BG Group completes acquisition of interest in US shale gas alliance
Monday, Aug 17, 2009
BG Group has announced the closing of the upstream and midstream acquisitions as part of the previously announced alliance with EXCO Resources Inc. (NYSE:XCO).

After closing adjustments to make the economic effective date of the upstream acquisition and joint development operations 1 January 2009, consideration for the upstream portion of the alliance is US$1 127.0m. This consists of US$727.0m plus US$400m to be paid as a carry of 75% of EXCO's future costs to develop the Haynesville shale gas. Following similar closing adjustments, the consideration paid for the midstream portion of the alliance is US$269.2m.

Under the terms of the alliance, BG Group has:

- Acquired 50% interest in 120 000 net acres in EXCO's upstream leases in a defined area of East Texas and North Louisiana, which encompasses the Haynesville shale, the prospective Bossier shale and the Cotton Valley tight gas sands formations;

- Added 2.6 trillion standard cubic feet (tcf) to BG Group's net potential resources, with current net production of 90 million standard cubic feet per day (mmscfd), anticipated to increase to some 250 mmscfd in 2012, net to BG Group;

- Acquired a 50% interest in a newly formed company that will hold related and complementary EXCO gas-gathering and transportation assets and entered into agreements to support the joint development and growth of these assets; and

- Entered into a joint development agreement with EXCO to co-operate in the development and production of onshore shale and tight gas resources across 14 counties and parishes in East Texas and North Louisiana.

Both the midstream and upstream transaction were granted regulatory approval by the Federal Trade Commission on 17 July.

BG Group
BG Group plc (LSE: BG.L) is a world leader in natural gas, with a strategy focused on connecting competitively-priced resources to specific, high-value markets. Active in 27 countries on five continents, BG Group has a broad portfolio of exploration and production, Liquefied Natural Gas (LNG), transmission and distribution and power generation business interests. It combines a deep understanding of gas markets with a proven track record in finding and commercialising reserves.

EXCO
EXCO is an oil and natural gas exploration, exploitation, development and production company headquartered in Dallas, Texas with principal operations in east Texas, north Louisiana, Appalachia, west Texas and the mid-continent areas of the US.

Upstream assets
The acreage acquired includes the Oakhill, Holly, Kingston, Caspiana, Danville, Longwood/Waskom, Carthage and Minden fields and excludes EXCO's Vernon, Redlands, Gladewater and Overton fields.

Haynesville shale
The Haynesville shale gas play extends across parts of east Texas and north Louisiana, covering approximately 12 950 square kilometres. EXCO and BG's leasehold portfolio comprises approximately 84 000 net acres that are prospective or producing from the Haynesville. EXCO has drilled and completed 12 Haynesville horizontal wells to date. Eleven of these have been drilled in DeSoto Parish and have achieved an average initial production rate of 24 mmscfd.

Cotton Valley tight gas sands
The Cotton Valley tight gas sands is a mature play covering large portions of east Texas and north Louisiana. Cotton Valley operations are characterised by long-life proved developed reserves and high drilling success rates. The Cotton Valley overlies the Bossier shale at depths of approximately 2 133 metres to 2 743 metres. EXCO's net Cotton Valley acreage is approximately 120 000 leasehold acres. As of December 31 2008, EXCO reported that the Cotton Valley and other shallow rights included approximately 414 billion cubic feet equivalent (bcfe) of net proved reserves and approximately 445 bcfe of net probable and possible reserves, based on year-end SEC pricing.

Bossier shale
The Bossier shale is a gas bearing shale that directly overlies the Haynesville. Recent successful completions in this interval by operators in east Texas and north Louisiana suggest that this gas rich interval may also be commercially viable with improvements in gas price or advances in drilling and completion technology.

Midstream assets
The newly formed midstream company, TGGT Holdings LLC, includes the TALCO and TGG gas-gathering and intrastate pipeline systems. These systems deliver EXCO, BG and third party production to markets in Louisiana and Texas and are connected to major intrastate and interstate gas transmission pipelines serving markets across the Midwest and Eastern US.

TGGT currently has in excess of 700 miles of pipeline and gathering assets in the area and is constructing a 29 mile, 36" diameter header system to transport its Haynesville gas production. Throughput in the midstream business to be contributed to the joint venture is approximately 482 mmscfd of which approximately 51% is EXCO gas and 49% is third party gas.

Shale Gas
Shale gas is natural gas stored in organic rich rocks such as dark-coloured shale, interbedded with layers of shaley siltstone and sandstone. Shale can be the source, reservoir and the seal for the gas. Shale gas plays are classified as a "continuous" type gas accumulations extending throughout large areas, typically with low permeability and perhaps natural fractures.

Shale gas is considered an unconventional source as the gas may be attached to or "adsorbed" onto organic matter. The gas is contained in difficult-to-produce reservoirs that require special horizontal completions and fracture stimulation techniques to achieve economic production. Shale gas may also be contained in thin porous silt, sand and calcite beds interbedded in the shale.

Shale gas has become an increasingly important source of natural gas in the United States over the past decade.


Buck