Although oil and natural gas prices have dropped this summer, unconventional A&D activity remains strong. The normally quiet and reserved Hess Corporation announced two emphatic transactions in the newest emerging unconventional area…the Utica Shale.
The first deal, announced on September 7, was a 50/50 joint venture with Consol Energy to develop the Utica Shale in eastern Ohio for $593 million. Hess will also pay $59 million at closing and 50% of Consol’s working interest obligations (up to $534 million) to acquire ~ 100,000 net acres. Consol says the the deal is valued at $6,000 per acre. Consol purchased Dominion Resources last year and 120,000 acres of this transaction were acquired in the Dominion deal.
Both Consol and Chesapeake, the biggest leaseholder in the Utica at 1.25 million acres, have described the Utica Shale as being analogous to the Eagle Ford play, with three separate windows: dry, wet, and oil. Chesapeake also believes that the Utica Shale will be economically superior to the Eagle Ford and that CHK’s current lease position in the play might be equal to its current market cap.
The second deal, announced the day after Consol, was the acquisition of Marquette Exploration for $750 million (~8,800 per acre). This deal gives Hess an additional 85,000 net acres and 100% working interest in the Utica Shale, with acreage in Jefferson, Harrison, and Belmont counties. This acreage should match up nicely with the Consol acreage. Hess will be the operator for the Consol acreage in Harrison, Jefferson, Belmont, and Guernsey counties, while Consol will retain operatorship in all other counties.
In the past 365 days, Marquette has permitted 10 wells, all in Jefferson or Belmont counties. All 10 permits are targeting the Marcellus or Utica formations, with 3 of the permits being horizontal wells (in green on the map below). CHK has two producing horizontal Utica Shale wells in Carroll county, just north of the Hess position. Unfortunately, production data in Ohio is reported on a yearly basis, so until we get access to real production data, we’ll just have to go by what the operators tell us about the area.
These two recent transactions by Hess are just the latest in a series of onshore US unconventional transactions by the company. The recent acquisitions represent a substantial turnaround for Hess, who spent most of the 2000’s divesting itself of US onshore assets while changing focus to their global assets:
-In 2001, Hess paid $750 million for the Gulf of Mexico Shelf operations and onshore Louisiana E&P assets of LLOG Exploration Company only to sell most of them by 2006.
-In 2005, Hess sold certain properties in the Permian Basin and New Mexico to Apache
-Side note 1: since taking over, Apaches oil production in some of the fields is 30% higher than the last levels by Hess, according to HPDI and DI production data…but that’s a blog for another day
-Side note 2: some of the acreage sold to Apache sits near some of the emerging West Texas unconventional plays, specifically the Wolfberry…but that’s a blog for another day
-Side note 3: as part of this deal, Hess also paid $413 million for a West Med Block 1, offshore Egypt. In 2010, Hess had a write-off of $347 million for West Med Block 1, offshore Egypt…but that’s a blog for another day.
Those two transactions left only Seminole Field in the Permian Basin and the Bakken assets as the only notable US onshore production for Hess. Since those divestitures, however, Hess has been very active in the unconventional A&D.
-October 2009: Hess announces 50/50 joint venture with Newfield to develop 140,000 gross acres in the Marcellus. Financial terms were not released.
-July 2010: Hess agrees to purchase American Oil & Gas for $445 million, which included about 85,000 net acres in the Bakken
-November 2010: Hess acquires additional 167,000 net acres in the Bakken from TRZ Energy for $1.05 billion.
-August 2011: Everyone had known Hess was in the Eagle Ford, but ZaZa Energy officially announces their joint venture with Hess, that included over 100,000 net acres to Hess.
-September 2011: The Consol and Marquette deals are announced and add 185,000 net acres to the Hess unconventiotnal portfolio.
-Although it’s not onshore US unconventional, it’s also worth noting that Hess has an agreement with PetroChina to develop the Daqing oil shales in China and an agreement with Toreador/ZaZa to develop acreage in the Paris Basin in France.
Those numbers add up to several billion dollars and over 600,000 net additional unconventional acres in the US. When the industry talks about EOG, Chesapeake, XTO, and Petrohawk as having top unconventional portfolios, we need to add Hess to the list. The transactions by Hess in the past 2 years have made Hess a major player for years to come. After leaving the onshore US in the last decade, Hess has come back in a big way.
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