Big Oil Buys into Republican “Tax Free” Pennsylvania

Dow Jones News Wire

Chevron Corp. (CVX) has agreed to acquire independent natural-gas producer Atlas Energy Inc. (ATLS) and its liabilities for $4.3 billion, joining its larger rival Exxon Mobil Inc. (XOM) in making a bet on natural gas.

-By Matt Jarzemsky and Matt Day, Dow Jones Newswires; 212-416-2240;

Exxon’s acquisition of XTO nearly a year ago, some believe, has pressured Exxon’s stock because of a slump in natural-gas prices.

Chevron Vice Chairman George Kirkland said, however, “We are acquiring a company that has one of the premier acreage positions in the prolific Marcellus.”

The Marcellus shale, located in Appalachia and concentrated in parts of Pennsylvania, West Virginia and New York, is one of the hottest shale plays in the U.S. It’s helped contribute to the surge in North American natural-gas supplies and the resulting price weakness. Strong U.S. gas production has sent gas stockpiles to record levels, pressuring prices for much of the last two years. Natural gas futures on the New York Mercantile Exchange are trading at their lowest level for this time of year since 2002.

Chevron will pay Atlas shareholders $38.25 in cash for each share and a total of 41 million units of the company’s limited partner, Atlas Pipeline Holdings LP (AHD), or $5.09 per Atlas Energy share. Atlas Energy closed Monday at $31.72; its stock jumped 36% to $43.07 just after the market opened Tuesday.

Shares of Chevron recently were down 1% to $83.97.

Prior to the acquisition, Atlas Pipeline will acquire natural-gas reserves and other assets from Atlas Energy’s investment-management business for $250 million in units and cash. The deal will boost Atlas Energy’s stake in the pipeline company to 81%. Following the transaction, Atlas Pipeline will no longer be controlled by Atlas Energy.

Atlas Energy also will acquire Atlas Pipeline’s 49% stake in Laurel Mountain Midstream LLC–a venture with Williams Cos. (WMB) targeting the Marcellus shale–for $403 million.

The announcement comes a week after Pennsylvania voters put the state legislature and governorship in Republican hands, which is widely expected to result in a gentler regulatory regime for gas producers. The state legislature spent much of this year debating a natural gas extraction tax and ultimately failed to agree on a bill before adjourning for the elections.

Republican governor-elect Tom Corbett has said he opposes enacting a new natural gas tax. Outgoing Governor Ed Rendell, a Democrat, had made passing a tax a key policy initiative during his last full year in office. Pennsylvania is the only major gas-producing state to not levy a tax on gas extraction.

Major U.S. and international energy companies have spent billions this year for access to the reserves in the Marcellus. Indian conglomerate Reliance Industries Ltd. (500325.BY) invested more than $2 billion in two separate deals to acquire stakes in the Marcellus. Royal Dutch Shell PLC (RDSA, RDSB, RDSA.LN, RDSB.LN) in May spent $5 billion to acquire closely held East Resources Inc., a large player in the region.

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