XCO will rally hard today, deal worth half its current mkt cap
BG, Exco reach $1.3 billion deal on shale gasExplore related topicsUK BG Group plc Exco Resources Inc Story Quotes Comments (1) NEW Alert Email Print Share
By Steve Goldstein, MarketWatch
LONDON (MarketWatch) -- BG Group on Tuesday said it's paying $1.3 billion to Exco Resources as the U.K. natural-gas producer teams up with the Dallas explorer to develop U.S. shale gas.
BG Group /quotes/comstock/23s!a:bg. (UK:BG. 1,036, -1.00, -0.10%) said it will be getting a 50% interest in 120,000 net acres in East Texas and North Louisiana, much of what is in the "prolific" areas for the resource.
BG also is in talks to get a 50% interest in gas-gathering and transportation assets from Exco /quotes/comstock/13*!xco/quotes/nls/xco (XCO 12.90, +1.78, +16.01%) .
Shale gas is natural gas stored in organic rich rocks that is difficult to produce.
The two firms say they will cooperate on further exploration and appraisal. The deal will add 2.6 trillion cubic feet of natural gas to BG's reserves. Exco estimates the current acreage potential has potential reserves between 4 and 6 trillion cubic feet.
"This alliance brings material new resources and supply to our existing U.S. business at a competitive price and in a prime location at the heart of the world's largest gas market," said BG CEO Frank Chapman.
"These domestic exploration and production activities yield strong synergies with the group's established LNG import and 3.5 billion standard cubic feet per day U.S. gas marketing business."
Exco CEO Douglas Miller said the deal will bring BG's technical expertise and a valuable gas marketer.
Peter Hitchens, an analyst at Panmure Gordon, noted that BG is paying 40 cents per 1,000 cubic feet, or $2.40 a barrel of oil equivalent.
"The group is taking advantage of the very depressed gas price to acquire reserves cheaply," he said in a note to investors.
BG Group shares slipped 0.3% in London action. Exco shares rallied nearly 8% in pre-market trade, though the stock is down close to 70% over the last 12 months.
Goldman Sachs advised Exco, while Deutsche Bank advised BG.
Steve Goldstein is MarketWatch's London bureau chief.