Oil and Gas Investor Blog

Somewhere, Captain Planet is smiling.

The Environmental Protection Agency launched an art contest this week aimed at Native Americans youth that encourages children to illustrate what they perceive as environmental crimes.

The contest, open to all middle and high school students who are members of a federally recognized tribe, is a chance for young people to draw their visions of environmental damage from their viewpoint. EPA will use the winning artwork on its website and on posters encouraging the reporting of environmental violations.

Now, far be it for me to discourage the condemnation of crimes, but seriously? I believe in being a good steward of the land and what not, but must we continually treat pollution as though it’s some sort of horrible affront to nature? Plus, involving kids in something like this…

“The artwork will be judged on creativity, originality and how well it depicts the message of environmental violations.”

Look, it seems innocent on the surface, but just what is going to be accomplished here besides knee-jerk anti-industry tripe? Yeah, I know we’re supposed to think “from the mouths of babes” and whatnot, but that’s a lot of hooey. I remember being a teenager: they don’t have any complex understanding about the economic realities of business. This is purely an appeal to the emotion: the most in depth drawing we’re sure to get will be a unicorn crying over an oil spill and things of that nature.

With Hollywood trying unsuccessfully to turn Iraq and Afghanistan into Vietnam at the movies, I’m surprised we haven’t seen a revisiting to political films of that era, when numerous 1970s movies tried to tell us what it’s all really about, usually involving doomed protagonists up against an Establishment that doesn’t care about individual freedom.

Which brings me to the film “WUSA,” a strange curio from 1970 starring Paul Newman and real-life wife Joanne Woodward about a right-wing radio station in New Orleans named WUSA involved in shady shenanigans and culimates in a hatefest that’s being disguised as a political rally. Along the way Anthony Perkins shows up as a do-gooder social worker whose been duped into gathering information about welfare abusers which will be used as political ammunition against their opponents. While watching the movie, which is filled with dripping condemnation for conservative blowhards espousing the need to return the country to its roots, I couldn’t help but compare this film’s message on right-wing politics to that of conservative news commentator Glenn Beck’s recent rally in Washington, DC, which his detractors have tried to paint as some sort of racist rally.

And you know what? “WUSA” is full of crap.

I could condemn the movie for its meandering plot, or the fact that morally ambiguous main character Newman, playing radio show host Rheinhardt, never really becomes more then just a cipher despite the film’s two-hour running time, that even the supposed heroes are so bland or self-righteous you want to punch them or that the movie mistakes being cryptic about its messages with being subtle and thoughtful.

But instead, as I watched the movie unfold, I couldn’t help but realize that the vision of right-wing broadcasting that this film seems to have is matched by the views that the most vocal critics of the whole Tea Party movement seem to scream about today: that under the guise of patriotism, racism is the real motivating factor behind conservative ideology.

Now of course, I’m not blind to the fact that a lot of racists have jumped on the Tea Party bandwagon. I’ll even spot the opposition the argument that it seems highly suspect that this movement waited until a Democrat was in the White House to suddenly show disdain with government spending run amok, seeing as how George W. Bush never met spending bill he didn’t like.

But the Huffington Post crowd’s attempts to paint a whole movement as some sort of Klan rally is disheartening at the very least, and eerily hateful at its worst.

Getting back to Newman’s nearly forgotten opus, I’d have to say that the world this movie seems to show as fact is thankfully that which only exists in the minds of our most paranoid society members. Of course, that’s if you can really decipher the film’s message at all. Almost all the film’s arguments seem to be delivered by second- and third-hand sources. We never really see any of these shady political goings-on that are supposed to be happening, though some cops show up to threaten Perkins at one point.

When the movie ends with Perkins and Woodward’s deaths (hope I didn’t spoil that for you), Newman is left to leave the Crescent City with a cinematically unearned sense of despair about the nature of things, returning to his near-meaningless travels in the world as a self-described “survivor.” Even Roger Ebert came to despise this sort of movie ending. In his review of Stanley Kramer’s equally obnoxious “Bless the Beasts and The Children,” Ebert said:

I’m getting a little sick of movies that end gratuitously with the Old shooting the Young to give us the impression that a point has been made. I left the theater in a nasty mood.”

