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Chevron’s Shale Gas Play
Oil giant Chevron (CVX - Free Analyst Report) has jumped on the domestic shale gas bandwagon, announcing its prospective acquisition of Atlas Energy. Chevron already owns shale gas assets in Poland, Romania, and Canada, and now looks to add Atlas for $3.3 billion in cash, and assume pro-forma net debt of $1.1 billion.
Under the terms of the agreement, Atlas shareholders would receive $38.25 in cash for each share owned, plus units of Atlas Pipeline Holdings, LP, which, on November 8th, had a value of $5.09 per Atlas share.
Chevron is acquiring a company that has one of the premier acreages in the prolific Marcellus shale field, which stretches from New York through Pennsylvania and down into Ohio. Atlas has an estimated nine trillion cubic feet of natural gas resources, including 850 billion cubic feet of reserves, and about 80 million cubic feet of natural gas production per day.
Besides the Marcellus assets, CVX is gaining 623,000 acres of Utica shale and a 49% interest in Laurel Mountain Midstream, LLC, a joint venture which owns 1,000 miles of intrastate and natural gas gathering lines servicing the Marcellus field.
Shale gas is deemed the latest "big thing" in the energy sector. It is relatively clean burning, limits the United States' reliance on foreign energy resources, is much cheaper to extract than it was just three years ago, and is seen as a method of bridging the gap to more environmentally friendly energy alternatives.
This is a smart move by Chevron at an apt moment, and one that will likely pay more than one kind of dividend down the road.
As it stands now, the Dow 30 stock is a high-quality choice for investors seeking 3- to 5-year total return potential.
At the time of this article's writing, the author did not have positions in any of the companies mentioned.