The Norwegians Are Coming

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Includes: ATLS, CHK, D, EQNR, NFG, QRCP, XCO
by: Prudent Speculations

Earlier this week Chesapeake Energy (NYSE:CHK) announced that the company was proceeding with the sale of a 32.5% interest in its Marcellus Shale development to StatoilHydro (STO), the Norwegian oil giant.  In return for its new interest in one of North America’s more interesting shale plays, StatoilHydro is paying $1.25B plus the guarantee that it will foot 75% of the expected drilling costs through 2012 for an additional $2.13B.  Another Norwegian company, Norse Energy has already built up a sizeable acreage position in the Marcellus Shale totaling somewhere around 175,000 acres. 

Given the interconnectedness of Norway it would not surprise me at all if the executives at Norse Energy and StatoilHydro had at the very least talked over the opportunities that the Marcellus Shale offers to natural gas prospectors.  Nevertheless, the emergence of StatoilHydro as a passive foreign partner should serve as a reassurance to domestic gas produces in search of cash as the Norwegian giant is more likely than not only the beginning of wave of large foreign multinationals looking to diversify their production base via the acquisition of U.S. oil and natural gas producers in relatively low cost venues. 

The purchase price Chesapeake received from the sale of this portion of its interests in the region amounted to a purchase price of nearly $5,800 an acre.  This figure approaches the $6,000 an acre that some analysts had valued land in the Marcellus Shale, prior to the collapse of the credit markets.  The deal is also significant in that it is the first large sale since July, when Dominion Resources (NYSE:D) sold 205,000 acres to Antero Resources for $552 million or $2,600 an acre with Dominion reserving a future royalty rate of 7.5%.    

Such a sale is good news for those companies looking to reduce their own leverage through asset sales.  While still financially sound on a cash flow basis, countless U.S. natural gas companies have announced their intention to reduce their debt loads through asset sales as the country heads into an uncertain economic environment.  Companies such as Quest Resources (QRCP), National Fuel Gas (NYSE:NFG), Atlas Energy Resources (ATN) and EXCO Resources (NYSE:XCO) appear to be especially well positioned to benefit from per acre prices that are above what should be expected given the freeze in the credit markets. 

In partnering with foreign investors in joint ventures, these companies will be able to use the proceeds from the sale of a portion of their interests in the Marcellus Shale to not only pay down debt but to also buy back their own stock, which in nearly every case is trading at levels that would have been ridiculous only months ago.  

Disclosure: Long QRCP, ATN, XCO