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Majors Eye Gas Assets Across North America

Three of the world's majors -- ExxonMobil Corp., BP plc and Royal Dutch Shell plc -- moved last week to expand their natural gas holdings onshore in North America.

In the biggest announcement, Shell Canada Ltd. offered to pay Duvernay Oil Corp. C$5.9 billion in cash to acquire half a million net acres in the Western Canadian Sedimentary Basin (WCSB), which includes acreage in the emerging Montney tight gas trend of northeastern British Columbia. The offer values Duvernay at C$83/share, including debt, which is a 36% premium over Duvernay's average share price in the past month.

"Shell has a proven track record in North America tight gas activities," said CEO Jeroen van der Veer. "Duvernay could become a valuable part of the Shell portfolio, where we can add value through technology and scale."

Duvernay, which was founded in 2001, has around 1,800 square kilometers (450,000 acres) of acreage in the WCSB. The company, based in Calgary, currently is producing more than 25,000 boe/d, mostly natural gas, and has plans to up production to around 70,000 boe/d by 2012.

Duvernay's two large gas projects are the Sunset-Groundbirch in northeastern British Columbia and in the deeper, western portion of the WCSB. Duvernay also owns and controls the natural gas processing and delivery infrastructure in both of the project areas.

Shell already has a foothold in 80,000 boe/d of tight gas production in the Pinedale Anticline of Wyoming, South Texas and the WCSB. Shell also has acreage in the emerging Haynesville Shale in Louisiana.

Duvernay's board has voted unanimously to recommend the offer to shareholders. Duvernay's directors and officers also entered into lock-up agreements to tender all of their shares to Shell, which in total represent about 18.1% of the total company shares. In addition, Duvernay agreed to pay C$120 million if the transaction is not completed.

In another transaction, BP America Inc. agreed to pay $1.75 billion in cash to acquire all of Chesapeake Energy Corp.'s interests in 90,000 net acres of leasehold and natural gas properties in the Arkoma Basin of the Woodford Shale. The properties, which are in Oklahoma's Atoka, Coal, Hughes and Pittsburg counties, currently produce around 50 MMcfe/d. The transaction is set to close by Aug. 8.

The sale "enables Chesapeake to redeploy capital to our Haynesville, Barnett and Marcellus shale plays and further improves the company's capital structure," said Chesapeake CEO Aubrey McClendon. Earlier this month McClendon hinted at the possibility of Chesapeake either selling or partnering on some of its domestic exploration and production (E&P) projects (see NGI, July 7), and he said his company may work with BP "on other projects in the future."

The BP subsidiary and Chesapeake already are jointly exploring the Anadarko Basin in a series of Deep Springer wells across a 155 square-mile area of mutual interest in Washita County, OK. "Our first well has been logged and looks excellent," McClendon said.

"This purchase is a strategic entry into an attractive and established shale basin with potential resources of up to 2 Tcf," said BP's Andy Inglis, CEO of the U.S. E&P unit. "It complements our extensive unconventional gas plays throughout North America."

Also last week ExxonMobil exercised its right to purchase an interest in a portion of the Piceance Basin reserves that Williams acquired in May (see NGI, May 12). Williams expects to receive about $71 million from the agreement, which had given ExxonMobil the option to purchase up to a 49% stake in the assets, which are located in the Ryan Gulch area of the Piceance Basin Highlands in Blanco County, CO.

Williams, which had estimated in May that the acquired assets represented about 2 Tcfe of probable and possible reserves on 10-acre spacing in the basin, ceded about 700 Bcfe to ExxonMobil in the agreement. Williams said the assets "now represent 1.3 Tcfe. Williams also has 2.8 Tcfe of proved reserves in the Piceance Basin, based on year-end 2007 estimates.

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