Shell agrees to buy natural-gas exploration company
Sunday, 30 May 2010
Royal Dutch Shell PLC said Friday it has agreed to buy East Resources Inc., a closely held U.S. natural-gas explorer, for $4.7 billion, in a transaction that underscores the frenzied global interest in North American shale-gas production, according to Internet.
Warrendale, Pa.-based East Resources is one of the biggest players in a natural-gas exploration area known as the Marcellus Shale, with control of 1.25 million acres across a territory that stretches from West Virginia to New York.
The sale will provide lavish returns for private-equity firm Kohlberg Kravis Roberts & Co., which invested $350 million in East Resources for a substantial stake only 11 months ago. It will also be a boon for East Resources Chief Executive Terrence Pegula, who founded the company in 1983, and still controls it.
Shell's acquisition also includes mineral rights in the Eagle Ford Shale in south Texas.
Editors' Deep Dive: Shale Gas Fuels Hopes in Energy Sector
While natural gas prices remain depressed, major oil companies are moving deeper into the business, with expectations that gas demand will recover in the years ahead. Last December Exxon Mobil Corp. agreed to buy gas producer XTO Energy Inc. for about $30 billion.
No area is more in demand than the Marcellus, a natural-gas field stretching from West Virginia to New York. It has benefited from big production and relatively low costs, which have made wells profitable and increasingly valuable.
North American natural gas currently accounts for about 7.8% of Shell's global oil and gas production. Shell has pursued several deals in the North American gas market in recent years, buying Canada's Duvernay Oil Corp. in 2008, and teaming up with Encana Corp. to develop acreage in Louisiana's Haynesville Shale exploration area. Shell officials have said they believe that while gas prices are low now, in the long-term they will recover.
Foreign energy companies have moved aggressively on to the scene. Last month, India's Reliance Industries Ltd. invested $1.7 billion for a 40% stake in a joint venture with Atlas Energy Inc., which controls about 584,000 acres in the Marcellus. In February, Japan's Mitsui & Co. announced a deal with Anadarko Petroleum Corp. in which it will invest about $1.4 billion to develop shale gas in the region.
The shale investments come with regulatory risks. Environmental groups and some residents of gas-producing areas have become concerned that the drilling process used to extract natural gas trapped in shale formations uses too much water and could contaminate water supplies, a concern that is particularly acute in Pennsylvania and New York. A U.S. House committee is investigation the process, known as hydraulic fracturing,or "fracking," and some lawmakers have called for increased regulation.
Warrendale, Pa.-based East Resources is one of the biggest players in a natural-gas exploration area known as the Marcellus Shale, with control of 1.25 million acres across a territory that stretches from West Virginia to New York.
The sale will provide lavish returns for private-equity firm Kohlberg Kravis Roberts & Co., which invested $350 million in East Resources for a substantial stake only 11 months ago. It will also be a boon for East Resources Chief Executive Terrence Pegula, who founded the company in 1983, and still controls it.
Shell's acquisition also includes mineral rights in the Eagle Ford Shale in south Texas.
Editors' Deep Dive: Shale Gas Fuels Hopes in Energy Sector
While natural gas prices remain depressed, major oil companies are moving deeper into the business, with expectations that gas demand will recover in the years ahead. Last December Exxon Mobil Corp. agreed to buy gas producer XTO Energy Inc. for about $30 billion.
No area is more in demand than the Marcellus, a natural-gas field stretching from West Virginia to New York. It has benefited from big production and relatively low costs, which have made wells profitable and increasingly valuable.
North American natural gas currently accounts for about 7.8% of Shell's global oil and gas production. Shell has pursued several deals in the North American gas market in recent years, buying Canada's Duvernay Oil Corp. in 2008, and teaming up with Encana Corp. to develop acreage in Louisiana's Haynesville Shale exploration area. Shell officials have said they believe that while gas prices are low now, in the long-term they will recover.
Foreign energy companies have moved aggressively on to the scene. Last month, India's Reliance Industries Ltd. invested $1.7 billion for a 40% stake in a joint venture with Atlas Energy Inc., which controls about 584,000 acres in the Marcellus. In February, Japan's Mitsui & Co. announced a deal with Anadarko Petroleum Corp. in which it will invest about $1.4 billion to develop shale gas in the region.
The shale investments come with regulatory risks. Environmental groups and some residents of gas-producing areas have become concerned that the drilling process used to extract natural gas trapped in shale formations uses too much water and could contaminate water supplies, a concern that is particularly acute in Pennsylvania and New York. A U.S. House committee is investigation the process, known as hydraulic fracturing,or "fracking," and some lawmakers have called for increased regulation.