Shale-Drilling Natural Gas Companies Seek Buyers

August 19, 2010

Three privately-owned natural gas companies in the United States have put themselves up for sale recently, in response to a perceived increase of interest in the natural gas potential of shale rock among investors.

The largest company to enter the market is Chief Oil & Gas of Dallas, Texas, which could sell at an estimated $3 billion.  Founded in 1994 by Trevor Rees-Jones, ranked by Forbes as one of the 400 richest people in America, Chief Oil is the most-prevalent driller in the vast area of Marcellus Shale on the East coast.  They are leasing 580,000 acres located in southern New York, Pennsylvania and West Virginia.

Additional companies reportedly up for sale are Talon Oil & Gas LLC, also based in Dallas and operating solely in Texas, as well as Anschutz Exploration of Denver, Colorado.

Anschutz Exploration is estimated to have a price tag near $1 billion. Talon Oil & Gas, with backing from EnCap Investments LP, could fetch between $1 billion and $1.5 billion.

Trevor Rees-Jones sold his company’s assets in the Barnett Shale of north Texas to Devon Energy for about $2.2 billion in 2006.  Chief Oil & Gas used profits from that sale to buy leases in the Marcellus region.

A division of billionaire Philip Anschutz’s Anschutz Corporation, Anschutz Exploration has both exploration and production projects in North Dakota, Montana, Wyoming, New York, Pennsylvania, and Ohio.  Currently, the company as two active drilling operations in the Bakken Shale of North Dakota, with future drilling projects planned in 2010 in all six of the aforementioned states.

EnCap Investments of Texas provided the investment capital for Talon Oil & Gas in 2007.  EnCap Investments has spent $551 million in acquiring shale-drilling assets in three areas of Texas: the panhandle, east Texas, and the Barnett shale of north Texas.

It is generally acknowledged that all three companies have recently put themselves on the market in an effort to be sold before the federal government’s planned increase in the capital-gains tax rate in 2011.

Recent advances in technology have made drilling for oil in shale much more profitable, leading to more interest from investors. Additionally, unconventional gas production, predominantly coming from shale, is estimated to rise from 42% of total U.S. gas production in 2007 to 64% in 2020.  Bankers and oil industry analysts expect the buying trend to continue, with more companies putting themselves on the market.

Although gas prices have currently been lower, Marcellus shale land leases are still lower-priced, which provides an incentive for natural gas investors in the region.

Shale gas companies are generally valued based upon the acreage of land for which they have leases.  Current prices range from $1,000 to $14,000 per acre, with that large fluctuation based upon the quality of the land.  With that consideration, Chief Oil could be offered much less than $3 billion due to their lower quality shale leases in Pennsylvania.