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Bankrupt Alpha Natural's Marcellus Assets Attracting More Interest

A federal bankruptcy court has approved Rice Energy Inc.'s $200 million stalking horse bid for Marcellus Shale acreage in Pennsylvania, allowing breakup fees and other reimbursements to stand after two competitors filed an objection claiming those protections were unnecessary given widespread interest in the assets.

EQT Corp. and Appalachian newcomer American Petroleum Partners (APP) LLC filed their objections in the U.S. Bankruptcy Court for the Eastern District of Virginia. A subsidiary of bankrupt coal producer Alpha Natural Resources Inc., the companies claimed, is discouraging a competitive auction for the assets by selecting Rice as the stalking horse bidder.

EQT said in its objection that the $2 million breakup fee and the $1.5 million expense reimbursement that would go to Rice as the stalking horse if it was outbid would prevent others from having a fair chance to acquire the assets. Both companies argued that a stalking horse was not required in this instance because the 27,400 net undeveloped Marcellus acres being auctioned next month by Alpha subsidiary Pennsylvania Land Resources Holding Co. LLC have attracted several potential buyers.

Alpha acknowledged in a court filing earlier this month that a "number of parties" had expressed interest in the acreage and that it was negotiating with some of them. In its reply to the objections, however, the company said it was necessary to select a stalking horse to protect the assets from lowball bids during the downturn in oil and natural gas prices.

Rice said earlier this month that it made a $200 million bid for the assets (see Shale DailyApril 13). Under the agreement, Rice would acquire 27,400 net acres, plus another 3,200 gross acres that it currently has leased. Despite Rice's bid, the assets will be auctioned on May 16. Both EQT and APP indicated that they would be willing to pay $200 million for the assets, which are located in Greene County.

During a conference call to discuss its first quarter earnings on Thursday, EQT CEO David Porges said the company continues to explore opportunities to add to its core acreage in the southwest portion of the Marcellus in Pennsylvania and West Virginia. While Porges didn't comment specifically about any of the transactions the company is working on, President of Exploration and Production Steve Schlotterbeck said EQT is primarily focused on areas south of Pittsburgh, such as those in Greene County and Wetzel County, WV, where its midstream position is strongest.

APP secured an equity commitment of up to $800 million last year to lease and operate land in Ohio, West Virginia and Pennsylvania (see Shale DailyMarch 24). The company's website said it is actively leasing in Greene County. APP CEO Varun Mishra is a Rice founder.

In 2014, Alpha sold its stake in a Marcellus joint venture in Greene County with Rice in exchange for the Rice common stock that it currently holds and $100 million.

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