I suppose if the film had bothered to actually show some of the evil speeches he supposedly was forced to deliver over the radio (which we for odd reasons never get to see) we might have had a greater understanding of his wounded spirit. But the movie doesn’t even directly address the evil arguments the villains of the piece are supposed to be doing. I guess we’re just supposed to figure it out for ourselves.

You know, I would have respected this movie it it had at least have had the guts to point fingers at specific arguments. Yeah, it would have dated the movie like other films from that era such as “R.P.M.,” “The Strawberry Statement” and “The Harrad Experiment,” but at least it would have been a more politically honest story.

We are left with a pipe dream about some evil right-wing conspiracy trying to do, well, something evil. That’s about the level of argument you get these days from folks like Al Sharpton and “The Daily Show’s” John Stewart, who spent last weekend clutching at straws trying to find something truly evil in Beck’s rally. The best argument they got was the timing, which coincided with the anniversary of Martin Luther King’s “I Have A Dream” speech.

So what is there to learn from “WUSA”? Sadly, very little from either side of the political aisle. Rheinhardt is no Glenn Beck, and FOX News certainly isn’t WUSA. I guess the ultimate message is conservatism wishes destroy us all… that’s a message I can’t very well stomach.

At EnerCom’s annual Denver conference in mid-August, several rig contractors talked about their views of the future. Here are some key sentiments:

* A transformation is under way in the U.S. land-drilling business, said Mark Siegel, chairman and director, Patterson-UTI Energy Inc.  More than 65% of new wells are horizontal or directional. The preferred equipment for resource-play wells are rigs with 1,000+ horsepower drawworks, high-capacity mud pumps and top drives. Patterson currently has 105 rigs active in U.S. unconventional plays.

* Customer demand for rigs capable of drilling resource plays remains strong enough to support term contracts, said Siegel. Favorable trends are likely to persist, both in the oil and gas market, and more so in the oil and liquids plays.

* The current Gulf of Mexico environment is not a pretty picture, said Seahawk Drilling Inc. president and chief executive Randy Stilley. The federal NTL 6 regulations issued June 18 caught the entire industry by surprise. “We had been given signals from the Department of Interior that it would be aimed primarily at deepwater drilling; it turns out it applies to everything.” The new regulations require operators to include worst-case discharge scenarios for all new drilling permit applications.

* Only three new GOM drilling permits have been issued since the Macondo blowout. In the GOM jack-up market, companies have 34 cold-stacked and non-marketed rigs. It’s likely that additional rigs will migrate out of the U.S. in the next 12 months, said Stilley, “There is demand out there, but we need drilling permits.”

* International drilling is at a low point. The number of tenders is increasing, but customers are still not moving forward. “The recovery from the 2009 decline in E&P spending has been slow,” said Parker Drilling’s Dave Mannon, president and chief executive.  

* Extended-reach drilling will continue to increase. It provides the capability of developing offshore reserves from a land environment. Mannon mentioned that new areas where extended-reach drilling is being considered include the northern flanks of Arctic Russia and Amazon delta of Brazil.

* Three decades ago, international oil companies accounted for the majority of international drilling. Today, national oil companies account for 80% of international drilling. That means international majors have to look at areas where technical competencies and technical initiatives enable them to obtain concessions, said Mannon.

by Peggy Williams, Director, Unconventional Resources

pwilliams@hartenergy.com

It’s not nice to take things that don’t belong to you. Ensco Plc is reporting that they have regained the ENSCO 69 jackup drilling rig after it was more or less seized last year by Venezuela.

The rig had been under contract to Petrosucre, a subsidiary of Venezuelan national oil company PDVSA, until Ensco terminated the contract for non-payment in June 2009. Petrosucre responded that it would continue to operate the rig without Ensco’s consent. After more than a year of occupying the rig, Ensco personnel were allowed to retrieve it and it is now stationed in Trinidad.

