Houston-based Gastar Exploration Ltd. on Wednesday inked a joint venture (JV) agreement with South Korean investment firm Atinum Partners Co. to develop Marcellus Shale acreage in West Virginia and Pennsylvania.
The transaction, with affiliate Atinum Marcellus I LLC, is valued at around $70 million and is expected to be completed within the next two months. The JV also includes a plan by the partners to review potential shale acreage that Gastar has in Ohio and New York for future potential acquisitions.
“This joint venture will allow Gastar to accelerate development of our Marcellus Shale assets while maintaining a low level of leverage and a high degree of financial flexibility,” said Gastar CEO J. Russell Porter. “We may utilize the proceeds from this transaction to help fund our Marcellus Shale development plans, future drilling and development of our East Texas asset, lease or property acquisition opportunities and potential debt reduction.”
Under the JV agreement, Atinum would pay Gastar $30 million for an initial 21% stake in the Pennsylvania and West Virginia shale properties, which total about 34,200 acres, and $40 million of the drilling costs. With the initial investment, Atinum would own a half-share in the properties.
The three-year program would require Gastar to drill one well this year, at least 12 in 2011, and 24 wells in both 2012 and 2013. Gastar would continue to serve as operator of all of the Marcellus Shale interests in the JV.
Within the initial area of mutual interests (AMI), Atinum agreed to pay Gastar on an annual basis an amount equal to 10% of lease bonuses and third-party leasing costs up to $20 million and 5% of the costs on activities above $20 million. Until the end of June 2011 Atinum would have the right to participate in any future leasehold acquisitions made by Gastar outside the initial AMI and within West Virginia or Pennsylvania, on terms identical to those governing the existing Marcellus JV.
Gastar also operates a leasehold in the Deep Bossier Shale play in East Texas, as well as coalbed methane properties in the Powder River Basin of Wyoming.
The Gastar investment is Atinum’s third in the U.S. energy sector in the past year, Atinum CEO Kyung Soo Chung said. Last December the company completed its acquisition of the U.S. affiliates of UK-based Sterling Energy plc for $90 million.
According to Atinum, the Sterling acquisition gave its U.S. exploration and production arm working interests in about 200 active wells onshore Texas and Louisiana, as well as stakes in wells offshore Texas. Production at the end of 2009 was more than 24 MMcfe/d with total proved reserves of 53 Bcfe and probable reserves of 41 Bcfe. Atinum said at the time that it had an inventory of more than 100 drilling projects onshore in Texas and Louisiana, including the Eagle Ford Shale in South Texas.
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