2010-05-28-2010-05-28
To acquire company with 1.05 million acres in Appalachia Basin (650,000 in Marcellus shale) in PA, WV & NY, gaining 60 MMcfe/d.
Dutch major Royal Dutch Shell (NYSE: RDS) reports it intends to acquire Marcellus shale-gas assets through the purchase of the principal subsidiaries of Terrence Pegula's Pennslyvania-based East Resources Inc. and its private-equity investor Kohlberg Kravis Roberts & Co. for $4.7 billion in cash. The acquisition is the largest corporate M&A transaction in 2010, and the largest transaction in the Marcellus shale to date.
Shell will acquire East Resources' oil and gas E&P operations, most of the company's holdings and related businesses. The acquired assets comprise a total of 1.05 million net acres, 650,000 net acres of which are highly contiguous Marcellus rights in Pennsylvania, West Virginia and New York. Production, primarily natural gas, is approximately 60 million standard cubic feet of gas equivalent per day (10,000 barrels of oil equivalent per day). Shell will continue to operate East Resources' workforce.
Shell chief executive Peter Voser says, "We are enhancing our worldwide upstream portfolio for profitable growth…with an objective to grow and to upgrade the quality of Shell's North American tight-gas portfolio. East Resources' management have built an excellent organization, with high-quality assets in the Marcellus, which we are pleased to have as our centerpiece as we enter the premier shale-gas play in the northeastern U.S."
Voser also says that the Dutch oil major plans to divest its noncore positions in North America.
East Resources' president and chief executive Terrence Pegula says, "The sale of the company to Shell will ensure that the capital needed to develop East's significant Marcellus shale holdings will be available. Shells entry into the region should benefit Pennsylvania, West Virginia and New York, through significant new capital investment, new jobs and new business opportunities."
Pegula founded East Resources in 1983, and is one of the largest leaseholders in the Marcellus. The company also holds more than 100,000 net acres in the Niobrara shale in the Rockies.
East Resource has a partnership with Anadarko Petroleum Corp., Houston, (NYSE: APC) and Ultra Petroleum Corp., Houston, (NYSE: ULP) in the Marcellus.
The sale is expected to close in two phases, the first of which is slated for completion by late summer. The second phase, which includes the sale of East Resources' West Virginia business, is expected to close in late 2010.
Jefferies & Co. is sole financial advisor to East Resources. Jefferies previously advised East Resources in its June 2009 convertible preferred equity investment from Kohlberg Kravis Roberts.
Analysts at Tudor, Pickering, Holt & Co. Securities Inc. value East Resources' Marcellus acreage at $7,200 per acre and its production at $78,000 per million cubic feet equivalent per day. The analysts note that the nearly $5-billion deal "doesn't seem like a particularly big bite for a company of Shell's size," suggesting more acquisitions may be imminent. Tudor, Pickering, Holt & Co. also notes the company is spending billions "on the assumption" that shale is a viable resource, trumping shale-reserve critics.
Analysts at Global Hunter Securities LLC also value the Marcellus acreage at roughly $7,200 per acre and say the deal "puts another high and hard valuation point in for Marcellus acreage in the wake of Williams' $11,900-per acre purchase from Alta Resources (LLC)."