There’s an expression for when you take something that doesn’t belong to you: I believe it’s called stealing nationalizing private assets. Now as any Hollywood type will tell you, of course PDVSA has the right to not pay for the use of a vessel it signed a contract to utilize. Only evil capitalists honor financial commitments.

Peak oil theory advocates have an interesting way of classifying supporters of traditional energy: being stuck in the past.

In a strange irony, anti-drilling advocates, who are oftened scoffed at by hydrocarbon supporters as being Rousseau-lite neo-primitives who want to switch the world back to a pre-Industrial setting, have swung the conversation around and argued that it is in fact the producers of oil and gas who are stuck in the past.

David Suzuki and Faisal Moola wrote:

Our earliest advances were based on burning wood or dung for fuel. Now we’re still using our paleolithic trick, burning decayed organic materials in the form of fossil fuels. Isn’t it time we moved on? We are far too numerous — and the impacts of our actions far too great — to keep on acting like cavemen. It seems to me that those who criticize us, the anti-environmentalists, are the ones who want to turn their back on their future so that they can just go on burning stuff.

Since debasing your opponents is a cheap ad hominem fallacy attack the only way to win an argument concerning the “big issues,” Suzuki and Moola feel that the best way to challenge their critics is to take to task their obvious ulterior motives for using oil and gas. Namely, desiring to destroy the planet.

Using all the careful logic and mental gymnastics of a typical “Captain Planet” cartoon, the eco-villains just want to run the planet into the ground in the name of the Almighty daughter.

Our human history is one of change, of coming up with new ideas and new technologies to meet the challenges of allocating resources to growing populations. As environmentalists, we embrace change for the better. But our critics want us to remain stuck in a time that has no future. They reject progress, arguing that we should keep on our destructive way, with outmoded technologies and energy sources.

The all-encompassing “they,” meaning people who make a living pulling oil and gas out of the ground, are clearly a threat to  Suzuki and Moola’s worldview, but just what are their alternative ideas?

A better world for us, our children, and our grandchildren is possible. Just as we’re seeing evidence of the damage caused by climate change today, we’re also seeing innovative ideas being applied to the problems. Many scientists, economists, environmentalists, business people, and citizens are proposing and implementing solutions. Their work is not only offering hope in the face of the catastrophic effects of climate change, it’s also offering hope for faltering economies by ushering in new technologies to replace the jobs and technologies that are becoming obsolete as supplies of polluting fossil fuels become scarce.

There some other bugaboos here and there about solar, wind and other renewable, but nothing concrete. This is a sermon, nothing more. We get no substantial argument about what innovations have been made to get us off of oil, only that “solar, wind, and tidal power” will help us with “advanced ways of thinking about our relationship with nature.” Once again, natural gas remains conspicuously absent from the conversation, instead we’re left having to extrapolate that harnessing the power of the waves will somehow move our cars down the street.

Suzukia and Moola might as well throw dilithium crystals and hyperspace drive warps into the mix while we’re at it (apologies to Star Wars and Star Trek fans for mentioning both in the same sentence, I know your geek brains just exploded from overstimulus.)

Basically, it’s another black-and-white take on the energy industry. The authors argue that traditional energy producers are callous toward the environment, motivated only by greed and lazy adherence to “the past.” The funny thing is, what they consider the past is a system that has been in place for only a little more than a century. The real past is this Henry David Thoreau gibberish they keep spouting about how new innovation can lead us to a brighter path, without once providing a single instance of a practical new technology that can replace our existing ones.

To the authors’ credit, they do acknowledge that there’s too many people in the world to revert back to wood burning, so that places them above most of the environmentalists who take a Malthusian outlook on the population.  Still, we remain on dangerous ground when they keep arguing that new technology is just out there waiting to be used, but oil companies are just too lazy to consider real, practical alternatives, whatever they may be.

This phantom technology the authors speak of might as well be Unobtainium from “Avatar,” because I doubt we’re ready to switch our cars over to unicorn giggles just yet.

