Rice Energy Inc. said late Tuesday it has made a $200 million stalking horse bid for Marcellus Shale acreage in Pennsylvania owned by a subsidiary of bankrupt coal producer Alpha Natural Resources Inc.
Management warned that if the bid is approved by the U.S. Bankruptcy Court for the Eastern District of Virginia, Alpha still could be required to hold an auction for the assets before the acquisition could be completed.
Under the purchase agreement, Rice wants to acquire 27,400 net undeveloped acres, plus another 3,200 gross acres owned by Alpha subsidiary, Pennsylvania Land Resources Holding Co. LLC (PLR), that are currently leased to Rice. The acreage also includes rights to 23,500 net acres in the deep, dry Utica Shale.
The producer already has 197,000 acres prospective for the Utica and Marcellus in Ohio and Pennsylvania, and the Alpha acreage is adjacent to assets in Greene County, PA. The company estimates that the bolt-on would add 182 net Marcellus drilling locations and 50 Utica locations.
"This prospective acreage acquisition is consistent with our strategy of acquiring core acreage with strong returns, an attractive lease expiry profile and undedicated midstream," said COO Toby Rice.
The company plans to fund the transaction with a $327 million common stock offering. It offered 20 million shares at $16.35/share late Tuesday in an offering set to close Friday (April 15). The remainder of the proceeds are to be used for general corporate purposes, but if the acquisition is not completed, the funds would be directed to the 2017 capital budget.
Alpha filed for Chapter 11 in August 2015. Earlier this year, lenders authorized the sale of a core group of assets including PLR (see Shale Daily, Feb. 12). The Marcellus acreage is included on a list of unencumbered assets, meaning they are free and clear of any creditor claims or liens.
Alpha formed a Marcellus joint venture (JV) in May 2013 with France’s EDF Trading Resources LLC. By last year, the partnership's original 12,000 net acreage had more than doubled. Last July, Alpha bought EDF's interest in the JV for $126 million (see Shale Daily, July 2, 2015). In 2014, Alpha also sold its stake in a Marcellus JV in Greene County with Rice in exchange for common stock it currently holds in the company and $100 million in cash.
In a Tuesday bankruptcy filing, Alpha said a "number of parties" had expressed interest in the Marcellus acreage and said it was negotiating with some of them, but ultimately it selected Rice as the stalking horse bidder. As the stalking horse, Rice would set the bar for the value and terms of any sale of those assets in exchange for incentives such as break-up fees and expense reimbursement subject to court approval.
The producer has a 2016 capital budget of $640 million (see Shale Daily, Feb. 25). No changes are expected if the acquisition is completed. In a U.S. Securities and Exchange Commission filing made shortly after the bid was announced, Rice estimated that it produced 645-665 MMcfe/d in the first quarter, nearly all of which was natural gas. The company has guided for 2016 production of 700-740 MMcfe/d.