Hess Sells Utica Shale Assets

HOUSTON (The Deal) -- New York oil and gas explorer Hess (HES) said Wednesday it agreed to sell 74,000 acres of its dry natural gas properties in Ohio's Utica Shale for $924 million.

It didn't disclose the name of the buyer, but rumors are swirling that American Energy Partners -- led by former Chesapeake Energy (CHK) CEO Aubrey McClendon -- bought the properties.

In October American Energy Partners unit American Energy-Utica LLC raised $1.7 billion in private equity and debt financing to buy properties and explore for and produce oil and gas in the region. The funders included Energy & Minerals Group, First Reserve Management LP, Blackstone Group's GSO Capital Partners, Magnetar Capital and BlackRock Inc.

Hess will get two-thirds of the proceeds from the sale at the end of the first quarter and the rest in the third quarter. It plans to use the money for more share repurchases, which it may increase from the $4 billion authorized in March of last year once it decides whether to spin off or sell its gas stations.

Hess CEO John Hess said the sale is an example of its continued commitment to improve shareholder value by shuffling the assets in its portfolio. "While our wells in the dry gas portion of the Utica were highly productive, we concluded that the potential returns from such an investment, at current and projected natural gas prices, no longer justified retaining this acreage as a strategic part of our overall liquids-based asset portfolio," he said.

Sameer Uplenchwar, an analyst at Global Hunter Securities Inc., said the sale worked out to about $12,000 per acre, in line with recent comparables, bringing Hess' total asset sales to more than $10 billion. He said the next catalysts include Hess' decision as to whether to spin off or sell the gas stations and details about its Bakken Shale midstream assets, which Hess plans to spin off in a master limited partnership early next year.

"[Hess] needs to deliver on the go-forward growth strategy," he said, including focusing on unconventional assets where growth will be driven by the Bakken and Utica, exploitation with growth driven by Tubular Bells, Valhall and the North Malay Basin, and focused exploration in areas like Ghana.

Hess has has been under pressure from Paul Singer's hedge fund Elliott Management Corp. to make changes at the company, including selling noncore assets.

In the past two months, Hess has agreed to sell its commercial fuels business outside New York City to Sprague Resources LP for an undisclosed sum and its offshore Pangkah asset in Indonesia to 25% shareholder PT Saka Energi Indonesia, which exercised its pre-emption rights, for $650 million.

Last year it also sold its East Coast fuel bunkering business to Aegean Marine Petroleum Network Inc. for $30 million, 20 liquid petroleum product terminals to Buckeye Partners LP for $850 million, its energy marketing unit to Centrica plc for $731 million, its Russian unit Samara-Nafta to OAO Lukoil for $2.05 billion and some Eagle Ford properties to Sanchez Energy (SN) for $265 million.

Marathon Petroleum (MPC) and master limited, or publicly traded, partnerships including Energy Transfer Partners are thought to be likely bidders for the gas stations.

American Energy's McClendon left Chesapeake earlier this year under a cloud of self-dealing accusations and has been looking for properties to buy. He already has a joint venture to explore for oil and gas in the Utica's Guernsey and Harrison counties with Red Hill Development, part of the family-owned energy and mining concern Kimble Cos., of Dover, Ohio.

In 2011 the Ohio Department of Natural Resources estimated that the Utica Shale held 5.5 billion barrels of recoverable oil reserves -- more than twice that of Yemen. But last year some operators, including Chesapeake, EnerVest Ltd. and Devon Energy (DVN) found drilling conditions difficult and more natural gas than oil and put their properties up for sale.

In August, EnerVest and affiliate EV Energy Partners sold acreage in Ohio's Utica shale to an undisclosed buyer for $284.3 million, including 22,535 acres in Guernsey, Harrison and Noble counties in eastern Ohio.

Hess used Latham & Watkins LLP for outside legal advice, including Robin Fredrickson, Yvette Schultz, Patricia Hammond and Jim Cole. A source said no investment bankers were involved for either side and the buyer used inside counsel.

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