Royal Dutch Shell buys Marshall gas driller East Resources Inc. for $4.7B

| Saturday, May 29, 2010

Independent natural gas driller East Resources Inc. of Marshall said Friday it is being acquired by multinational oil giant Royal Dutch Shell plc in a $4.7 billion cash deal — the latest example of an oil giant buying its way into the natural gas boom in Pennsylvania and other states.

In other big deals recently, Atlas Energy Inc. of Moon signed a $1.7 billion joint venture in April with Reliance Industries Ltd., India's largest private company to develop natural gas properties. In December, Exxon Mobil Corp. announced it was acquiring XTO Energy Inc. and its extensive natural gas assets nationwide in a $41 billion deal.

East Resources controls about 650,000 acres of Marcellus Shale property in Northcentral Pennsylvania, Lawrence and Butler counties, in West Virginia and New York. Combined with holdings in Colorado, Wyoming and Utah, East Resources controls about 1.2 million acres. It owns a small West Virginia natural gas utility.

"This deal kind of validates the Marcellus Shale play, from a supernational company point of view," said Andrew Bradford, manager of energy market analytics for Bentek Energy LLC of Evergreen, Colo. "Look at the Exxon-XTO deal — XTO has substantial Marcellus holdings, too."

East Resources has drilled thousands of natural gas wells, and a "few hundred" in the Marcellus region, said spokesman Steve Rhoads. Plans are to drill between 150 and 200 Marcellus wells in Pennsylvania during 2010.

The Marcellus is a level of shale deep under about 65,000 square miles of territory in portions of Pennsylvania, West Virginia, Ohio, New York and Virginia. Latest estimates indicate it may hold enough natural gas to meet the country's needs for more than a decade.

"The sale of the company to Shell will ensure that the capital needed to develop East's significant Marcellus Shale holdings will be available," said East Resources CEO Terrence M. Pegula, in a statement. "Shell's entry into the region should benefit Pennsylvania, West Virginia and New York through significant new capital investment, new jobs and new business opportunities."

Pegula, a native of Carbondale, Lackawanna County, was traveling and couldn't be reached for further comment. East Resources sellers include company executives, the investment firm Kohlberg Kravis Roberts & Co., and investment adviser Jefferies & Co.

Pegula founded East Resources in 1983. Less than a year ago, East received a $350 million investment from private equity firm Kohlberg Kravis Roberts for what's been described as a "substantial" stake in the company.

"There's no questions the big energy boys want to tap into unconventional natural gas plays," said Kent Moors, director of Duquesne University's Energy Policy Research Group. "There are two ways to get into the Marcellus: set up your own operation, or buy into a company that has a regional presence and the expertise."

Moors added this won't be the last major Marcellus deal, that a number of such conversations are ongoing.

East Resources' headquarters is in the Marshall portion of the RIDC Thorn Hill Industrial Park, with a small office in Taylorstown, Washington County, and other offices in McKean and Tioga counties, Rhoads said.

"We employ about 70 at headquarters, seven at Taylorstown, 150 statewide and 300 companywide, and all will be retained by Shell," Rhoads said.

"East Resources' management has built an excellent organization which we are pleased to have as we enter the northeast U.S. and specifically the Marcellus Shale play," said Shell Oil Co. President Marvin Odum, in a statement. Shell Oil Co. is Royal Dutch Shell's U.S. unit.

"Deals like this show there are great things in store for Pennsylvania as these giant multinationals make huge investments," said Kathryn Klaber, president of the trade group Marcellus Shale Coalition, of Cecil, Westmoreland County.

Additional Information:

Major deals

The potential of the Marcellus Shale natural gas formation is enticing national and international companies to buy into the action. Here are some recent deals.

• Royal Dutch Shell plc on Friday agreed to acquire Marshall-based East Resources Inc. for $4.7 billion.

• India's largest private company, Reliance Industries Ltd., signed a joint venture deal in April with Atlas Energy Inc. of Moon worth $1.7 billion.

• Japan's Mitsui & Co. in February signed a $1.4 billion deal to acquire a 32.5 percent interest in Anadarko Petroleum Corp.'s Marcellus Shale holdings, located primarily in Northcentral Pennsylvania.

• Exxon Mobil Corp. in December agreed to acquire Houston-based XTO Energy Inc. for $41 billion. XTO's extensive holdings nationwide include about 280,000 acres in Pennsylvania.

• Norwegian energy giant StatoilHydro agreed in November 2008 to acquire for $3.4 billion a 32.5 percent interest in Chesapeake Energy Corp.'s acreage in Pennsylvania, Ohio, West Virginia and New York.

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