While gas prices were still a touchy subject among attendees at this year’s summer NAPE expo in Houston, there was still plenty of positive buzz about various shales, prospects getting sold and the bounty of available energy capital.

In spite of reduced natural gas prices, shale plays dominated many conversations at the expo.

“We’re shooting lots of seismic right now, in anything that is a shale,” one service provider said during the expo luncheon. “With this country’s energy needs, and how much companies have already invested in the shale plays, it’s obvious that a good portion of the industry knows that we can’t completely give up on gas prices in 2011/2012.”

The Marcellus shale is one of the plays that has stayed in the spotlight for several consecutive quarters, but has the land grab finally peaked?

“A&D deals are harder to get done in the Marcellus now, although it’s still a hot area for development activity,” said a vice president of a Houston-based energy-lending firm. “Even though the area has still got plenty of eyeballs on it, it’s getting harder to find an A&D deal there that has all the right components in place at the same time.

“On the development side—as with any shale play that has its cycles—it will be really interesting to watch things play out in the Marcellus. Now that so much of the acreage has been acquired, there are questions about how it’s going to get drilled without running a bunch of rigs, most of which are already tied up drilling shale acreage.”

Though many industry watchers opt to also attend the larger version of the expo in the winter, several attendees appreciated the more intimate feel of this year’s summer show.

“It can be more difficult to get really good foot traffic when more of the bigger independents are here with booths,” one Tyler, Texas-based landman explained. “Summer NAPE gives the smaller guys a chance to take advantage of having all eyes on them. In a matter of hours, we’ve had substantial interest in our Haynesville leases, and we’re encouraged by the number of ‘sold’ signs that have already gone up.”

“This is a show that really let’s you talk to people, because folks don’t spend the entire time hunting down execs,” added a Dallas-based landman. “You don’t get as worn out as quickly as you do during the winter show. And that’s a good thing when there’s plenty of serious interest and available capital in the room.”

On the capital side, while many financial representatives walked the floor, only 13 firms had booths, just about one-third of the number present at winter shows in recent years.

“It’s still pretty hard to get anything done now on the conventional gas side, and it looks like it may be that way for a while yet,” one corporate energy lender confirmed. “Oil is where the real opportunities are.”

For more insight on the 2011 oil and gas outlook and the capital landscape, look for upcoming one-on-one video interviews from the show floor with Brian Lidsky, managing director of M1 Energy Capital in Houston, and Alec Neville, manager of Dallas-based PetroCap.

–Bertie Taylor, Senior Editor, Oil and Gas Investor, btaylor@hartenergy.com, 713-260-6497.

In a session titled “Energy Policy & Regulatory Changes” during the 2010 Summer NAPE Conference on Aug. 18 in Houston, Swift Energy president and IPAA chairman Bruce Vincent discussed the origin of some of the negative comments from both government and private organizations against the energy industry during recent years.

Vincent added that a good many environmental supporters are well-meaning and not influenced by ulterior motives, sincere in their desires to lessen mankind’s impact on the planet. But he said they act out of misguided and poorly conceived agendas.

On the other hand, pointing his fingers at groups like MoveOn.org and former U.S. vice president Al Gore’s entourage, Vincent said that organizations that seem to be the most against traditional U.S. energy sources tend to have their own long-term agendas while hoping to ride on public ignorance and distrust of the energy industry.

Vincent said, “Al Gore’s goal with ‘An Inconvenient Truth’ wasn’t to make money in the movie theater or win a Nobel Prize. It was to raise support for his constituent’s businesses.”

Gore was shoring up support for green technologies that were being designed by his constituents, including GE which is one of the major fabricators of the giant windmills being championed by the wind industry, according to Vincent. The money Gore made releasing his film was minimal compared to the amount he and his supporters stood to gain should major U.S. legislation be passed encouraging wind power technology development.

As for MoveOn.org, Vincent said the left-wing activist group has been active in the state of New York, spreading negative information about shale drilling concerning fracing and water issues related to shale gas production in order to prevent Marcellus production from heading north of Pennsylvania.

