Chevron 3B+

Chevron pays $4.3 billion to join Marcellus Shale field

Chevron Corp. on Tuesday became the latest oil giant to bet big on the natural gas in Pennsylvania's Marcellus Shale, agreeing to pay $4.3 billion for Atlas Energy Inc., a producer with deep Philadelphia roots.

Chevron, the nation's second largest oil producer, agreed to take over publicly held Atlas, which has headquarters in Moon Township near Pittsburgh but whose brain trust is based in Southeastern Pennsylvania.

Philadelphia businessman Edward E. Cohen, chairman and chief executive of Atlas, said the sale price represents an 800 percent return since Atlas was spun off in 2004 from Resource America Inc., the specialty finance company he runs from headquarters in the Navy Yard.

"All of our employees and shareholders should know that, through Chevron's acquisition of Atlas Energy, we will be bringing into the Marcellus Shale one of the world's largest corporations, an energy company second to none in its skills and dedication to excellence," Cohen said in a statement.

Cohen and son Jonathan Z. Cohen, the Atlas vice chairman, together own about 8.3 percent of the company and will get a combined $250 million cash when Chevron absorbs the firm, plus shares in an Atlas pipeline affiliate.

The final sale price may increase. At least four law firms announced Tuesday that they were launching investigations to determine whether Chevron's price is too low.

"I wouldn't be surprised to see another buyer emerge," Scott Hanold, a Houston-based analyst for RBC Capital Markets, told Bloomberg.

Chevron's acquisition reaffirms the magnitude of the Marcellus Shale reserve, a mile-deep layer that lies under more than half of Pennsylvania and stretches from New York to West Virginia. It is the largest known U.S. gas field, according to Energy Department estimates.

This year, ExxonMobil Corp., the largest U.S. oil company, and Royal Dutch Shell Plc. have acquired operators with substantial Pennsylvania shale-gas holdings. Companies from Norway, Japan, and France have also bought stakes in Marcellus acreage.

Atlas "has one of the premier acreage positions in the prolific Marcellus," George L. Kirkland, Chevron vice chairman, said in a statement.

"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 said.

Chevron is based in San Ramon, Calif.

Despite relatively low natural-gas prices, more deals from major players may be in the works, according to a report Tuesday from PricewaterhouseCoopers L.L.P.

"We're optimistic for the remainder of 2010 and 2011, and the significant backlog of deals in the pipeline is generating a lot of activity," said Michael Collier, the accounting firm's U.S. leader of energy mergers and acquisitions.

The Chevron merger is Atlas Energy's second big deal this year. In April, the company formed a $1.7 billion joint venture with India's Reliance Industries Ltd. to produce Marcellus gas. Chevron will assume Atlas' role in the venture.

Atlas has leased mineral rights on 630,000 gross Marcellus acres and has completed 261 Marcellus wells.

All told, Atlas operates more than 9,000 wells, including about 5,000 in Pennsylvania. It produces 118 million cubic feet of gas a day. It has proved reserves of more than a trillion cubic feet of natural gas, divided between the Appalachian basin and the Antrim basin in Michigan.

Atlas employs 750 people, mostly in Pennsylvania. It has hired 200 this year, and plans to hire 1,000 more by 2015, according to a company presentation last week at a natural-gas conference in Pittsburgh.

Chevron valued its offer at about $43.34 per share, including $38.25 in cash and a pro-rata share of units of Atlas Pipeline Holdings L.P., valued at about $5.09 per Atlas Energy share.

Atlas stock rose $10.78, or 34 percent, to $42.50 on the Nasdaq. Chevron fell $1.24, or 1.5 percent, to $83.56 on the New York Stock Exchange.

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