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Analysts: McClendon's AEP-LP is Mystery Buyer of Hess' Utica Acreage

Analysts say American Energy Partners LP (AEP-LP) is the company buying 74,000 acres in the Utica Shale from Hess Corp., adding that such a move makes sense given AEP-LP's appetite for assets in the shale play and a simultaneous decision to secure equity commitments.

Hess said Wednesday it would sell the acreage, which lies in the play's dry gas window, to an undisclosed buyer for $924 million (see Shale Daily, Jan. 29a). The transaction equates to about $12,500 per acre.

"Hess did not disclose the buyer of this acreage but given the premium price tag, the industry started speculating that Aubrey McClendon's new firm, AEP-LP, was behind this deal as well," analysts with Robert W. Baird & Co. said in a note. "The company did not confirm these rumors but people familiar with the matter acknowledged the transaction."

Baird analyst Hsulin Peng told NGI's Shale Daily that she could not confirm the rumor either, but she said it was "likely" that AEP-LP was the buyer. "Aubrey has been very active in the Utica, so you wouldn't be [surprised]," she said Thursday.

McClendon, a co-founder and former CEO of Chesapeake Energy Corp., formed AEP-LP last April and immediately began to cobble together a position in the Utica, buying assets from EV Energy Partners LP and Royal Dutch Shell plc (see Shale Daily, Aug. 21, 2013; April 17, 2013). AEP-LP also forged a joint venture (JV) with Red Hill Development LLC, and has midstream gathering, processing and fractionation agreements with MarkWest Utica EMG and Utica East Ohio Midstream LLC (see Shale Daily, Oct. 10, 2013; Oct. 3, 2013).

In the note, Baird lauded the sale of Hess' acreage "as a solid valuation for dry gas acreage, highlighting the industry's increased confidence in economics as well as an emerging core in this window in southeastern Ohio driven by impressive well results in Monroe County to date (Eclipse, Antero, Gulfport) with tests moving further north."

Gabriele Sorbara, an analyst with Topeka Capital Markets, concurred.

"It makes logical sense to us," Sorbara said Thursday. "Aubrey's been very aggressive in acquiring in the Utica. He's been building a position in the wet gas window, and now the core is believed to be the dry gas window.

"Naturally, you would move to where economics are better. He's paying a reasonable price, we think, for dry gas acreage. We were hearing he was paying up to $20,000 an acre for Utica acres in the wet gas phase. And we think probably the dry gas area is more economic."

Baird also said it was "interesting" that AEP-LP secured up to $500 million in private equity commitments "to acquire onshore gas and oil fields," (see Shale Daily, Jan. 29b).

AEP-LP spokeswoman Cory King did not return a call seeking comment Thursday.

According to supplemental earnings information released by the company Wednesday, Hess currently holds 134,000 net acres in the Utica, which includes 92,000 net acres 100% owned by Hess, and 42,000 net acres with its JV partner in the play, Consol Energy Inc., although that figure doesn't include 31,000 non-core acres (see Shale Daily, Oct. 15, 2013).

Hess spokesman Patrick Scanlan said the acreage being sold was 100% owned by Hess and was not part of the JV acreage.

The JV is active in Ohio's Belmont, Harrison, Jefferson and Noble counties. Baird said the Hess acreage being sold was in Belmont and Jefferson counties.

Hess said it expects to receive about two-thirds of the proceeds from the sale by the end of 1Q2014, with the balance coming in 3Q2014. Proceeds from the sale will go toward the company's $4 billion share repurchase program launched last year, in tandem with a strategy to transform into a pure-play exploration and production (E&P) company (see Daily GPI,March 5, 2013). Hess had purchased $1.54 billion in shares as of Dec. 31, 2013.

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