The interesting story behind this, according to Vincent, is that one of MoveOn’s biggest financial backers is billionaire investor George Soros, who is one of the shareholders in Papua New Guinea-focused E&P company InterOil. InterOil made headlines last year with its Antelope-2 well which tested at a world-record daily rate of 705 million cubic feet of gas and 11,200 barrels of condensate on Dec. 1.

Like a lot of companies with gas operations based in foreign countries, InterOil was hoping to benefit from selling gas to the U.S. market as LNG. The presence of shale gas in the U.S., however, lessens America’s need to import foreign gas supplies.

Therefore, Vincent said the Marcellus is harmful to InterOil’s bottom line, and places Soros in a position of needing to trash shale gas production through MoveOn for hidden business purposes while trying to appear altruistic and pro-environment on the surface.

Finally, Vincent launched into the activist documentary film “GasLand” released earlier this year, which focuses on the supposed dangers of allowing fracture drilling near communities in Pennsylvania and elsewhere. Vincent said the film is filled with numerous inaccuracies such as a scene where a resident displays that he has flammable drinking water coming out of his facet, an occurrence Vincent said was due to coal seams leaking into the water source, not gas.

Anti-drilling and anti-fossil fuel activists have made a good job of trying to scare residents against shale drilling by playing up the narrative of a “new and unknown” process to the public, trying to turn fracture drilling into a bogeyman that wants to kill them. The reason why they’re winning the debate, Vincent said, is due to a lack energy industry response to such baseless accusations with the same frequency and drive as the anti-industry proponents that make them.

He said that energy producers will always have to deal with–as part of the business–both irrational distrust of the industry by the public and vitriolic hated by those with an agenda against drilling. The best way to combat distrust and silence critics is for the industry to maintain a steady public education policy and make sure local residents understand the care the industry takes to avoid polluting the environment.

Vincent said, “It’s imperative that shale producers continue grass roots campaigns in the local community.”

The U.S. Senate placed a piece of energy legislation on hold until September, much to the consternation of Nevada Senator Harry Reid.

The bill (S. 3663 aka The Clean Energy Jobs and Oil Company Accountability Act of 2010) was championed by Reid and seeks to introduce laws raising the $75-million cap on fines for offshore oil spills to an unlimited amount and extend the federal approval process from offshore E&P plans from 30 days to 90 days which can be increased an additional 180 days at the U.S. Interior Secretary’s discretion.

The bill failed to garner support in the Democratic-controlled Senate, though that didn’t prevent Reid from turning his ire to the opposition.

“”It’s a sad day when you can’t find a handful of Republicans to support a bill that would create 70,000 clean-energy jobs, hold BP accountable, and look at a future as it relates to what BP did. It’s clear that Republicans remain determined to stand in the way of everything,” the four-term legislator said.

Perhaps if Mr. Reid hadn’t have been in such a rush to throw a poorly conceived bill on the floor, he might have gotten more support from his party. But heck, it’s an election year for Reid, we have to say we tried, right?

Naturally, opponents of the bill in the energy industry were happy to see Reid’s legislation get put on hold.

American Petroleum Institute president and chief executive Jack Gerard said, “The bill proposed by the Democratic leadership is not an effective or reasoned response to the spill. Instead it will cost American jobs, threaten our fragile economic recovery and jeopardize our energy security.”

The removal of the cap on oil spill liability would, according to Gerard, force most E&Ps out of the Gulf of Mexico because they would be unable to purchase the necessary insurance to operate in the region.

The IPAA issued a Washington Report on Aug. 5 praising the Senate bill being placed on hold, while also criticizing the passage of the similar CLEAR Act in the U.S. House of Representatives.

The IPAA agree with the API’s view on eliminating the cap on spill damage. The report states:

“According to a recent IHS study, independent producers account for more than half of offshore jobs. Removing these caps puts those jobs and a considerable amount of offshore energy production at risk. Passage of this section would ultimately result in only super majors and national oil companies producing America’s offshore resources.”

