DEALTALK-PE firms eye quickfire shale deals for premiums

* Acreage in Bakken, Eagle Ford shales seen as best buys

* Shale acreage worth rise ten-fold over past few years

* Whiting, Brigham seen likely to sell assets

* Buyers to be undeterred by low gas prices

By Adveith Nair & Krishna N. Das

BANGALORE, July 8 (BestGrowthStock) – Private equity firms keen to
invest in the energy sector will likely follow global oil
majors into North American shale plays, eyeing the premium they
can earn by disposing of the assets sooner.

Given the surging prices of shale assets, thanks to foreign
companies trying to learn horizontal drilling techniques, PE
firms will most likely look to sell the stakes soon after
buying them, making a neat profit in the bargain.

In spite of low gas prices, acreage in shale formations
that could hold enough natural gas to satisfy U.S. demand for a
decade, has become increasingly sought after. The deepwater BP
(BP.L: ) (BP.N: ) oil spill could further spur that demand.

(For a Factbox on shale deals, click [ID:nLDE64A1DY] )

“PE firms will buy the land in anticipation of a developer
coming in and paying a significantly higher price for the same
portion of land,” Oppenheimer analyst Fadel Gheit said.

Shale formations are lucrative, but expensive to develop.
Joint ventures give oil firms access to capital while their
foreign counterparts can pick up expertise in drilling methods
developed for shales.

To avoid sharing this much-sought-after drilling know-how,
the debt-laden and capital-hungry companies holding shale
acreage are more likely to sell assets to PE firms who look at
the deal as more of a low-risk investment.

“Private equity players want to play in the energy space,
but with minimal exploration risk. Shale plays are exactly
that,” Wunderlich Securities analyst Neal Dingmann said.

“There is lots of PE money on the sidelines looking to get
into a deal.”

PE major and trendsetter KKR (KKR.AS: ) recently unveiled
plans to invest up to $400 million to develop Hilcorp Energy’s
Eagle Ford shale property, days after selling its stake in East
Resources to Shell (RDSa.L: ) at a premium. [ID:nN14198045]

KKR’s deal with Hilcorp works out to roughly $10,000 an
acre while Reliance Industries (RELI.BO: ) recently forked out
over $14,000 an acre for its joint venture with Atlas Energy
(ATLS.O: ). [ID:nSGE63B023]

Shale assets have already brought a windfall for many
companies, with some pocketing more than ten times the $700 to
$900 per acre they paid a few years ago.


The most attractive plays, analysts say are the Bakken, one
of the few “oily” shales in continental United States, and the
Eagle Ford, given its high liquid content.

“As we start to become more bullish about natural gas
prices, the Marcellus and the Haynesville will start to look
attractive,” Wunderlich’s Dingmann said.

Brigham Exploration (BEXP.O: ) has seen stellar results at
its wells in the Bakken region, including some that flowed at
over 5000 barrels of oil equivalent per day. [ID:nSGE64P0E6]

Besides Brigham, others with strong shale acreage include
Cabot Oil and Gas (COG.N: ), Range Resources (RRC.N: ), Whiting
Petroleum (WLL.N: ), Exco Resources (XCO.N: ) and Rex Energy
(REXX.O: ).

“Whiting and even Brigham are some of the larger companies
in the Bakken which might position themselves for a sale or a
joint-venture,” analyst Dingmann said, adding that each acre
could fetch as much as $6000.

While a deal for $6000 an acre would represent a discount
to recent deals, it would still be a hefty premium to the
initial cost of the acreage.

The sellers, meanwhile, are hardly complaining as such
asset sales not only provide them with much needed capital for
their exploration programs, but also help them cut debt.

The parade of foreign entrants into the shale plays include
Reliance Industries, Total (TOTF.PA: ), Statoil (STL.OL: ) and
Mitsui (8031.T: ), with Chinese and Russian oil companies also
eyeing entry points.

The rising interest by foreign oil majors are pushing
prices higher, questioning the sustainability of the surging

“These foreign buyers are driving prices to astronomical
levels everybody knows are unsustainable,” Gheit said.

“The bubble is going to burst.”
(Reporting by Krishna N. Das and Adveith Nair in Bangalore;
Editing by Savio D’Souza and Don Sebastian)

DEALTALK-PE firms eye quickfire shale deals for premiums