At press time, Atlas Energy Inc. shareholders were to vote on the Marcellus- and Antrim-shale-focused E&P’s purchase by Chevron Corp., as Atlas joint-venture partner Reliance Industries Ltd. remained mysteriously quiet after filing a letter of protest. India-based Reliance contends it was not fairly offered a chance to bid against Chevron for the whole company last fall, while Chevron was the No. 2 bidder in the $1.7-billion JV that Reliance won last spring.

Bill Transier, chairman, president and chief executive of Endeavour International Corp., said at a conference last fall that there would be days like this: Divorces among U.S. unconventional-play JV partners are inevitable and will be ugly. “You would hope not, but, in general, you’re definitely going to see that happen,” he said.

More than $20 billion has been paid to play in U.S. unconventional JVs, part of it cash upfront and the balance in drilling carries—some as much as 100%. And, while the list of potential JV assets and partners dwindles, more corporate-level transactions are likely, some of these involving assets that are already in JVs.

One investment banker says, “There are only so many deals in North America that Reliance (for example) is going to do--or CNOOC or Statoil for that matter. So there is not a bottomless pit, if you will, of buyers for these asset-level deals and, at some point, the music stops.”

Prospective U.S. unconventional-asset sellers are those that will be squeezed by funding, he says. “They’ve been able to, in effect, sell a piece of the company to make that happen. We think there will be more of those (JVs). The question is, ‘When does the buyer list run out?’”

Another overseas-based JV partner, Japanese conglomerate Sumitomo Corp., received word in October, four days after closing its Marcellus-focused JV with Rex Energy Corp., that Rex CEO Ben Hulburt was departing to build another Appalachia-focused E&P, Eclipse Resources I LP, in which private-equity firm EnCap Investments LP is participating in a $150-million equity commitment.

In this case, the new Rex CEO—attorney and Rex board member Dan Churay—has been well received by the investment community. Jack Aydin, analyst with KeyBanc Capital Markets, says of a Rex road show in early February, “We believe clients were more receptive and engaged with the new management team.” Rex itself may offer its Niobrara oil-shale holdings, where it has some 45,000 net acres, in a JV this year as a fund-raiser, he adds.

Last spring, while Reliance was drafting its winning bid in the Atlas JV, and Chevron was shrinking from the $1.7-billion price, Chevron CEO John Watson was meeting with analysts in New York, saying the cost of buying into U.S. unconventional gas was too high. This past January, with the Atlas deal two weeks from a shareholder vote, Watson said, “Well, as we progressed through the year, we saw values improve.”

Walter Van de Vijver, Houston-based Reliance USA Holdings Inc. president and CEO and a former Royal Dutch Shell group managing director, says Chevron’s offer for Atlas discounts the value of Reliance’s JV assets.

He wrote to Atlas in January, “We do not understand why, at no time during the seven months of discussions involving Chevron, during which time we were in regular dialogue as your joint-venture partner, did Atlas Energy reach out to Reliance to gauge our interest in a possible company-level transaction.”

Noting the letter, Pennsylvania-based Atlas amended its proxy statement in early February, saying the JV agreement required Atlas to notify Reliance if at least two bidders had made offers for the company, and only Chevron had. A possible point of contention may be that the deal was reached on November 8, and an exclusivity agreement with Chevron expired on November 5, according to the revised proxy statement.

With oil and gas gold in play, the E&P industry is well familiar with scrimmages—some of them public and some well known only at the clubhouse. Chevron may appear in another one. Watson says the company aims to enter liquids-rich plays. “Up to now, we haven’t been as big on the liquids side…,” he says. “In due course, Chevron has the opportunity to come in.”

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