NEW YORK Chevron Corp (CVX.N) plans to buy U.S. natural gas producer Atlas Energy ATLS.O for $3.2 billion, becoming one of the last big oil companies to jump into the Marcellus shale field.
The field in western Pennsylvania and neighboring states, one of the largest U.S. natural gas finds in decades, has attracted a crush of industry heavyweights betting that the fuel will become a key global energy source in the coming decades.
Chevron's move into the Marcellus follows acquisitions by Exxon Mobil (XOM.N) and Royal Dutch Shell (RDSa.L) earlier this year, and joint venture deals there by Total (TOTF.PA), BP Plc (BP.L) and Statoil (STL.OL).
"(Chevron) doesn't have much of a U.S. presence in shale, and I think it's an important place to be," said Argus Research analyst Phil Weiss. "The price looks reasonable."
Analysts estimated that the deal valued the Marcellus acreage at about $9,000 an acre, below the peak that some of the best properties fetched earlier this year above $14,000.
A steep decline in natural gas prices in recent months, largely because of rising output from Marcellus and other shale fields, has prompted many energy companies to slow their natural gas drilling programs and focus on oil and other liquids production.
With the deal, which must be approved by Atlas shareholders, Chevron would gain access to as much as 9 trillion cubic feet of natural gas in the Marcellus and other shale fields owned by Atlas in the U.S. East and Midwest.
Atlas has about 850 billion cubic feet of proved, or economically viable, natural gas reserves. That is about 3 percent of Chevron's proved gas reserves at the end of 2009.
Chevron, the second-largest U.S. oil and gas company, will pay $43.34 per share, or a 37 percent premium to Atlas' closing price on Monday.
That offer consists of $38.25 per share in cash for each Atlas share, plus a distribution of units in Atlas Pipeline Holdings LP AHD.N worth about $5.09 per share.
Chevron will also assume net debt from Atlas of about $1.1 billion, for a total deal value of $4.3 billion.
Chevron, based in San Ramon, California, recently bought into shale fields in Poland, Romania and Canada, and the latest move will allow it to exploit the dense rock formations that have changed the U.S. energy outlook in recent years.
Energy investment bankers said Chevron has been looking for a toehold in the Marcellus for some time and looked at some of the previous assets that were up for grabs in the region earlier this year.
Energy companies have rushed to tap into shale rock formations in states including Texas, Louisiana and Pennsylvania, using a technique called hydrofracturing, or "fracking," in which water, sand and chemicals are injected at high pressure into the rock to form cracks that allow the gas to be pulled out.
But the rush to produce that gas has created a supply glut, and recently pushed natural gas prices NGc1 to their lowest level in a year, although they have rebounded somewhat in the past two weeks.
Additionally, environmental groups and homeowners in Pennsylvania have criticized fracking as an ecologically dangerous practice that has fouled drinking water supplies.
With the deal, Chevron will take over Atlas's 60 percent stake and serve as the operator of a joint venture in the Marcellus shale with India's Reliance Industries (RELI.BO).
Reliance will continue to fund 75 percent of the operator's drilling costs, up to $1.4 billion.
That part of the deal ensures that Chevron will not have to pour billions of dollars into development of new wells, according to RBC Capital Markets analyst Scott Hanold.
"(Atlas) is being carried by Reliance, and they're cash-flow neutral and growing by 40 to 50 percent," Hanold said.
Atlas's assets in the Appalachian basin include 486,000 net acres of Marcellus Shale; 623,000 net acres of Utica Shale; and a 49 percent interest in Laurel Mountain Midstream LLC, a joint venture with intrastate and natural gas gathering lines in the Marcellus.
Goldman Sachs & Co. served as Chevron's financial adviser in the deal, and Skadden Arps Slate Meagher Flom LLP as legal adviser to Chevron.
Jefferies & Co Inc and Deutsche Bank Securities Inc are acting as financial advisers to Atlas Energy, and Wachtell Lipton Rosen Katz served as its legal adviser.
Shares of Chevron closed 1.5 percent lower at $83.56 on the New York Stock Exchange, while Atlas shares jumped 34 percent to $42.50 on Nasdaq.