Royal Dutch Shell P.L.C. became the latest big international player to buy a stake in the Marcellus Shale when it announced Friday that it would pay $4.7 billion for East Resources Inc., a Pennsylvania company that has morphed into a hefty natural-gas operator.
In buying East Resources, whose headquarters is in Warrendale, Pa., Shell will acquire about 1.05 million acres of gas leases, including 650,000 acres of Marcellus Shale rights in Pennsylvania, West Virginia, and New York.
East Resources, which is based in Allegheny County, is most active in Tioga County, in north-central Pennsylvania, and also owns substantial acreage in Allegheny National Forest.
The deal is further evidence that big money is pouring into shale gas, whose development has dramatically expanded the estimated worldwide reserves of recoverable natural gas. In recent months, ExxonMobil Corp. and Japanese, Indian, French, and Norwegian firms have invested billions into U.S. shale plays, the largest of which is the Marcellus.
Shell's purchase of East Resources is a windfall for its founder, Terrence M. Pegula, a Pennsylvania State University alumnus who grew up in Carbondale, near Scranton, and worked in the Texas oil industry before returning to Pennsylvania in 1983.
East Resources built up its holdings by acquiring unwanted oil and gas acreage from companies such as Pennzoil when major petroleum operators were leaving Appalachia. Until the Marcellus play developed in recent years, the company primarily developed shallow wells in conventional formations.
The sale is also a bonus for Kohlberg, Kravis, Roberts & Co., the New York private-equity firm that spent $350 million last year to buy a minority share in East Resources to finance its Marcellus development.
"Shell's entry into the region should benefit Pennsylvania, West Virginia, and New York through significant new capital investment, new jobs, and new business opportunities," Pegula said in a statement Friday. "I am very proud that this transaction has brought Shell into the Appalachian Basin."
Pegula, who was East Resources' sole shareholder before KKR invested last year, was traveling Friday and unavailable for comment.
"I'm sure Terry's doing well," said Stephen W. Rhoads, the company's spokesman.
Rhoads said Shell, which now has no presence in Appalachia, would absorb substantially all of East Resources' assets and its 300 employees.
Pegula and his wife, Kim, are active political contributors, and their $205,000 in donations to the primary-election campaign of Attorney General Tom Corbett, now the Republican candidate for governor, was among the largest amounts he received, according to Common Cause.
Shell's chief executive officer, Peter Voser - who also announced the acquisition Friday of 250,000 acres in a shale play in south Texas - said the Dutch company planned to ramp up its efforts in so-called tight gas formations such as shale.
"East Resources' management have built an excellent organization with high-quality assets in the Marcellus, which we are pleased to have as our centerpiece as we enter the premier shale-gas play in the Northeast U.S.," Voser said in a statement.
The Marcellus Shale has attracted more-modest investments, as well.
Penn Virginia Corp., a Radnor company that operates gas pipelines in addition to an active drilling program, announced Friday that it had added 10,000 acres in Potter, Somerset, and Tioga Counties to its Marcellus holdings. The acquisition, for $19.5 million, brings Penn Virginia's Marcellus holdings to 45,000 acres.
The frenzied expansion of shale-gas development in the Marcellus, and in other formations in Texas and Louisiana, has the potential for creating a glut of natural gas - good for consumers, such as residential-heating customers and electric-generation companies.
But the abundant natural-gas supplies are helping to keep prices stuck at about $4 per thousand cubic feet, one-third of the price in 2008, when the Marcellus boom took off, and less than the break-even price for some operators.
Marathon Oil Corp., the fourth-largest U.S. energy producer, announced this week that it was reducing its 2010 drilling plans in shale formations because of low gas prices.
Marathon said it would drill three to five Marcellus wells this year, half the number it projected in March.
Wells in the Marcellus, which are typically drilled down about a mile and then laterally for as much as to 4,500 feet, cost about $4 million each.
Development of shale-gas wells depends upon hydraulic fracturing, a technique in which water, chemicals, and sand are injected into a well under high pressure to shatter the rock to release entrapped gas molecules.
The industry says the technique is safe, but it has come under heightened federal scrutiny because of environmental concerns, among them water-quality issues.
Contact staff writer Andrew Maykuth at 215-854-2947 or email@example.com.