
Royal Dutch Shell Plc’s (NYSE: RDS-A, RDS-B) sales event continued Aug. 14 as the company said it would sell hundreds of square miles of shale gas assets in the Pinedale and Haynesville for $2.1 billion in cash.
The move comes as Shell continues to dismantle some domestic holdings and mature dry gas assets while acquiring others. The company is focusing on other opportunities such as the Utica Shale, an analyst said.
In 2014, Shell has gone on a divestment tear that is unusual even for a company its size. The Hague-based company typically divests about $5 billion annually. As of July, Shell said it had divested $8 billion, including $6.5 billion in upstream positions. On Aug. 13, it sold 207,000 net Marcellus and Utica acres to Rex Energy Corp. (NASDAQ: REXX).
In the Pinedale, Ultra Petroleum Corp. (NYSE: UPL) signed a purchase and sale agreement with Shell to buy all of its field properties for $925 million. As part of the deal, Houston’s Ultra traded a portion of its Marcellus Shale properties to Shell.
In a separate deal rumored for days, Vine Oil & Gas LP and its partner Blackstone (NYSE: BX) will buy 100% of Shell’s Haynesville assets in Louisiana, including associated field facilities and infrastructure for $1.2 billion in cash.
“We continue to restructure and focus our North America shale oil and gas portfolio to deliver the most value in the longer term. With this announcement we are adding highly attractive exploration acreage, where we have impressive well results in the Utica, and divesting our more mature, Pinedale and Haynesville dry gas positions,” said Marvin Odum, Shell’s upstream Americas director.
Shell’s heavy divestments, continuing from the second quarter of 2014, follow the company taking a $2 billion impairment related to dry gas properties in the United States.
The impairments were the result of reduced development spending on Lower 48 dry gas properties, which in turn reduced production and cash flow expectations in the near term, said Simon Henry, Shell’s CFO, in a July media call. The company has said major divestments of noncore liquids-rich shale positions are now complete, with proceeds of about $800 million by July.
Pinedale
Ultra’s deal buys Shell's interest in the Pinedale Field, which is producing about 189 million cubic feet equivalent per day (MMcfe/d) of natural gas and condensate. As a result of the transaction, Ultra Petroleum will operate roughly 1,577 gross wells, or about 68% of the Pinedale Field. The company said its access to higher-priced western gas markets will greatly increase as a result.
In exchange, Shell will receive cash and 155,000 net acres in the Marcellus Shale, primarily located in Tioga and Potter counties. Shell will obtain about 100 MMcfe/d of natural gas production.
“We first entered the Pinedale Anticline in 2001, and I am proud of our operational excellence, community engagement and leadership in responsible energy development over that time,” Odum said.
Questions remains about Ultra’s increased focus on gas, the strategic opportunity afforded by greater control of the field and implications for 2015 capital budget, said David Tameron, senior analyst for Wells Fargo Securities.
The acquired acreage is a combination of gaining working interest on currently operated wells, adding operated status for non-operated wells and gaining new acreage with no previous exposure, said Bill Herbert, managing director and co-head of securities for Simmons & Co. International.
“We believe it is a good transaction for a company looking to consolidate and reduce troublesome northeast gas exposure,” he said.
The transaction includes Ultra’s entire 92,000 net acre interest in the Tioga Area of Mutual Interest (AMI), an unincorporated joint venture with Shell.
“This transaction is a strategic repositioning of our portfolio for improved returns, increased reserves, higher value markets, increased operatorship and increased control of capital allocation,” said Michael D. Watford, Ultra’s chairman, president and CEO.
Haynesville
Shell’s Haynesville assets cover 107,000 net acres in north Louisiana. The transaction includes 418 producing wells, 193 of them operated by Shell.
“We very much appreciate the support we have had in north Louisiana, and we will continue to operate in the state, as we have for decades, through our downstream, retail, midstream, and New Orleans-based deepwater operations,” Odum said.
Vine Oil & Gas LP is a recently formed E&P company headquartered in Dallas. It is backed by Blackstone Energy Partners, an affiliate of global investment firm Blackstone.
Eric Marsh, president and CEO of Vine, said the company is acquiring a significant, strategic and top-tier position in the core of the Haynesville Shale.
“Blackstone’s successful track record of investing in energy and the oil and gas sector specifically, and extensive industry relationships, in combination with the Vine team’s operational capabilities and experience, will allow us to continue to optimally develop these properties and be a partner of choice in the region over the long term,” said Marsh, a former senior executive with Encana Corp. (NYSE, TO: ECA).
The Vine deal has an effective date of July 1 and is expected to close in the fourth quarter of 2014. The Ultra agreement is effective April 1 and is expected to close this year.
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