Energy Winners: Atlas Soars on $1.7B JV
PITTSBURGH (
) --Shares of
Atlas Energy
(ATLS)
are up more than 22% in the pre-market on Friday morning on news tha India's
Reliance Industries
will invest as much as $1.7 billion in a joint venture with Atlas in the Marcellus share region of the U.S..
Atlas Energy holds 584,000 acres in the Marcellus Shale and has been looking for joint venture partners for up to 50% of the interest.
The joint venture with Reliance Industries covers a 40% stake in Atlas' 300,000 net acres of core Marcellus acreage. The $1.7 billion price tag implies a cost of $14,000 per acre, according to a note released by Stifel Nicolaus on Friday morning.
Sempra Energy
(SRE) - Get Report
is also reportedly among the energy companies vying for a stake in the Atlas Marcellus acreage. Sempra Energy shares were unchanged in pre-market trading on Friday.
Reliance Industries is paying $340 million in upfront cash and $1.36 billion in the form of a drilling carry. The drilling carry is structured so that Reliance pays 75% of ATLS' drilling costs over a 5 ½ year period or until the carry is fulfilled.
The new development plan calls for an acceleration in the drilling program from 30 wells initially in 2010 to the 45 horizontal wells this year, increasing to 108 in 2011 and finally to a 300 per year well drilling pace in 2013 and 2014.
In addition, Reliance was granted the right to acquire additional acreage from ATLS' 280,000
Stifel Nicolaus thinks the deal is a major positive for Atlas, writing on Friday morning, "We believe the JV is overwhelming positive for the name as the company garnered a premium valuation for its Marcellus acreage, received cash upfront that can significantly improve the company's balance sheet and can accelerate development of the play without the commensurate capital outlay. Prior to thetransaction, we believe the market was pricing in roughly $5,400/acre, well below the nominal $14,000/acre transaction price...will likely benefit all Marcellus operators."
Among other natural gas players,
Range Resources
(RRC) - Get Report
was up 7.5% in the pre-market on Friday.
-Reported by Eric Rosenbaum in New York.
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