Royal Dutch Shell plc continued building its portfolio in North America tight gas, with new positions in high potential US shale gas acreage, in the Marcellus and Eagle Ford plays, the company reported in a news release. Shell has agreed to acquire subsidiaries which own substantially all of the business of East Resources, Inc (“East Resources”) for a cash consideration of $4.7 billion, from East Resources, its private equity investor, Kohlberg Kravis Roberts & Co. and its advisors Jefferies & Company. The transaction is subject to certain regulatory approvals. East Resources is a privately-owned business with its primary activity focused on the Marcellus shale, in the northeastern US. East Resources has some 650,000 net acres (2,600 square kilometers) of highly contiguous, operated acreage in the Marcellus, and 1.05 million net acres (4,250 square kilometers) of acreage overall. East Resources has some 60 mmscfe/d (10,000 barrels oil equivalent per day) of production, predominantly in natural gas, with substantial medium-term growth potential.
In addition, as part of its on-going acreage build strategy, Shell has acquired ~250,000 net acres (1,000 square kilometers) of mineral rights in the Eagle Ford shale play, in South Texas, in 2010. These undeveloped acreage positions are in the liquids rich window of the Eagle Ford play. Shell will be the operator in this highly contiguous acreage, and will be able to integrate these new assets into its existing South Texas operations, where Shell has been active for many years. All together in 2010, Shell has added some 1.3 million acres (5,250 square kilometers) of North America tight gas acreage. Shell estimates that these new positions have the potential to yield over 16 trillion cubic feet of gas equivalent (tcfe) of resources (>2.7 billion boe).
Shell’s Chief Executive Officer Peter Voser commented: “We are enhancing our world-wide Upstream portfolio for profitable growth, through exploration and focused acquisitions, and through divestment of non-core positions. These acreage additions form part of an on-going strategy, which also includes divestments, with an objective to grow and to upgrade the quality of Shell’s North America tight gas portfolio.” Voser continued: “East Resources’ management have built an excellent organization, with high quality assets in the Marcellus, which we are pleased to have as our centrepiece as we enter the premier shale gas play in the north east US. The opportunity now is to consolidate our tight gas portfolio, divest from non-core positions across North America, and to invest for profitable growth, by deploying Shell’s technology and capabilities on a large scale.”
Shell’s activities in US tight gas began in 2001, with acreage purchases in the Pinedale Anticline in Wyoming, where the use of innovative multi-well production pads and reservoir fracturing technology has led to rapid production growth, a competitive cost structure, and reduced environmental footprint. Following the success of Pinedale, Shell has more recently expanded its tight gas acreage positions in South Texas, in the Haynesville play in Texas/Louisiana, and in Western Canada, through the 2008 acquisition of Duvernay.
Shell’s 2009 North America tight gas production was some 140,000 boe/d (810mmcfe/d), an increase of 62% from 2008 levels, from a 3.7 billion boe (21 tcfe) resources base. Continued focus on operating efficiency has resulted in competitive costs, with Shell’s cash operating costs in North America tight gas at less than $2/mcfe in 2009. Prior to today’s announcements, Shell projected that its North America tight gas production could reach more than 400,000 boe/d (>2.3 bcfe/d) by 2020, subject to annual investment rates. The addition of the East Resources, Inc and the Eagle Ford acreage will enhance this growth potential, bringing Shell’s total North America tight gas position to some 3.6 million acres.