Blackstone to Buy Shell's 50% Stake in Haynesville for $1.2B

Zacks

The Blackstone Group L.P. (BX) is in discussion with the Royal Dutch Shell Plc (RDS.A) to buy the latter’s 50% stake in the Haynesville Shale located in Louisiana. Blackstone is expected to pay around $1.2 billion for acquiring the gas field.

About Haynesville Shale

Shell owns half of the Haynesville oil field, which covers more than 350,000 acres – extending over large parts of Arkansas, Louisiana and Texas – in a joint venture with the Canadian energy firm Encana Corp. (ECA). Shell entered into a partnership with Encana in 2007 to explore the Haynesville area and capitalize on the available natural-gas formation opportunities.

The partnership was successful in the beginning with large discoveries made in the area in 2008, which propelled the natural-gas prices upward. However, the success was short lived as the project activities undertaken were burdened with heavy costs.

What the Deal Means for Blackstone

Blackstone will be able to spread its wings further in Louisiana if the deal gets finalized. In Feb 2012, Blackstone had invested $2 billion in Cheniere Energy Partners LP (CQP) for the construction of a gas-liquefaction plant in Louisiana for export markets. This is the first facility to get the government’s approval to export from the Gulf Coast.

After the collapse of gas prices in 2012, many private equity firms like Blackstone are coming forward to invest in the stressed gas field assets in a hope to cash in on the optimistic long-term outlook of such investments. Moreover, these firms are betting on innovative technologies to boost the energy sector going forward.

Shell’s Purpose of Divesting the Oil Field

Shell, Europe’s largest oil company, has been keenly divesting its stressed investments under its North America portfolio restructuring plan. Moreover, instead of constructing a new plant in Haynesville to enhance its business there, Shell intends to focus more on exploration activities in liquid-rich shale resources and tight gas acreages.

As divulged by the company, it plans to dispose $2 billion worth of its North American upstream trade on the back of deteriorating gas assets. Earlier this year, Shell entered into an agreement with Sanchez Energy Corp. (SN) to sell operated assets in Eagle Ford in South Texas.

Our Take

Blackstone is making efforts to enter the energy sector when investors are shying away from energy stocks because of dwindling oil demand and overall sluggish economic growth in the U.S. However, given the ever-increasing demand for energy and expected long-term investment benefits, we believe that this deal will work in the company’s favor going forward.

Currently, Blackstone carries a Zacks Rank #2 (Buy).

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