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Chevron pays cheaply for prime Marcellus access

Chevron has entered the US unconventional-gas business with a $4.3bn deal to buy Atlas Energy, giving it a position in the Marcellus Shale and bringing it into partnership with India’s Reliance Industries

CHEVRON'S vice-chairman, George Kirkland, said the company was acquiring “one of the premier acreage positions in the Marcellus”, which lies close to the large gas markets of the eastern seaboard.

Although Chevron will pay a hefty 37% premium to Atlas’s shareholders, analysts praised the deal, saying Chevron had gained access to a growing resource in one of the world’s most prospective gas developments for a sum that will do little to trouble its balance sheet.

The Marcellus’s total reserves could amount to almost 500 trillion cubic feet (cf), which would make it the largest gasfield outside of the Middle East. Until now, Chevron has targeted international unconventional-gas assets while ignoring the US, where Henry Hub prices remain historically low.

The California-based major will pay $3.2bn in cash for Atlas, with an additional $1.1bn to cover the company’s debts. The transaction represents a 37% premium on the pre-deal share price.

On completion of the deal, Chevron will gain Atlas’s estimated 9 trillion cf of resources, which are spread across 486,000 acres in the Marcellus and include proved reserves of around 0.85 trillion and 80m cf/d of production. The deal also takes Chevron into partnership with Reliance Industries. In April, the Indian firm signed a joint-venture agreement with Atlas, giving it a 40% stake in its Marcellus developments. Reliance agreed to fund 75% of the drilling costs, for around $1.4bn.

Analysts said Chevron’s deal to buy Atlas outright – instead of agreeing a joint venture – confirmed the supermajor’s strategy to take a more active role in the US’ unconventional-gas business, a sector it initially ignored.

ExxonMobil’s $41bn acquisition of XTO Energy last year launched a new wave of mergers and acquisitions activity involving the majors, and a handful of national oil companies, in the US shale-gas sector. Shell, Total, and BP have also secured access to prime acreage.

Valued at just 2.5% of Chevron’s market capitalisation, the Atlas deal looks good business for the major – and suggests patience has paid off with cheaper access to prime shale real estate. ExxonMobil’s XTO acquisition, by contrast, came in at 7% of the company’s valuation and left many shareholders questioning its judgement during a bearish period for US natural gas prices.


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