Quicksilver to sell 25% of its Barnett assets to Tokyo firm

Posted Friday, Mar. 29, 2013  comments  Print Reprints

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FORT WORTH -- Quicksilver Resources, which has been exploring ways to sell a piece of its Barnett Shale operations since 2011, has agreed to sell 25 percent of its holdings there to Tokyo Gas for $485 million, the companies were expected to announce today.

It is the first acquisition of U.S. production for Tokyo Gas, Japan's largest natural gas utility and a diversified global energy company. Japan has been scrambling to secure enough natural gas to fuel its power plants and fill the gap in the nation's electricity market resulting from the shutdown of nearly all its nuclear reactors after the Fukushima disaster in March 2011.

The deal calls for Tokyo Gas to fund 25 percent of development efforts in the Barnett going forward, and Quicksilver to fund 75 percent. Quicksilver, based in Fort Worth, will operate the Barnett properties, which produce about two-thirds of Quicksilver's annual production.

Quicksilver CEO Glenn Darden said the companies started talking in mid-2012. That was about six months after Quicksilver hosted a group of Japanese gas executives for a tour of the Barnett Shale, including Quicksilver's operations at the Alliance development in north Fort Worth. That visit was sparked by the Fukushima accident.

The deal is expected to close April 30.

Quicksilver said it intends to use the proceeds to reduce its $2.1 billion in long-term debt. Darden said he doesn't expect the deal to have an immediate impact on the producer's drilling program for 2013, which was recently slashed by 70 percent to $120 million.

"Our objective was to keep our Barnett assets intact," Darden said. "Their objective is to lower their cost of supply. They believe getting involved in the upstream side" of the natural gas supply chain is a good way to do that, he said.

Japan imports virtually all its oil and natural gas. That means buying liquefied natural gas, or LNG, from foreign suppliers and shipping it to coastal terminals, where the chilled liquid is converted back to gas and pipelined to users.

It's expensive gas. In January, Japan's average cost of LNG, according to Reuters, was up about 70 percent over the past two years to $16.37 per million Btu.

One million Btu is roughly equivalent to 1,000 cubic feet, or mcf, of gas.

U.S. natural gas futures traded Thursday at $4.02 per mcf.

According to Tokyo Gas' website, its average residential customer will pay $52.62 per mcf of gas under its April rates, which includes the cost of distribution. In comparison, a customer of Atmos Energy, North Texas' gas utility, would pay less than $9.

Darden said the companies have not discussed exporting LNG from the United States to Japan. Instead, the gas will be marketed in North America, at least in the near term, he said.

Future exports of LNG from the United States are the subject of debate. Petrochemical companies and other big users want LNG exports restricted to help keep the U.S. price of gas low, while producers eye markets in Europe and Asia where natural gas draws much higher prices.

Only one U.S. LNG terminal, on the Gulf Coast near the Texas-Louisiana border, is licensed to export LNG. But 16 more are seeking export licenses, and Japanese companies have various agreements for future U.S. LNG supplies amounting to about a sixth of Japan's annual use, according to the Institute of Energy Economics in Japan.

In an unrelated announcement Thursday, Quicksilver said it named Michael McGovern to its board. McGovern is an adviser to Cadent Energy Partners, a private equity firm with offices in Houston and Connecticut and many energy investments.

Jim Fuquay, (817) 390-7552

Twitter: @jimfuquay

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