Expect to see more joint ventures or acquisitions involving Marcellus Shale properties, with both domestic and foreign companies vying to gain a stake in what currently is the most attractive U.S. gas shale play.
“You can buy access to the Marcellus for a couple hundred million dollars or for several billion. There’s a full spectrum of deals out there,” said Stephen Bull, commercial leader of the Norwegian Statoil ASA’s Marcellus operation, which “essentially has a 32.5% of everything Chesapeake’s got in the Marcellus.”
The Marcellus has the best deal count of any of the North American shale basins in the last few years, Bull told the annual meeting of the Pennsylvania Oil and Gas Association Tuesday, noting that Marcellus gas is the “closest to a gas price breakeven point.” The average value of Marcellus deals is $8,000 per acre. Premium properties in the best counties — Susquehanna and Bradford, for instance — can bring as much as $14,000 an acre. Scattered interests across the basin are available for $6,000 to $7,000.
There were 22 Marcellus deals in 2009 and 31 so far in 2010. In all of 2008 there were 12 Marcellus deals.
At about the same point that the Marcellus is in now, in the Haynesville Shale in 2008 properties were going for $30,000 to $35,000 per acre with 25% royalties. The high prices are cropping up in the current hot plays, Bull said, noting that royalty rates are increasing.
Lower gas prices are driving some sell-outs. “Private equity companies such as KKR [Kohlberg Kravis & Roberts] are selling and getting out and you can look to see some regional operators selling assets as well,” Bull said. The latter include Chief Oil & Gas LLC, Talon Oil & Gas LLC, Anschutz Exploration Corp., SM Energy Co. and EOG Resources Inc. One of the drivers behind some of the sales is the need for investment dollars to fund assets that are held by production.
The opportunity is attractive to foreign companies. Like Statoil’s deal with Chesapeake Energy Corp., the largest land holder in the Marcellus, a number of foreign companies favor joint ventures over outright buyouts. “There are issues with foreign companies. They buy an operation and everyone walks out the door.”
Bull noted that even ExxonMobil Corp. is taking a hands-off approach with its acquisition of independent XTO Energy Inc., which is now a subsidiary. “At least for awhile you can expect to see XTO mostly running itself. Eventually, over time it may be ‘Exxonized,’ but right now they’re being very careful not to interfere (see Daily GPI, Dec. 9, 2009).” It will be very interesting to see how Royal Dutch Shell plc manages its acquisition of another independent, East Resources Inc., Bull said, as to whether that major follows ExxonMobil’s hands-off approach.
A new trend the Statoil executive sees in the Marcellus is toward “operatorships.” Indian oil company Reliance Industries Ltd. “is pushing in that direction.” The company has options for operatorships and will be hiring over the next couple years, Bull said. This is a prelude to the action building back home. “The Indian government will have their shale gas areas ready within 18 months.”
He expects to see more foreign companies buying into the Marcellus, which right now is in the preferred stage of early development. The larger companies are looking for areas where the land grab stage is just about over and it’s moving into the prove-up and experiment stage. Foreign companies like to get in at this point where technological development is going forward.
Chesapeake, which tied up land early and often in the Marcellus “is a huge land machine,” and the No. 1 land-holder in the basin. Its share of Chesapeake makes Statoil No. 6 in the play with currently 665,000 net acres (see Daily GPI, Nov. 12, 2008). “We scanned the U.S. market for a year and a half and settled on the Marcellus. We wanted a new exploration area,” Bull said. “We’ve made a big investment, $2.3 billion in cash and a billion dollars in capex for a number of years.”
Statoil is continuing to acquire properties and infrastructure interests. “We’re a long-term player,” Bull said, noting that in the short term, “gas prices are terrible.” But “we’ll be here for 50 years.” The company also plans to put its U.S. experience to good use. Statoil, with its U.S. headquarters in Houston and trading in Connecticut, is developing expertise at a research center in Oklahoma City that it intends to use to develop shale land it has acquired in South Africa and China.
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