Enerplus to pay US$406 million for U.S. shale gas properties

By The Canadian Press

CALGARY - Enerplus Resources Fund (TSX: ERF-UN.TO), a Calgary based oil and gas trust, is paying US$406 million to three private natural gas producers to acquire nearly a third of their stake in the Marcellus shale natural gas resource play in the northeastern United States.

Enerplus said late Wednesday it had struck agreements with Chief Oil & Gas LLC and its affiliates Chief Exploration & Development LLC and a limited partnership managed by Tug Hill Inc., to acquire 30 per cent of their interests in the Marcellus play.

Chief currently owns an average 72 per cent working interest in 540,000 gross acres of property, most in Pennsylvania within the heart of the Marcellus shale zone. The company operates the prospect.

When the C$444 million acquisition closes, Enerplus will own an average 21.5 per cent non-operated working interest in the gas fields.

"This transaction is a significant step in high-grading our asset base to provide greater growth potential and further improve our operating performance," Gordon Kerr, the Calgary trust's president and chief executive, said after stock markets closed Wednesday.

"Enerplus has gained an entry point into one of the premier shale gas resource plays in North America, consistent with our strategic direction, with an experienced partner who has a proven track record in shale gas development. With the play in the early stages of development, we believe there is tremendous opportunity for future production, reserves and value growth."

Shale gas is the promising new area of natural gas development in North America, with significant production from the Barnett shale zone in Texas and promising new discoveries from the Horn River play in northeastern British Columbia. Interest in the unconventional fuel has also spread to Europe.

Some analysts expect shale gas to supply as much as half the natural gas production in North America by 2020.

The fuel is produced from shale, or solid rock so production in commercial quantities requires multiple fractures and many small wells to let the gas flow.

Modern technology in hydraulic fracturing to create extensive artificial fractures around well bores has made it easier to extract the gas. Horizontal drilling is often used with shale gas wells.

Of the US$406 million pricetag in Wednesday's deal, Enerplus will pay US$162.4 million in cash when the deal closes in early September and US$243.6 million for half of Chief's future drilling and completion costs in the Marcellus play over the next four years.

The Canadian company said it will also enter into agreements with Chief to partner on any follow-on acquisitions or swaps in the Marcellus play.

In a related move, Enerplus has agreed to issue 9.25 million trust units through a Canadian bought deal financing at C$21.65 each to raise C$200 million to help finance the acquisition.

The Marcellus shale is the largest unconventional natural gas resource play in North America, spanning six states in the northeastern U.S.

Based upon the current development plans, Enerplus would participate in the drilling of about 750 gross wells over the next five years, the producer said. For the rest of this year, Enerplus plans to spend about US$27 million on the acquired interests to drill 15 gross wells including the vendor carry provisions of a joint development agreement.