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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tc, i understand your mark to market comment. from the producer's perspective, its always been difficult to sell forward large and long term positions. it used to be such that there were plenty of banks willing to do large, long term commodity swaps, but today many of them are exiting the business.

i'm retired, so i'm not really in the swing of things. but, its my sense that when/wherever there's a demand for something, somehow, someway the marketplace will oblige.

you're right about middle eastern gas cost. that said, i put my faith in the future of the us lng export business because most all of it is financed. the lenders expect to get their money back, so they pretty much don't fund anything until they're sure they'll get paid back w/interest.

jim

Jim, a problem is that the "market place" is being told by the Federal Reserve not to do something and anybody big enough to make a difference in the commodity market falls under the Feds review.

Almost no US LNG facility is really financed because other Cheniere's Sabine Pass, no other facility has broken ground yet.  The cost of the planning/application process is petty cash financing, until they break ground they don't need to use the $10B.  I am sure you have seen fancy developer's plans before the planning commission and then after approval the development never happen because now the actual spending of big bucks is required and the financing disappears.

TC 

I know Shale NG is expensive, I don't think I have every said otherwise. The point I was making is that there are assumptions that Shale production around the world will take off like it did in the US. Remember it wasn't to long ago that US was expecting to become a NG importer (Chenier plant was actually suppose to be a LNG import facility). Then we had the big shale development and we are now we are on the other side of the NG market. 

tc, 

i agree as to the fed. one of the largest ever transfers of wealt , from savers to banks, via absurdly low interest rates. ( note: its also possible that the fed is holding rates down to minimize interest payments to china)

my point on lng facilities is that to some degree or another, all will be financed with borrowed money. now, xom, can finance theirs by scrounging up the change they find under sofa cushions, but most of the others will be borrowing money, including my ex employer dominion resources.

jim

 

i think this pretty much sums up swepi's sale of haynesville interests:

http://fuelfix.com/blog/2014/08/14/deals-brings-in-2-1-billion-addi...

That does add some clarity to the deal, jim.  Blackstone/Vine will need someone to operate their 193 HA wells.  And considering the number of producing wells to net acreage I'd say Blackstone doesn't need to drill any new wells for sometime if they would care to sit on them.

skip, good point inre: who'll they get to operate the haynesville wells.

imo, the real eyeopener here is the price ultra paid for shell's pinedale interests, close to a billion in cash and all of their good utica and marcellus acreage. upl sure doesn't have that much cash on hand.

Is it likely that there will be more activity in the units that are part of the sale? Is Vine more likely to develop the units out more aggressively than RDS did? Is Blackstone's track record to  move more quickly? Is the sluggish development due to NG price, I am guessing it is? Is there any advantage to the landowner if the lease is with Vine vs. RDS? It appears Vine is run by former Encana employees, would this mean Encana will retain it's stake or sell theirs to Vine also?

Note: Received a letter today to assign the lease to Vine.

As to more drilling, it's hard to say.  I would have guessed not.  That Blackstone would sit on the SWEPI wells, having Vine operate them, and hold in anticipation of improved NG prices in the near future.  Since a new well permit has shown up for SWEPI since the sale was announced that may indicate that Vine will continue some level of drilling new wells.  If there are other Encana hires who are experienced in drilling wells there may be a plan to maintain cash flow by occasionally drilling a new well.  The terms of your lease are equally binding on Blackstone/Vine as they were with SWEPI.  If some additional new well permits show up soon that could indicate that there will be at least one rig running in the LA Haynesville with Vine as operator.  If that's the case expect that rig to be employed in pad drilling multiple alternate unit HC (Horizontal Cross Unit) wells.

I received a shut in notice. Is the shut in notice because Shell must stop the well flow in order for there to be a hard break for transfer of ownership or does this mean they are simply shutting the well for good and Vine will not open it back up? The well was a Shell/EnCana joint venture, Shell sold to Vine.

I also found it interesting Shell sent a check for the shut in for what I think is the full number of family owned acres, not just my portion. If that's the case, is this normal, why wouldn't they divide the shut in amount between all of the owners as they have for monthly royalty checks? I am assuming I can send the check back to them and ask them to send each owner their share?

Shell sold to Blackstone.  Vine is the operating company formed by Blackstone to manage the existing wells and to hopefully drill many more.  I've never seen a change of ownership that required a well to be shut in.  I'm not sure but I suspect from description that the shut in payment is a mistake.  Call or email Encana customer service.

Spoke to Shell this morning. The person said its just a coincidence it is being shut in now. That they have all intention of bringing it back online within 6 months. The reason for the shut in was it was not producing at an acceptable level and they are 'performing operations' to bring it back online. Something about mechanical problems in the hole? They also confirmed it was not a mistake and that each owner directly received compensation.

So I guess we just wait now.

I find it odd that they would shut it in if they thought it would be out of service for 6 months or less considering they had to pay us for the shut in. Think they were giving me a line by telling me it would be back up in 6 months? What would be the motive to tell me that if the intention was not to get this thing back up and running? 

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