Shell reshuffles US shale assets in two major deals

Royal Dutch Shell PLC has agreed to two separate transactions in which it will exit its Pinedale and Haynesville onshore gas assets in exchange for $2.1 billion in cash and acreage in the Marcellus and Utica shale regions.

In one deal, Shell will sell its 107,000 net acres in the Haynesville of North Louisiana, along with associated field facilities and infrastructure, to Blackstone affiliates Blackstone Energy Partners and Vine Oil & Gas LP, Dallas, for $1.2 billion in cash.

Vine, formed by Blackstone earlier this year, is an exploration and production company targeting US shale and led by Eric Marsh, a former executive vice-president of Encana (OGJ Online, Oct. 2, 2013).

The transaction encompasses 418 producing wells, 193 of which are Shell-operated. Gross production from Shell’s assets, as of July 1, totaled 700 MMscfd of dry gas, with the company’s net working interest share totaling 250 MMscfd.

The agreement is effective July 1 and expected to close in the fourth quarter. Shell says it will continue to operate in Louisiana through its downstream, retail, midstream, and New Orleans-based deepwater operations.

In another deal, Shell will acquire 155,000 net acres in the Marcellus and Utica areas of Pennsylvania and receive a cash payment of $925 million from Ultra Petroleum Corp., Houston, in exchange for Shell’s 19,000 net acres of leasehold interest in the Pinedale of Wyoming, including associated gathering and processing contracts.

The Pinedale assets encompass 1,108 gross wells and associated facilities, and an average of 0.7% overriding royalty interest in 11,500 acres. Shell’s second-quarter net production from Pinedale totaled 190 MMscfd of dry gas. Ultra’s first-half net production from the Marcellus and Utica assets averaged 109 MMscfd.

Shell will receive 63,000 net acres in the Marshlands area as well as 92,000 net acres in the Tioga area of mutual interest (AMI), an unincorporated joint venture with Ultra, giving Shell 100% interest in Tioga AMI.

The agreement is effective Apr. 1 and expected to close this year.

Ultra says the deal with Shell will increase its net proved reserves by 1.8 tcfe and expand company-operated production to 82% from 62%.

Shell’s recent shale activity

Marin Odum, Shell Upstream Americas director, meanwhile explained the deals from his company’s perspective: “With this announcement we are adding highly attractive exploration acreage, where we have impressive well results in the Utica, and divesting our more mature, Pinedale and Haynesville dry gas positions.”

Shell has recently been involved in a flurry of deal activity relating to its shale assets.

In June, company affiliate East Resources Inc. and an unnamed private company sold 48,000 net acres in the Marcellus and 27,000 net acres in the Utica to units of start-up American Energy Partners LP. The transactions totaled $1.75 billion (OGJ Online, June 9, 2014).

Notably, East Resources was acquired in 2010 by Shell for $4.7 billion during Shell’s large-scale venture into US unconventional oil and gas (OGJ Online, May 28, 2010).

In May, the company sold 100% working interest in 106,000 net acres in the Eagle Ford to Sanchez Energy for $639 million (OGJ Online, May 21, 2014).

Two months earlier, Shell divested its acreage position in the Mississippi Lime in Kansas, its Utica position in Ohio, and a portion of its acreage in the Sandwash Niobrara basins in Colorado (OGJ Online, Mar. 7, 2014).