Italian producer Eni, which up to now has kept its U.S. exploration efforts confined to the Gulf of Mexico (GOM) and Alaska, has formed a strategic alliance with Quicksilver Resources Inc. to acquire, develop and exploit some of Quicksilver's Barnett Shale leasehold.
The partnership would give Eni a stake in 270,000 acres surrounding its Alliance properties in the Fort Worth Basin, Quicksilver said. The Fort Worth, TX-based independent last July acquired the Alliance properties from several producers for a total of $1.3 billion.
Eni would acquire 27.5% of the Alliance leasehold for $280 million in cash and would have the right to a 27.5% stake in future acquisitions around Alliance. Quicksilver would continue to operate the leasehold. The alliance includes a "mutual technical exchange" between the two companies, particularly in drilling and completion technologies and geophysics, Quicksilver said.
Eni becomes the latest European oil and gas producer to grab a stake in a big North American gas shale play.
"Big guys clearly want to understand [the] secret sauce around shale gas development," said Dan Pickering of Tudor, Pickering Holt & Co. Securities Inc. Using joint ventures, he said, shows that the European producers think it's "easier to watch over an established player's shoulder than do it themselves...logical and faster, albeit more expensive than [an] organic process. Will big guys keep buying? Probably..."
Last year Chesapeake Energy Corp. created separate joint ventures with European-based producers BP plc and StatoilHydro ASA. BP, based in London, partnered with Chesapeake to acquire stakes in the Woodford and Fayetteville shales (see Daily GPI, Sept. 3, 2008; July 18, 2008). Norway's StatoilHydro ASA agreed to pay Chesapeake $3.38 billion for a joint venture interest in the Marcellus Shale (see Daily GPI, Nov. 12, 2008).
Royal Dutch Shell plc entered the Barnett Shale first in 2004, and three years ago it acquired a leasehold in the Fayetteville Shale (see Daily GPI, Jan. 18, 2006). Last year subsidiary Shell Canada Ltd. paid Durvernay Oil Corp. C$5.9 billion in cash to acquire half a million net acres in the emerging Montney tight gas trend in northeastern British Columbia (see Daily GPI, July 15, 2008).
Simmons & Co.'s David Kistler said the pullback in commodity and equity markets have spurred an interest from big producers in shale gas.
"It makes for an interesting time for companies to get a foothold in these shales," Kistler said.
The transaction, said Quicksilver CEO Glenn Darden, represents "just 5% of our company's total proved reserves at year-end 2008." He said the agreement provides "the initial step to delever our balance sheet while establishing a framework that provides meaningful opportunities to capitalize on Quicksilver's expertise in the identification, acquisition and development of shale gas resources.
"Our agreement with Eni will enable us to expand our footprint beyond the existing Alliance acreage and could lead to additional opportunities in unconventional plays outside of this basin," he added.
Quicksilver's existing Alliance gas leasehold covers 13,000 net acres in Texas' Denton and Tarrant counties and is currently producing 60 MMcf/d. The transaction does not include Quicksilver's midstream gathering infrastructure or any of its existing leasehold beyond the Alliance properties.
The transaction, which includes the sale of 131 Bcf of proved reserves and 96 Bcf of probable and possible resources, is expected to be completed by mid-June. Net proceeds from the transaction would be used to pay down Quicksilver's debt.
Eni's net production share from the acquired assets in 2009 is expected to average of 4,000 boe/d, growing to around 10,000 boe/d in 2011, Eni stated. Under the development plan, the companies expect to complete around 300 wells by 2013, with Eni's share of the costs estimated at $210 million ($37 million in 2009).
In the United States, Eni now owns lease interests in 392 exploration blocks in the GOM and 173 blocks in Alaska. Eni is among the top GOM producers with a daily net production in excess of 100,000 boe/d (60% operated).
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