Chevron Corp. (CVX) is doubling down on a big natural-gas bet by
expanding its reach into a large swathe of
Pennsylvania
.
Just three months after completing its acquisition of gas producer Atlas
Energy, Chevron is buying drilling and development rights for another 228,000
acres in the Marcellus shale, a rock formation underlying several states in the
Northeast that has become one of the most prolific sources of natural gas in
the U.S.
While Chevron didn't disclose the price it paid for the additional acreage,
analysts estimate that the San Ramon, Calif.-based company paid more than $1.6
billion, based on the amount of gas reserves involved, which are roughly half
that of the Atlas Energy deal. In that previous transaction, Chevron paid a
little less than $9,000 per acre, according to Argus Research.
Two closely held firms, Chief Oil & Gas and Tug Hill Inc., were the
sellers.
"We are taking this step because the price is good and the assets are very
complementary with the (Atlas) acquisition we made," Gary Luquette,
Chevron's president for North American exploration and production, said in an
interview.
So-called shale gas, which is extracted by fracturing the underground rock and
then pushing water through cracks to release hydrocarbons, has seen a frenzy of
deal making over the past several years. More recently, the world's biggest
energy companies have snapped up assets. Exxon Mobil Corp. (XOM) purchased XTO
Energy for $25 billion in 2010, and BP PLC (BP) and Royal Dutch Shell PLC
(RDSA) have staked out territory in the
U.S.
The rapid emergence of shale gas has sent gas prices plummeting in
North
America
, which currently doesn't have many facilities to export the gas in
liquid form via seaborne shipments. Pressured by prices that average about $4 a
million British thermal units, smaller companies are taking advantage of the
majors' interest and selling to pay down debt and avoid funding expensive
capital expenditures.
For companies like Chevron, low gas prices aren't the only risk. Shale-gas
drilling has come under increased scrutiny amid clashes with environmentalists
and regulators over the chemicals used in the fracturing process, called
"fracking" in industry parlance. Concerns about the safety of
drilling activity were heightened last month by two separate accidents in
Pennsylvania
. A
chemical spill at a Chesapeake Energy Corp. (CHK) natural gas well leaked into
a stream and forced the temporary evacuation of families in the area, and a
blowout at a gas well owned by closely held CEL Properties forced the
evacuation of more than 100 nearby residents.
The purchase of additional acreage shows Chevron's feels
"comfortable" with its ability to meet any new regulations aimed at
governing natural-gas drilling and protecting drinking-water supplies in the
U.S.
,
Luquette said.
"Our company has confidence that we can operate with this new heightened
expectations from the regulator and the public," Luquette said. "Our
internal expectations exceed the regulations of what the state of
Pennsylvania
requires."
Pennsylvania
's
environmental regulator last month ordered 15 water treatment facilities in the
state to comply with tighter regulations and to stop accepting wastewater from
drilling operations.
The deal, which is expected to close before the end of the second quarter, is
part of a strategy implemented by Chevron last year aimed at acquiring large
positions of difficult-to-develop oil-and-gas acreage in early stages of
development. The company intends to bring in the latest technology from the
U.S.
, the
forerunner in shale development, to maximize output.
Over the last year, Chevron has acquired nearly five million net acres of shale
gas assets in the
U.S.
,
Canada
,
Poland
and
Romania
.
The deal announced Wednesday boosts the company's gas resources, a more liberal
indicator of the amount of gas underground than reserves, by 5 trillion cubic
feet, roughly the equivalent of more than three months of
U.S.
consumption.
Amid a looming shortage of skilled labor in the shale sector, Chevron has made
arrangements to retain about 60 employees from Chief Oil & Gas and Tug
Hill.
"It's very important that they feel a sense of belonging, and that they
don't need to worry about whether they have a job or not," said Luquette,
who was flying to
Pennsylvania
this
week to welcome the workers.
Chevron expects natural gas prices to rebound in the second half of the decade
due to rising global demand, he added.
"The
question is not if, but when," Luquette said.