BG Group has entered into joint venture agreement with its US shale partner EXCO Resources, under which it will acquire a 50% interest in companies that hold EXCO’s producing and non-producing assets in the Appalachian Basin, located primarily in Pennsylvania and West Virginia.
Under the terms of the transaction BG Group will: acquire a 50% interest in a total of 654 000 net acres in the Appalachian Basin; increase its estimated net gas resources by 2.4 trillion standard cubic feet (tcf); and pay a total consideration of $950m, equating to an estimated unit resource cost of $0.40 per thousand cubic feet (mcf).
BG Group and EXCO will establish a 50-50 joint venture company to operate the upstream assets and a 50-50 midstream joint venture company to invest in gathering and transportation, both to be based in Pittsburgh. The management board of the operator joint venture company will be made up of an equal number of executives from BG Group and from EXCO.
BG Group will also acquire approximately 5 900 shallow producing wells owned and operated by EXCO, many of which secure ongoing ownership of deeper Marcellus rights. These shallow assets are currently producing 35 million standard cubic feet per day (mmcfd).
Under the joint venture agreement, BG Group and EXCO will each have the right to participate in further acreage acquired by either party in the Appalachian Basin.
Within EXCO’s total 654 000 net acres, 309 000 acres are prospective for the Huron and Marcellus shales, of which 186 000 acres are regarded as core Marcellus acreage.
The book value of the assets that are the subject of the transaction (namely, EXCO’s Marcellus and shallow interests) is approximately $450m. The total consideration payable by BG Group consists of a payment, in cash, of $800m, plus $150m to be paid as a carry of 75% of EXCO’s future Marcellus drilling costs.
Frank Chapman, chief executive of BG Group, said: “We are delighted to expand our highly successful alliance with EXCO built around complementary skills and objectives. The new joint venture will further strengthen BG Group’s unconventional gas portfolio, adding, at an attractive price, substantial resources adjacent to the premium gas markets of the US eastern seaboard.
“This transaction provides critical mass to BG Group’s US upstream gas business, with total resources estimated at more than 7 trillion standard cubic feet (tcf), equivalent to more than 1.2 billion barrels of oil equivalent.”
BG Group will finance the joint venture from its cash reserves, supplemented as required from the group’s existing facilities.