Monday, May 10, 2010

Exco/BG Marcellus JV Deal: Déjà Vu All Over Again

Today, Exco Resources announced a joint venture deal to develop Exco's Marcellus Shale acreage with BG Group (British Gas). The deal is remarkably similar to the joint venture between the two companies to develop Exco's Haynesville acreage.  Exco will receive $800 million in cash and BG will front $150 million of development costs for Exco. Exco leases approximately 186,000 net acres prospective for the Marcellus Shale.

This is an interesting move because Exco is only running one rig in the Marcellus play right now and didn't have aggressive plans for developing its Marcellus acreage in the near future.  With the JV deal, Exco will more than double its long-term rig count in the play.  Next year it was planning three rigs; now it's looking at four to seven.  In 2015, it was planning seven rigs; now it's planning 16 to 20. 

The Marcellus is a very attractive play because of its proximity to the gas consuming region in the Northeast and its relatively low drilling costs for shale. The company claims that about 80% of its acreage in the area is held by shallow production, so it's not under the gun to drill these leases. Accelerating the company's drilling plan it what is now an uncertain price environment sounds like a pretty bullish move on natural gas.

It is also further proof that you need deep pockets to drill the shale.

1 comment:

Anonymous said...

Natural Gas Intelligence is reporting on a rumor that CHK might be selling off a significant portion of their Marcellus position. Anyone heard anything? Unfortunely I'm not a subscriber and can't read the story.