Fort Worth, Texas-based Quicksilver Resources Inc. [NYSE: KWK] said March 29 that it has agreed to sell an undivided 25% interest in its Barnett Shale oil and gas assets for US$485 million to TG Barnett Resources LP, a wholly-owned US subsidiary of Tokyo Gas Co. Ltd.
Quicksilver will remain as operator of the assets. Future development spending will be shared in proportion to each party's working interest in accordance with applicable operating agreements.
The effective date of the transaction is Sept. 1, 2012. Closing is expected to occur on April 30, 2013 and is subject to customary closing conditions.
"We are very pleased to have Tokyo Gas as a partner to develop the full potential of our Barnett Shale asset base," said Glenn Darden, Quicksilver's president and CEO. "We look forward to a successful long-term relationship, which will benefit both of our companies."
A Quicksilver rig drilling in the Barnett Shale Photo courtesy of Quicksilver Resources
Darden told Oil & Gas Financial Journal that Quicksilver first met representatives from Tokyo Gas back in November 2011 when they visited the Barnett Shale with a larger group of Japanese visitors who were in Texas to learn more about shale gas. Discussions about a partnership began about six months later, he said.
Darden said he believes Tokyo Gas's motivation to get into the upstream gas sector in the US is to lower its supply costs. The utility has been importing gas in the form of LNG for about 40 years, he said, adding that he expected a push on their side to export the gas "at some point."
Quicksilver said it will use proceeds from the transaction to reduce its debt.
"We have a game plan to delever this company," Darden said. "We have a lot of assets, and we want to reduce our debt. We're not really public about the moves we'll make, but we are active and we will communicate as we execute on this plan, which will involve some other areas as well."
In addition to the Barnett Shale, Quicksilver has assets in the Midland/Delaware Basin in West Texas; in the Niobrara Shale of northwestern Colorado and southern Wyoming; and in the South Alberta Basin of Montana near the Canadian border. In Canada, Quicksilver has more than 300,000 net acres in a coalbed methane field in central Alberta and 130,000 net acres in the Horn River Basin of northeastern British Columbia.
Last December, Quicksilver closed its acquisition and exploration agreement with SWEPI LP, a subsidiary of Royal Dutch Shell plc. Quicksilver now owns a 50% interest in approximately 320,000 net acres in the Sand Wash Basin in Northwest Colorado, which will be jointly developed with SWEPI. The deal also established an area of mutual interest covering in excess of 850,000 acres in the basin. SWEPI paid Quicksilver an equalization payment for 50% of the acreage contributed by Quicksilver in excess of the acreage that SWEPI contributed. Further terms of the transaction were not announced.
The company said it would use proceeds from the transaction to reduce the company's credit facility borrowings and to fund future project development.
Quicksilver's Darden says the company continues to negotiate a potential joint venture in the Horn River Basin in Northeast British Columbia, with the downstream marketing of the gas a top priority. The company plans minimal capital spending in the basin until this joint venture is executed.
The Horn River Basin asset began ramping-up production in mid-December to 100 million cubic feet per day (MMcfd) of raw natural gas, which is being sourced from nine wells. Four wells have been producing for over 18 months, and five wells are being brought online in stages since the d-50 pad was completed in the third quarter of 2012. Net sales volume after treating is expected to be approximately 80 MMcfd at gross production of 100 MMcfd.
On the Barnett Shale transaction, Quicksilver was advised by Jason Nye of OBV Group LLC, Prairie Bayou LLC, Credit Suisse Securities (USA) LLC and JP Morgan.
Quicksilver has US offices in Fort Worth, Texas; Glen Rose, Texas; Craig, Colo.; Steamboat Springs, Colo.; and Cut Bank, Mont. Quicksilver's Canadian subsidiary, Quicksilver Resources Canada Inc., is headquartered in Calgary, Alberta.
Tokyo Gas Co. Ltd., headquartered in Tokyo, is Japan's largest provider of city gas, serving more than 10 million customers, primarily in the Tokyo metropolitan area and surrounding Kanto region.
