Blackstone in Discussion to Buy Shell's Haynesville JV Position

Blackstone Group LP, the private-equity firm led by billionaire Stephen Schwarzman, is in advanced talks to acquire Royal Dutch Shell Plc (RDSA)’s 50 percent stake in a shale-gas field in Louisiana, according to a person familiar with the matter.

Blackstone would pay about $1.2 billion for Shell’s half-interest in the Haynesville formation, the person said. The deal would follow a parade of gas-acreage sales by oil companies including Shell and Apache Corp. (APA) to investors as they trim holdings amassed when natural-gas prices were higher.

The New York-based PE firm would buy the stake in a joint venture that owns more than 350,000 acres in the Haynesville Shale formation in northern Louisiana and East Texas, according to the Wall Street Journal, which first reported the talks earlier today. Shell, based in The Hague, struck a deal to explore the field in 2007 in partnership with Encana Corp., the newspaper reported.

Christine Anderson, a spokeswoman for Blackstone, and Destin Singleton, a spokeswoman for Shell, declined to comment. Blackstone is the world’s largest manager of alternative assets including private-equity, hedge funds and real estate.

Blackstone, which has bankrolled refineries and off-shore drilling projects, avoided investing in gas late last decade, when prices rose to more $13 per million British thermal units. It has recently gathered positions in the Marcellus gas formation in Pennsylvania, Bloomberg News reported in March. Gas futures recently traded for about $4 per million Btu, according to data compiled by Bloomberg.

Blackstone’s holdings include a plant in Louisiana that it’s building with Cheniere Energy Inc. (LNG), through a venture called Cheniere Energy Partners LP (CQP), to export liquefied natural gas. The facility, the first to win government approval to export from the Gulf Coast, is scheduled to come on line in 2016.

To contact the reporter on this story: David Carey in New York at dcarey13@bloomberg.net

To contact the editors responsible for this story: Kevin Miller at kmiller@bloomberg.net Sylvia Wier

http://www.bloomberg.com/news/2014-08-10/blackstone-said-in-talks-t...

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WSJ version of that item:

Blackstone Group BX +1.07% LP is nearing a deal to acquire Royal Dutch Shell RDSA.LN +0.40% PLC's half-stake in a huge Louisiana gas field, according to people familiar with the matter, as private-equity firms continue to gobble up oil companies' shale castoffs.

The deal could value Shell's stake in the asset at more than $1 billion, the people said, though they cautioned that negotiations continue and terms remain fluid.

The deal includes Shell's half-stake in a joint venture that owns more than 350,000 acres within the Haynesville Shale, a gas-filled rock formation buried deep in northern Louisiana and east Texas.

Reuters:

Aug 10 (Reuters) - Blackstone Group LP is close to a deal to buy a 50 percent stake worth $1.2 billion in a gas field in Louisiana currently owned by Royal Dutch Shell , according to a person familiar with the matter.

The shale assets lie in the Haynesville Shale in Louisiana and Texas. Shale gas, or natural gas trapped in layered rock, has revitalized the U.S. gas market by providing an abundant new supply source.

The source asked not to be identified because the discussions are private.

The Wall Street Journal was first to report the news on Sunday. A representative for Blackstone declined to comment. A representative for Shell said it does not comment on speculation or rumor.

Shell entered the region in 2007 through a joint venture with Canadian energy company Encana, the newspaper reported.

A 50% stake in 350,000 acres @ $1.2B would equate to an acquisition price of ~$6850/acre.  For those lessors with a quarter royalty that would be ~$3425/royalty acre for comparison purposes.  Location is key to value so $3425/royalty acre would be an average across the entire 350,000 acre leasehold.

I would assume that Blackstone is getting the 50% WI in all of the wells, so they are getting much more than just 350,000 acres.  Somehow that figures into the purchase price, and likely reduces the $34425/royalty acre figure.

Yep however along with the WI comes the obligation to pay their proportional share of well costs.  Blackstone has plenty cash to do that. SWEPI production has declined rapidly since 2011 when they slowed their LA HA drilling.  SWEPI permitted 15 wells in 2012 and the permits expired on 9.  In 2013 they permitted 9 and completed 5 wells.  I imagine they have been looking to unload their interest for some time and Blackstone waited to pull the trigger when they deemed the price to be right.  Blackstone doesn't drill wells.  Unless they wish to set on a bunch of depleting wells they will need to bring in an operator.

One of those wells were on my land. They prepared the well site, brought in tanks & had the spud site set, then pulled out & let the lease expire. That was spring 2012.

Jay, do you suspect that Blackstone will fund an increase in drilling by ECA?

Then what operator would make sense to partner with Blackstone?  XTO seems to have the HA pretty well wrapped up in the better areas of E TX.  BHP and CHK are the most active major HA players currently in LA with EXCO also being a possibility.  Anadarko appears to have some interest though much less HA experience in LA.

My guess is none of the above. BHP, ECA and CHK are likely sellers of dry gas basins and XCO doesn't have the balance sheet to do anything. XCO might do a development deal with a financial partner because XCO is a very good development company of proven acreage. XCO is not an exploration company; it basically got all the Haynesville and Bossier as a free gift of its Cotton Vally acquisitions. 

Blackstone doesn't need a partner in the JV sense.  They need an operator that knows the shale.  There are contract operators but few have the experience with the current iteration of Haynesville horizontal HC wells.  When I say "partner with" I'm only referring to field operations.  Blackstone doesn't need anyone to bring capital to the table.  They do need an operator that knows how to drill horizontal Cross Unit Lateral Haynesville Shale wells.

I agree with you. I just don't think XTO(Exxon) needs a capital partner, nor do I think BHP, ECA and CHK will remain long term in the Haynesville. XCO would be a good operator partner.

BHP has actually been moving very aggressively and strategically with their Haynesville assets in the last year.  They don't make any corporate announcements so their HA operations tend to fly under the radar.  I expect they will operate for many years to come.  CHK is also showing signs of a concerted long term Haynesville strategy.  Then again CHK and BHP predecessor Petrohawk have some of the best rock on the LA side of the play.  Yes, I agree XCO would be a good fit.

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