Other portions of the bill the IPAA disapproved of include the vague language used to explain the amendments to the National Policy for the Outer Continental Shelf. The IPAA speculates that these statutes in question present opportunities to challenge virtually any administrative decision and opens them to endless litigation and appeal.

With the House passing a similar bill and the current one just being put on the back burner for a  month, it’s clear that Congress is dead set on revising offshore drilling regulation. The Macondo oil spill stirred up the hornets’ nest, and to be frank, deservedly so as far as BP’s safety record goes, but the problem now is a lot of poorly conceived legislation is in danger of being rushed through Congress in order to (1) give the appearence that Congress is in control of the situation, (2) appeal to wacko anti-business interests who view oil drilling as a sin against the Goddess Gaea (ie, Reid’s base) and (3) get PR-building good press for Senators and Congressmen facing the dreaded mid-term election coming up in November.

For the time being, we can take some comfort that there are checks to prevent some poorly conceived legislation from just strolling through the vetting process, but come late October and nothing’s been signed, you can bet something will be ready to run through Congress, well written or not.

Plus, More Details On Chesapeake And EOG’s Shifts In Emphasis To Liquids

If major U.S. gas producers increase their capex emphasis on drilling for oil, natural gas supply should fall as well as oilfield-service costs, resulting in improved gas prices and an improved profit margin too for players who tough it out.

But that won’t happen—at least not soon—according to Dave Pursell, managing director and head of macro research for Tudor, Pickering, Holt & Co. Securities Inc.

Pursell and the TPH team of analysts slashed their gas-price forecast today to $4.50 Nymex for second-half 2010 (from $6.50) and to $5 for 2011-2012 (from $6.50), drastically below the Wall Street commodity-price-forecast consensus and even the Nymex strip itself. Their 2013-and-beyond forecast is now $6 (down from $6.50).

Pursell says that, while producers are increasingly stating a shift in drilling emphasis from gas to oil, “independents cannot shift capex quickly enough…Gas production—in our coverage universe—is still expected to grow 10% year over year in 2010 and 16% in 2011.”

He adds that producers are taking 2011 hedges at between $5 and 5.50, “signaling a willingness to continue to invest at those levels.” Many of them plan to outspend cash flow. And, he notes “the realities of above-average storage levels, the stubbornly resilient gas-directed rig count and the corresponding production growth that is resulting from record horizontal drilling.”

Gas producers’ stock prices are experiencing “shale exhaustion.”

“Bottom line: This industry is drunk on shale liquor and can’t get sober fast enough to avoid a low-commodity-price hangover. In 2010, our coverage universe will spend $52 billion compared with $37 billion in 2009…In 2011, spending is targeted at $57 billion.”

Two major U.S. gas producers are reducing shale-gas spending. Chesapeake Energy Corp. stated last week that its emphasis will be a weighting to liquids by 2012. Also, EOG Resources Inc. now expects its 70%-natural-gas production profile of 2008 will be reversed to 70% liquids by 2012.

Chesapeake can move a gas market. It produces 2.8 billion cubic feet equivalent per day, 90% gas. It plans to take $400 million of capex planned for gas projects in 2011 and spend it on drilling for liquids instead. Operated net drilling and completion capex on liquids plays will grow from 13% of Chesapeake’s total 2008 capex budget to approximately 55% in 2012.

Going forward, at sub-$6 gas, it plans to drill gas wells only to hold acreage or if being carried by a drilling partner.

Meanwhile, EOG Resources Inc. reports it’s unlikely to increase its projected North American gas volumes if a gas-price recovery occurs. It expects its 2012 production of 70% liquids will consist 75% of crude oil and condensate, 25% natural gas liquids (NGLs).

Mark Papa, EOG chairman and chief executive, suggests noting whether a company’s increase liquids production is oil or NGLs. “…As other E&P companies have subsequently proclaimed themselves to be ‘liquids rich,’ the distinction between crude oil and lower-valued NGLs seem to have been blurred.”

Regarding NGLs, Pursell says, “We expect regional pricing dislocations driven by E&Ps chasing liquids-rich plays that will result in continued pressure on natural gas liquids as a percentage of crude oil prices. (Second-quarter) NGL realizations have dropped from 50% of crude (2009) to 47% of crude (2010).” The price may be 40% of crude in this quarter, he adds.

