DTE Energy reached a deal over the weekend to sell all of its Antrim Shale natural gas properties in Michigan to master limited partnership (MLP) Atlas Energy Resources LLC for $1.225 billion. DTE still has its Barnett Shale gas properties in Texas up for sale, but the CEO said Monday the company will wait until a better offer is on the table.
DTE decided last year to restructure its nonutility operations to simplify its earnings structure and to redeploy cash for its utilities and midstream operations (see Daily GPI, Nov. 8, 2006). The long-range plan includes selling about $1 billion of its power plant and exploration and production (E&P) assets.
"This divestiture offers DTE Energy a strong value for the Antrim gas assets and recognizes our achievement in building this business to be the single largest producer in the Antrim," said DTE Energy CEO Anthony F. Earley Jr. "We believe this deal provides Atlas with an ideal entrance into Antrim with a set of high quality assets and personnel. DTE Energy's gas team has a proven track record of acquiring less developed properties, then substantially increasing their value by proving up the reserves and by applying the production techniques that have made us among the lowest-cost operators in the Antrim Shale."
The Barnett properties remain for sale, said Early. At the end of 2006, DTE had an estimated 440 Bcf of reserves in the Barnett, which were 40% proven and 60% probable. Several potential buyers noted that the Barnett acreage was not yet mature enough to garner what DTE considered an adequate sale price, he said.
"We could sell the Barnett assets outright, but we'd be leaving a lot of money on the table," Early said. The Barnett Shale assets are still for sale, but "right now, we're concentrating on moving the Barnett assets up the value curve, move to where the core assets are developed and the value is relatively transparent...The core assets are rapidly maturing, and they're not far behind the Antrim in proving themselves up. Most of the noncore assets are in the western part of the [Fort Worth] core area, and they are earlier in their life cycle. They offer us the opportunity to repeat what we've done in the Antrim.
"The plan in the Barnett is going to take some time to evaluate our options, and right now, we're going to concentrate on closing the Antrim sale," Early added. "We learned that the assets like that in the Antrim are very efficiently valued. We had buyers tell us we had good assets in the Barnett, but we need to take the time to have them work for us. We're going to step back and evaluate our options in terms of the Barnett, and we'll share our thoughts later this year."
Atlas will take over DTE's role as the largest operator in northern Michigan's Antrim Shale. DTE's total proved reserves in the play are estimated at 613 Bcfe, 74% of which are proved developed. Additional probable and possible reserves are estimated at 76 Bcfe. The Antrim properties, which are 100% natural gas, will continue to be operated by the existing management team in Traverse City, MI, which has about 40 employees.
As a result of the transaction, Atlas Energy's proved reserves are expected to increase to 784 Bcfe from 181 Bcfe, a 330% increase. Atlas Energy was launched as an initial public offering last December.
"This acquisition is a transformative event for our company," said Atlas CEO Edward E. Cohen. "We will more than quadruple Atlas Energy's proved reserve base to almost 800 Bcfe and triple our average net daily production to approximately 88 MMcfe. These assets will provide even greater stability to our company's existing reserve base and will enable us to materially increase our distributions to unitholders."
Cohen said during a conference call Monday afternoon that the acquisition of DTE's assets offers a "tremendous platform for future acquisitions" in the Antrim Shale. "We want to acquire additional assets in the Antrim Shale." He said the play "works beautifully for us because of our existing assets, our skills and our unitholders' needs." The DTE assets are "a perfect combination to assure stability and expand cash flow."
So far, Atlas has identified more than 500 drilling locations on the Antrim property. There are about 2,150 producing wells in the Antrim now, of which 75% are operated, with a 75% average working interest. In all, DTE's net leasehold is 294,000 acres; 66,000 are undeveloped. The remaining reserve life is estimated at more than 28 years. Atlas plans to drill 130-160 new wells a year using corporate funds. Current maintenance capital expenditures are about $17 million/year.
Atlas COO Richard D. Weber said the acquisition "gains us long-lived reserves with shallow production declines and minimal drilling risk. Perhaps more important, we are inheriting a first rate operating team. We think these assets and this team will be a platform for future acquisitions in Michigan."
"This is a strong first step in executing the plan for our nonutility businesses announced last fall," said DTE COO Gerard M. Anderson. "Our Traverse City team has done an outstanding job creating value for DTE's shareholders. We wish them well in their future endeavors with Atlas Energy Resources."
Given the execution of the Antrim sale agreement and "strong" investor interest in other nonutility assets, Anderson told analysts on a conference call Monday that DTE is confident that the monetizations will result in after-tax proceeds between $1.25 and $1.55 billion by year-end.
With the signing of the agreement with Atlas, DTE's board authorized up to a $1.55 billion common share repurchase program, increased from the previous $700 million. DTE now intends to execute share repurchases between $650 and $850 million by the end of 2007.
The Atlas MLP has, up to now, focused principally on about 100,000 acres in the Appalachian Basin, where it concentrates its exploration efforts in the Marcellus Shale of southwestern Pennsylvania. Atlas America Inc. owns an 80% common unit interest and all of the Class A and management incentive interests in Atlas Energy Resources and an 83% interest in Atlas Pipeline Holdings LP.
According to the Gas Technology Institute, the Antrim Shale holds 35-76 Tcf of reserves, and it has yielded 2.4 Tcf to date. As the play has matured, efforts have been made by producers to extend the producing acreage into regions that are more challenging to gas development. A great deal of potentially productive shale lies within areas that are off-limits to gas development due to surface constraints such as topography, wetlands or housing. Also, because Northern Michigan has attracted vacationers and retirees, real estate is high priced within the Antrim Shale fairway.
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