EXCO Resources Inc. and BG Group plc added to their joint venture (JV) in the Haynesville/Bossier shale play last week after agreeing to buy most of the assets of privately held Common Resources LLC for $446 million in cash. Now energy analysts are wondering whether EXCO may launch a second JV in the Marcellus Shale with BG -- or whether BG may be considering an outright takeover of the U.S. independent.
The latest transaction gives the partners natural gas production, gathering lines and a leasehold in the East Texas counties of Shelby, San Augustine and Nacogdoches, which hold production from both the Haynesville and Bossier shales in northwestern Louisiana and East Texas.
UK-based BG, which may be best known in U.S. markets as a liquefied natural gas carrier -- agreed to partner with EXCO last summer in a $1.3 billion transaction to acquire a half-stake in EXCO's Haynesville/Bossier holdings (see NGI, July 6, 2009). The additional leasehold now gives the two companies a much larger position in the gas-rich play.
"These assets have the potential to become a second major focus area for EXCO outside of our core DeSoto Parish position," said EXCO CEO Douglas H. Miller. "The geology and results look very similar to those in DeSoto, and the Bossier could be just as productive. The position is large enough to provide a capital-efficient entry into this area of the play, and the acreage is very contiguous."
The acreage is "well situated in what appears to be a highly productive area in the Shelby Trough," stated EXCO. According to the Dallas-based producer, the Shelby Trough runs from the southeast corner of DeSoto Parish, LA, through southern Shelby, northern San Augustine and eastern Nacogdoches counties.
The property to be acquired include 29,300 net acres of leasehold that are now producing more than 39 MMcf/d gross (12 MMcf/d net) from seven producing wells. More than 1,000 additional gross drilling locations have been identified, EXCO said.
The Haynesville Shale leasehold to be acquired is at depths between 11,500 feet and 14,500 feet, with most of it at an average depth of about 13,000 feet. The Bossier Shale leasehold is at depths between 11,000 feet and 14,000 feet, with most of it at an average depth of about 12,500 feet, the company noted.
Common, which is based in The Woodlands, TX, is a $500 million partnership that was started by former Spinnaker Exploration Co. and Newfield Exploration Co. executives, and private equity firms EnCap Investments and Pine Brook Road Partners.
To date Common has drilled and completed one Bossier well that had an initial production of 11.3 MMcf/d. It also has "extensive" 2-D seismic data over the area, as well as 136 miles of 3-D seismic, with an additional 178 miles of 3-D seismic scheduled to be shot by June.
The additional leasehold would be developed under the existing joint venture with BG, which basically requires BG to fund 75% of EXCO's half of the Haynesville/Bossier drilling and completion costs. EXCO's net acquisition price, estimated at $223 million, would be financed with debt.
The acquisition is expected to close by May 12; it carries an effective date of Feb. 1. Common's Eagle Ford Shale leasehold in South Texas is not part of the acquisition. The Eagle Ford acreage is to be sold to a third party before the EXCO-BG transaction closes.
Energy analysts with Tudor, Pickering & Holt Co. Inc. (TPH) said in a note to clients last week that the decision to sell Common in two pieces was expected. However, EXCO was reviewed in depth.
A Marcellus JV, said the TPH team, "seems right around the corner. To state the obvious, BG Group would be the natural partner for EXCO in the Marcellus. BG got into Haynesville with EXCO, adds more Haynesville/Bossier potential with the Common acquisition and wants more North American shale exposure."
It "doesn't take a big leap to jump to the next obvious question -- when does BG simply buy EXCO outright? Seems like a perfect fit to us."
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