California-based Chevron Corp., the world’s fifth-largest oil company, will acquire Atlas Energy for cash of $3.2 billion and assume pro forma net debt of approximately $1.1 billion. The acquisition will provide Chevron with an attractive natural gas resource position primarily located in southwestern Pennsylvania's Marcellus Shale. The acquisition is subject to certain Atlas Energy restructuring transactions, approval by Atlas Energy shareholders, and regulatory clearance. Atlas is headquartered in Pittsburgh, Pa. 

“This acquisition is the right opportunity for Chevron,” said George L. Kirkland, Chevron vice chairman. “We are acquiring a company that has one of the premier acreage positions in the prolific Marcellus. The high quality resource, competitive cost structure in the Marcellus, strong growth potential of the asset base and its proximity to premier natural gas markets make this targeted acquisition a compelling investment for Chevron.”

Kirkland added, “The Atlas Energy assets further advance Chevron's global shale gas position, complementing the company's recent entrance into shale gas opportunities in Poland, Romania and Canada.” 

Gary Luquette, president of Chevron North America Exploration and Production, said, “Atlas Energy brings to us a highly skilled team with strong operating experience and established land management capabilities. This knowledge, together with Chevron’s technical expertise and global experience with large scale project developments, will create strong organizational synergies.”

Atlas energy assets
When the transaction closes, Chevron will gain Atlas Energy’s estimated 9 tcf of natural gas resources, which includes approximately 850 bcf of proved natural gas reserves with about 80 MMcf of daily natural gas production. The assets in the Appalachian basin consist of 486,000 net acres of Marcellus Shale; 623,000 net acres of Utica Shale; and a 49% interest in Laurel Mountain Midstream LLC, a joint venture that owns over 1,000 miles of intrastate and natural gas gathering lines servicing the Marcellus. Assets in Michigan include Antrim producing assets and 100,000 net acres of Collingwood/Utica Shale.

Marcellus joint venture
In April 2010, Atlas Energy entered into a joint venture to develop its Marcellus assets with a wholly owned affiliate of India’s Reliance Industries Limited. Under the agreement, Chevron will assume Atlas Energy’s role as operator with 60% participation in the Marcellus joint venture, under the original agreement terms between Atlas Energy and Reliance. Reliance will continue to fund 75% of the operator's drilling costs, up to $1.4 billion.

Terms of the acquisition
Under the terms of the agreement, Atlas Energy shareholders will receive $38.25 in cash for each share of Atlas Energy stock and a pro-rata distribution of over 41 million units of Atlas Pipeline Holdings LP following certain restructuring transactions to be completed immediately prior to the merger closing. Based on AHD’s most recent closing price on Nov. 8, these units will have a value of $5.09 per Atlas Energy share. In the restructuring transactions, Atlas Energy will:

Acquire a 49% interest in Laurel Mountain Midstream LLC from Atlas Pipeline Partners LP for a cash consideration of $403 million; sell all interests in existing investment partnerships, 175 bcf of proved natural gas reserves, and certain other energy assets to AHD for a consideration of $250 million, comprised of $30 million in cash and $220 million in newly issued AHD units.

Goldman, Sachs & Co. is acting as financial advisor to Chevron. Skadden Arps Slate Meagher Flom LLP is acting as legal advisor to Chevron. Jefferies & Company Inc. and Deutsche Bank Securities Inc. are acting as financial advisor to Atlas Energy. Wachtell Lipton Rosen Katz is acting as legal advisor to Atlas Energy. 

Source:  Chevron