BG pays $1.3 bln for U.S. shale gas JV with Exco

By Tom Bergin

LONDON (Reuters) - BG Group (BG.L) said it would pay Dallas-based Exco Resources Inc (XCO.N) $1.3 billion for an interest in shale gas resources, as oil and gas firms continue to snap up assets before an economic recovery drives prices higher.

The companies said in separate statements on Tuesday that each would own 50 percent of a venture to which EXCO is contributing 120,000 acres of land in the Haynesville shale gas area in Texas and Louisiana, and associated gas infrastructure.

The deal -- the latest in a flurry of mergers and acquisitions in the sector in the past month -- represents the British gas producer's entry into the shale gas business, until recently one of the hottest targets for U.S. oil and gas investment.

Production of gas from shale formations, a more complex operation than producing from simple gas reservoirs, has jumped in recent years due to U.S. gas prices soaring on the back of record crude prices.

"This is a very exciting move and gets the company involved in a significant market at the bottom of the cycle," Peter Hitchens, oil analyst at Panmure, said in a research note.

BG shares were trading up 0.29 percent at 0859 GMT (4:59 a.m. EDT), compared to a 0.75 percent rise in the DJ Stoxx European oil and gas sector index. .SXEP

BG is following a recent trend of strong oil and gas companies buying reserves before the doubling of oil prices from a low of around $35/barrel earlier this year is converted into a similar increase in the price of oil and gas fields.

The acquisition is also in line with BG's strategy of building a global gas production and distribution network, around which it can arbitrage gas between markets with different prices, analysts at Morgan Stanley said in a research note.

BG will likely use gas the joint venture produces to meet its U.S. supply obligations, Oswald Clint, oil analyst at Bernstein, said.

It would allow the company to divert typically more expensive liquefied natural gas, with which it planned to meet its U.S. obligations, to more lucrative markets.

Weak demand for gas, due to the economic crisis, and the collapse in oil prices since last July have hit gas prices, and in turn, the shale gas business, hard.

EXCO was forced to slash its 2009 investment budget by 40 percent due to lower gas prices. The company ran up a $1 billion loss in the first quarter and has been selling assets.

U.S. onshore oilfield developer Encore Acquisition Co (EAC.N) said on Monday that it would acquire oil and gas properties in the mid-continent and East Texas from EXCO for $375 million in cash.

(Editing by Dan Lalor, Hans Peters and Karen Foster)