For gas-weighted producers, there is one hope: Since the TPH analysts erred on the side of bullish gas-price expectations a year ago for 2010 ($7.50, revised in May to $6.20), their slashing today to far below Wall Street consensus, and even the strip, may reverse the curse and push prices higher.

–Nissa Darbonne, Editor-at-Large, Oil and Gas Investor, OilandGasInvestor.com, OilandGasInvestor.com Today, Oil and Gas Investor This Week, A&D Watch, A-Dcenter.com, UGcenter.com

EOG Package To Further Test Market By Year-End

Appalachia’s prized Marcellus shale play may take on yet more shine as offshore producers and investors balk at what the Obama administration’s new rules for Gulf of Mexico E&P may be.

One executive of a privately held, onshore-focused, unconventional-resource E&P says the politically unstable, and potentially more costly, Gulf investment environment will push onshore U.S. property values upward.

“I think anyone who is involved in the Gulf, especially if the government removes the liability cap…there may be midsize independents that might say ‘Maybe we will continue to play in the Gulf, but let’s look harder onshore and see what’s available.’ I think we’re seeing that right now,” he says.

The Marcellus and the liquids-rich Eagle Ford in South Texas have been attracting the most brow-raising deal-making this year, in addition to continuing asset shifts in the Haynesville, activity in the Bakken/Three Forks play, and cease-less transactions in the Permian.

Last week, the price for Marcellus grew further, with India’s Reliance Industries Ltd. paying $327 million for Avista Capital Partners’ 52,200 net acres of leasehold in Pennsylvania and $65 million for 20% of Carrizo Oil & Gas Inc.’s other 52,200 net acres in the total 104,400-net-acre Avista/Carrizo joint venture. The sale represents Avista’s exit from the Pennsylvania acreage but it continues a co-shareholding with Carrizo in West Virginia and New York acreage prospective for Marcellus.

Earlier this year, Reliance paid $1.7 billion to JV with Atlas Energy Inc. in the Marcellus and $1.3 billion to JV with Pioneer Natural Resources Co. in the Eagle Ford.

The Marcellus deal with Avista represents some $6,300 an acre for Marcellus.

Speculation is high that more private-equity-funded Marcellus-focused E&Ps will be grabbed up since Shell Oil Co. paid $4.7 billion in cash in May for East Resources Inc.’s 1 million net acres (650,000 of these are over Marcellus), making 60 million cubic feet equivalent per day. East had received private-equity funding from Kohlberg Kravis Roberts only a year earlier.

A leading Marcellus player says he could see that coming: “There were so many sales and joint ventures preceding the East sale, so it was clear there was quite an appetite, and East was able to sell for a future value at a price everyone was happy with.”

Another test of the price players are willing to pay for Marcellus will come by year-end with bids for EOG Resources Inc.’s Appalachian package. The producer is offering 180,000 acres of shale-gas acreage there and in the Haynesville, and the liquids-rich Eagle Ford.

Mark Papa, EOG chairman and chief executive, says, “We considered a joint venture (in) this acreage, but decided on an outright sale because it’s cleaner and less complicated. This acreage package is larger than we contemplated three months ago. We spent about $1.7 billion over the last few years accumulating first-mover, horizontal, shale acreage, and frankly, we have more good acreage now than we can say grace over, given our manpower and capital-structure plans.

“So we’re going to monetize a bit of this acreage.”

EOG’s divestments there and in Canadian shallow, conventional gas properties are towards retaining a net debt-to-cap ratio of 25% or less through 2012.

More Marcellus acreage on the market is privately listed. Asset marketers expect deal-making in the shale to continue to post headline-making numbers.

–Nissa Darbonne, Editor-at-Large, Oil and Gas Investor, OilandGasInvestor.com, OilandGasInvestor.com Today, Oil and Gas Investor This Week, A&D Watch, A-Dcenter.com, UGcenter.com