BG Group in alliance with EXCO Resources Inc to develop US shale gas

BG Group PLC (LSE: BG) announced an alliance with EXCO Resources Inc. (NYSE: XCO), under which BG will pay the US oil and natural gas exploration and production company US$1.05 billion in return for a 50 percent interest in 120 000 net acres in east Texas and north Lousiana, and the groups will jointly develop gas shale in the region.

Of the acreage affected by the deal, 84 000 net acres cover the Haynesville shale gas formation, a substantial proportion of which lies within the prolific Harrison County, Texas and DeSoto and Caddo Parishes, Louisiana. EXCO has completed eight horizontal wells in DeSoto Parish with an average initial production rate in excess of 23 million standard cubic feet per day (mmscfd).

The acquisition adds 2.6 trillion standard cubic feet (tcf) to BG Group’s resources, with current net production of 78 mmscfd, anticipated to increase to some 250 mmscfd in 2012, net to BG Group.

The payment comprises US$655 million on completion plus US$400 million to be paid as a carry of 75 percent of EXCO's future costs to develop the Haynesville shale gas.

BG and EXCO will enter into a joint development agreement to co-operate in the further development and production of shale gas in east Texas and north Louisiana.

The alliance also envisages BG acquiring a 50 percent interest in related and complementary EXCO gas-gathering and transportation assets for US$249 million. The assets include the EXCO-owned TALCO and TGG gas-gathering and intrastate pipeline systems which deliver EXCO's and other companies' production to markets in Lousiana and Texas and are connected to major intrastate and interstate gas transmission pipelines serving markets across the Midwest and Eastern US.

BG Group Chief Executive Frank Chapman said: “This alliance brings material new resources and supply to our existing US business at a competitive price and in a prime location at the heart of the world's largest gas market. 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 US gas marketing business.”

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