Blackstone Nears Deal For Shell's 50% Haynesville Shale Stake -- Sources
Deal Could Value Shell's Interest in Formation at More Than $1 Billion
Blackstone Group BX +1.07% LP is nearing a deal to acquire Royal Dutch Shell RDSA.LN -0.98% 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 were ongoing and terms remained 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.
Private-equity firms, which for years have counted energy as one of their most lucrative investing sectors, have been actively snapping up oil-and-gas reserves in recent months. In May, TPG bought Encana Corp.'s ECA.T +2.37% Wyoming natural-gas properties. In June, Apollo Global Management APO -1.01% LLC said it would buy Encana's natural-gas properties in Alberta.
The purchases from oil companies come as they have honed their focus and as low natural gas prices have made it difficult to justify drilling in some regions.
Shell Chief Executive Ben van Beurden said in March that the Dutch-Anglo oil major was seeking to reduce its exposure to North American shale as "we strive to improve our financial performance." It has since been making deals to reshape its U.S. shale portfolio. In May, Shell agreed to sell a big south Texas shale field to Sanchez Energy Corp. SN +2.13%
Shell arrived early to Haynesville, striking an agreement to explore the area with Encana in 2007.
The combination of horizontal drilling done miles beneath the surface with a rock-cracking process called hydraulic fracturing enabled oil-and-gas producers to unleash vast amounts of natural gas from Haynesville, beginning in mid-2008.
Output from shale broadly helped flood the domestic market for natural gas, reversing years of short supply and depressed prices. Natural gas for September delivery closed up 2.3%, or 9 cents, at $3.96 per million British thermal units Friday on New York Mercantile Exchange. That is well off the $13/MMBtu range where U.S. gas traded around the time of the first big Haynesville discoveries in 2008.
Drilling activity plummeted in Haynesville along with the prices. As of Friday there were 44 rigs drilling in the basin, down from as many as 160 in 2011, according to oil-field-services firm Baker Hughes Inc. BHI +1.09%
Another big Blackstone investment in Louisiana could help create demand for gas in the region. The New York-based firm in 2012 invested $2 billion in Cheniere Energy Partners CQP +1.70% LP, which is building what is expected to become the first facility to export gas from the continental U.S. The cash infusion helped Cheniere begin construction on the facility, which was the first to receive government approval to export gas from the Gulf Coast.
The facility, which is designed to chill gas to minus-256-degrees Fahrenheit so that it becomes a shippable liquid, is expect to make its first deliveries late next year. Natural gas trades in international markets, such as Europe and Asia, at a significant premium to U.S. prices.
Shell once planned a multibillion-dollar plant in Louisiana to convert natural gas to diesel fuel. But Shell shelved those plans late last year amid uncertainty over rising project costs and commodity prices.