Monday, August 11, 2014

Blackstone Looks to Buy Shell's Interest in Haynesville

The Wall Street Journal reported this morning that massive private equity company Blackstone Group LP is in negotiations to buy Shell's Haynesville Shale interests for around $1 billion.  Shell, known as SWEPI, LP in the Haynesville, entered the play as Encana's HV partner in 2007, a rare early entrance to a developing shale play for an energy major.  By my count, Shell has completed 179 Haynesville wells, all in Louisiana (through mid-June), with their first completion in March 2009, but the company hasn't operated a Haynesville rig since April 2014.

This is the first big Haynesville deal in a while (assuming it gets done), but it follows Shell's corporate mandate to shed domestic shale assets and cut back on other domestic investments.  Shell has a long presence in Louisiana, but late last year it cancelled its planned south Louisiana gas-to-liquid plant, which likely would have been fed by Haynesville gas.  This created questions as to whether the company's Haynesville would now be orphaned within the company or sold.

Truth is, Shell never seemed too excited about the Haynesville.  A shale play is just not a good fit for an energy major that needs to put its capital to work on very, very big projects to show big revenues and profits.  As someone emailed me regarding Shell four years ago, "they just spend their time reading the safety manual" instead of completing and producing wells while competitors were striking deals and drilling wells at a breakneck pace.  That kind of wild west environment never seemed right for a conservative energy major like Shell. It's no surprise that they are the first of the early Haynesville prospectors out of the play.

Blackstone and its private equity brethren, on the other hand, have been very interested in the "energy space" of late.  "Smart money" purchasing "cast off" assets is an indicator to me that Haynesville activity is going to increase soon.  A major exiting a maturing play is an ominous sign, but big companies make sweeping decisions when divesting that don't always take into account short-term economics. To me, this is a good buying opportunity for Blackstone and an easy way for Shell to resume focus on "elephant" projects in which it specializes.

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