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BG Group announces joint venture with EXCO

Oilfield Technology,

BG Group will acquire a 50% interest in companies that hold EXCO’s producing and non-producing assets in the Appalachian Basin, located primarily in Pennsylvania and West Virginia, USA. Under the terms of the joint venture, BG Group will:

  • Acquire a 50% interest in a total of 654,000 net acres in the Appalachian Basin.
  • Increase its estimated net gas resources by 2.4 trillion ft3.
  • Pay a total consideration of US$ 950 million, equating to an estimated unit resource cost of US$ 0.40 per thousand ft3.

The alliance has come about as BG need assets close to the US market, and by forming an alliance, they can exploit EXCO’s shale gas exploitation expertise whilst providing gas-selling operations. Shale gas is currently seen as a convenient option for gas producers in North America as, unlike LNG, it dispenses with the need for LNG transporters and regasification terminals.

BG Group will also acquire approximately 5900 shallow producing wells owned and operated by EXCO, many of which secure ongoing ownership of deeper Marcellus rights. These shallow assets are currently producing 35 million ft3/day.

Under the agreement the partners will have the right to participate in any further acreage acquired by either party in the Appalachian basin.

Within EXCO’s total 654,000 net acres, 309,000 acres are prospective for the Huron and Marcellus shales, of which 186,000 acres are regarded as core Marcellus acreage.

The book value of the assets that are the subject of the transaction (namely, EXCO’s Marcellus and shallow interests) is approximately US$ 450 million. The total consideration payable by BG Group consists of a payment, in cash, of US$ 800 million, plus US$ 150 million to be paid as a carry of 75% of EXCO's future Marcellus drilling costs.

BG Group Chief Executive Frank Chapman said, “We are delighted to expand our highly successful alliance with EXCO built around complementary skills and objectives. The new joint venture will further strengthen BG Group’s unconventional gas portfolio, adding, at an attractive price, substantial resources adjacent to the premium gas markets of the US eastern seaboard. This transaction provides critical mass to BG Group’s US upstream gas business, with total resources estimated at more than 7 trillion standard ft3, equivalent to more than 1.2 billion barrels of oil equivalent.”

BG Group plan to finance the joint venture from its cash reserves, supplemented as from the Group’s existing facilities.

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