producing 35 million standard cubic feet per day (mmcfd).
Under the joint venture agreement, BG Group and EXCO will each have the right to participate in further acreage acquired by either party in the Appalachian Basin.
Within EXCO's total 654 000 net acres, 309 000 acres are prospective for the Huron and Marcellus shales, of which 186 000 acres are regarded as core Marcellus acreage.
The book value of the assets that are the subject of the transaction (namely, EXCO's Marcellus and shallow interests) is approximately $450 million. The total consideration payable by BG Group consists of a payment, in cash, of $800 million, plus $150 million to be paid as a carry of 75% of EXCO's future Marcellus drilling costs.
BG Group Chief Executive Frank Chapman said:
"We are delighted to expand our highly successful alliance with EXCO built around complementary skills and objectives. The new joint venture will further strengthen BG Group's unconventional gas portfolio, adding, at an attractive price, substantial resources adjacent to the premium gas markets of the US eastern seaboard. This transaction provides critical mass to BG Group's US upstream gas business, with total resources estimated at more than 7 trillion standard cubic feet (tcf), equivalent to more than 1.2 billion barrels of oil equivalent."
BG Group will finance the joint venture from its cash reserves, supplemented as required from the Group's existing facilities.
EXCO is an oil and natural gas exploration, exploitation, development and production company headquartered in Dallas, Texas with principal operations in the east Texas, north Louisiana, Appalachia and the west Texas areas of the USA.
BG Group plc is a world leader in natural gas, with a strategy focused on connecting competitively priced resources to specific, high-value markets. Active in more than 25 countries on five continents, BG Group has a broad portfolio of exploration and production, Liquefied Natural Gas (LNG), transmission and distribution and power generation business interests. The Group combines a deep understanding of gas markets with a proven track record in finding and commercialising reserves.
Shale Gas is a form of natural gas which is stored in organic-rich rocks, such as dark-coloured shale, within continuous accumulations that extend across large areas. Gas can be stored in shale by a number of different geological mechanisms: it can be held within the pores of the rock; trapped within naturally occurring fractures; or adsorbed onto the shale materials or organic matter within the shale.
Reservoirs are difficult to produce due to their low permeability. However, recent technological developments have led to a significant increase in shale gas production in the USA. Those techniques include horizontal drilling, in which the drill bit is directed along a path through the most productive areas of shale beds, and hydraulic fracture stimulation techniques or 'fracing', where water and sand is injected under high pressure into underground shale beds to fracture the rock and release the gas.
Published 11/05/2010
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