BUSINESSJUNE 30, 2009, 9:36 A.M. ET
U.K.'s BG Enters U.S. Shale Sector
By BENOIT FAUCON

LONDON -- BG Group PLC on Tuesday became the latest European energy company to buy into a U.S. shale-rock natural-gas field, agreeing to pay $1.06 billion for a stake in EXCO Resources Inc.'s acreage.

The deal underscores how, despite lower oil and gas prices, companies still view U.S. shale -- hydrocarbon-rich rock formations -- as economically attractive.

The U.K.-based natural-gas company said it would acquire a 50% interest in 120,000 net acres in Texas and Louisiana, adding 2.6 trillion standard cubic feet to its resources. On top of the $1.06 billion deal, BG said, EXCO had agreed to negotiate selling a 50% interest in related gas-gathering and distribution assets for $249 million.

The properties in Texas and Louisiana include a slice of the Haynesville shale project, which stretched across the two states. The Haynesville project as a whole could hold about 200 trillion cubic feet of natural gas. That's the equivalent of 33 billion barrels of oil, or 18 years' worth of current U.S. oil production.

The acquired properties' current net production of 78 million standard cubic feet a day is expected to increase to about 250 million standard cubic feet a day by 2012, BG said. The company said it would pay $655 million upfront, with the remainder used to cover future costs to develop the Haynesville shale gas together with EXCO.

Oil-producing countries have warned that lower crude prices, which are still far from last year's peak of $147 a barrel, could make unconventional resources such as oil shale uneconomic. Yet, BG's deal signals that shale basins remain financially attractive thanks to new technologies. The U.S. Department of Energy said in an April report that, by 2011, 50% to 60% of U.S. gas-reserves growth will come from unconventional shale reservoirs.

BG is joining a stream of international oil companies that have invested in U.S. shale reservoirs in recent months. In May, Italy's Eni SpA entered a $280 million alliance with independent producer Quicksilver Resources Inc. to develop acreage in the Barnett Shale. The North Texas gas field has contributed significantly to the recent boom in domestic U.S. gas production.

Last year, the U.K.'s BP PLC acquired a 25% interest in Chesapeake Energy Corp.'s Arkansas shale assets for $1.9 billion. Anglo-Dutch oil major Royal Dutch Shell PLC also continues working on Colorado oil shale, one of its biggest research and development projects to date.

The U.S. shale deal is the latest for BG, which launched a string of large acquisition efforts last year after originally focusing on organic growth. As oil prices have risen from a low of about $32 a barrel in December amid growing hopes of economic recovery, oil companies are trying to secure bargains, from Iraqi Kurdistan to Africa, before asset prices rise again.

"BG has a fantastic record of capital investment over the long term and I suspect this will go down as another great deal," said Malcolm Graham-Wood, a director at U.K. broker HansonWesthouse.

Write to Benoit Faucon at benoit.faucon@dowjones.com