BG Group plc, which last year agreed to help finance EXCO Resources Inc.'s exploration efforts in the Haynesville/Bossier Shale play, last week agreed to pay EXCO $950 million to acquire a half stake in an Appalachian Basin leasehold that includes Marcellus Shale acreage.
The companies agreed to partner last year in a $1.3 billion transaction that gave UK-based BG Group a half-stake in 120,000 net acres in Louisiana and Texas, as well as a stake in midstream ventures (see NGI, July 6, 2009). The latest transaction, their third to date, is set up in a similar way.
Last month they agreed to buy most of the assets of Common Resources LLC for $446 million in cash, giving them even more gas production and infrastructure in both the Haynesville and Bossier shale formations (see NGI, April 26). At the time energy analysts questioned whether the partners would continue to build their joint portfolio.
"Our existing joint venture with BG Group in East Texas/North Louisiana has been a tremendous success," said EXCO CEO Douglas H. Miller. "We share a belief that current market conditions will continue to provide opportunities to grow our acreage footprint in both of these areas.
"We also share a common vision of the importance of midstream and marketing efforts to fully realize the value of our upstream assets and both believe the Marcellus will be an infrastructure-led play. This transaction is a significant event for EXCO, both in terms of the ability to aggressively increase the development of our existing Marcellus assets and pursue additional opportunities while continuing to strengthen our balance sheet."
Under the definitive agreement, BG Group would buy membership interests in companies that hold 50% of EXCO's producing and nonproducing assets in Appalachia. Most of EXCO's Appalachian leasehold is in Pennsylvania and West Virginia.
The transaction would increase BG Group's estimated net gas resources by 2.4 Tcf.
"The new joint venture will further strengthen BG Group's unconventional gas portfolio, adding, at an attractive price, substantial resources adjacent to the premium gas markets of the U.S. Eastern seaboard," BG Group CEO Frank Chapman said.
In the latest venture the companies jointly would own an operating company that would continue to serve as operator of the properties, subject to oversight from a management board made up of EXCO and BG Group executives.
The partners also want to construct and expand gathering systems, pipelines, and treating and processing facilities in Appalachia through a newly formed and jointly owned midstream company.
At the end of 2009, EXCO had around 654,000 net acres in Appalachia, including close to 186,000 net acres prospective for Marcellus Shale development. Also included is net production of around 35 MMcfe/d, primarily from the shallower conventional horizons.
The partnership's leasehold has around 265 Bcfe of net proved reserves, based on year-end 2009 Securities and Exchange Commission pricing, EXCO said.
EXCO currently is running a one-rig program in the region, and most of the acreage position is held by shallow production, with an estimated 5,000 undrilled Marcellus Shale locations, said the Dallas-based producer.
The partners plan to increase the development program through 2010 and "aggressively pursue opportunities to acquire additional acreage in the Appalachian Basin," EXCO added.
Under the agreement EXCO would receive $800 million when the transaction closes, which is expected in June. In addition BG Group agreed to fund $150 million of capital development on EXCO's behalf, with BG Group paying 75% of EXCO's drilling and completion costs on the deep rights until the $150 million commitment is satisfied in 2011 or 2012.
The partners also would share equally in any additional leasehold and asset acquisitions in the Appalachian Basin.
EXCO plans to use the cash proceeds to pay down debt.
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