BG Buys Exco Stake for $1.06 Billion to Tap Shale Gas

U.K.’s third- largest natural-gas company, bought assets from Exco Resources Inc. for $1.06 billion to develop its first U.S. shale gas project. Exco shares rose as much as 21 percent, the most since December. It acquired a 50 percent stake in 120,000 net acres in east Texas and north Louisiana, the company said today in a statement. The purchase includes part of the Haynesville shale gas formation and adds 2.6 trillion standard cubic feet to BG’s resources, with current net output of 78 million standard cubic feet a day.

“We expect BG will use this shale gas to meet U.S. contract commitments, thereby releasing Atlantic basin LNG cargoes for higher priced global” markets, said Oswald Clint, a London-based analyst at Sanford C. Bernstein & Co. BG will compete with larger rivals including Royal Dutch Shell Plc, BP Plc and StatoilHydro ASA in the development of U.S. shale deposits. It has also expanded oil and gas resources in Australia and Brazil and forecasts production will rise between 6 percent and 8 percent a year and reach 1.6 million barrels of oil equivalent a day in 2020.

“This alliance brings material new resources and supply to our existing U.S. business at a competitive price and in a prime location at the heart of the world’s largest gas market,” Chief Executive Frank Chapman said in the statement. “The transaction increases BG Group’s exposure to long-term unconventional gas resources and skills.” Shale gas is natural gas stored in organic rich rocks such as dark-colored shale, interbedded with layers of shaley siltstone and sandstone, according to BG.

Marketing LNG
BG has been marketing liquefied natural gas in the U.S. and supplied 55 percent of all LNG cargos imported into the country in 2007, according to its Web site. The company also generates power in the U.S. to customers in New England.

A total of $655 million will be paid on completion, plus $400 million as a carry of 75 percent of Exco’s future costs to develop the Haynesville shale gas, the Reading, U.K.-based company said. The partners agreed to co-operate on further development and BG expects its production in the area will rise to 250 million cubic feet a day in 2012.

The British company will pay $19,000 per acre for the Haynesville shale gas assets. It may also buy a 50 percent interest in gas-gathering and transportation assets from Exco for $249 million to supply the fuel to U.S.’s Midwest and Eastern regions. “Recent deals in the shale gas play have been around $15,000 per acre,” said Bernstein’s Clint. “Hence this deal at $19,000 per acre could be viewed as expensive on that basis.”

The acquisition of the gas assets is conditional on the purchase of the transport infrastructure, BG said.

To contact the reporter responsible for this story: Eduard Gismatullin in London at egismatullin@bloomberg.net

Posted by: C. Keddy