Noble Energy to buy Rosetta Resources in $3.7bn shale deal

Noble Energy, the US oil and gas group, is to buy Rosetta Resources for about $3.7bn including debt, in the first acquisition of a significant US shale oil producer since the fall in crude prices in the second half of last year.

The agreed deal is a sign of how financially weaker shale oil producers unwilling or unable to finance enough drilling to keep their production from falling can be compelled to accept a bid as the best option for investors.

The all-share deal gives Noble - which operates offshore, and onshore fields in Colorado and Pennsylvania - its first shale positions in the Eagle Ford and the Permian Basin, both in Texas and two of the heartlands of the US oil boom.

Dave Stover, chief executive of Noble, said it was buying into shale regions that were among "two of the most economic in the US, which will expand our resource base and development inventory and further diversify our portfolio".

Mr Stover said Rosetta's assets would be able to generate enough cash to finance the drilling needed to increase production by 15 per cent per year for several years.

Noble's strong financial position meant it had more freedom to drill when it needed to, he added.

"The combination of scale and financial strength means we are set up to take full advantage of the assets," he said.

Analysts said the world's oil and gas producers were poised to embark on a round of dealmaking that could reshape the energy industry, reacting to the recent collapse in prices by targeting rivals to replenish falling reserves.

Figures from Morgan Stanley analysts show the number of deals announced, including asset sales, standing at 38 so far this year, with a total value of $93bn, after a near moribund first quarter in which just 30 transactions worth about $4bn were done - a 20-year low.

Signs of a recovery in deal volumes, albeit tentative, owe much to a slide in companies' stock market valuations, which have yet to track higher after a strong rebound in the price of Brent crude to $65 a barrel.

While the total value of deals announced in the second quarter will be skewed by Royal Dutch Shell's £55bn agreed offer for BG Group, analysts point to evidence that activity is picking up.

Martijn Rats of Morgan Stanley said deals were "arguably cheaper and safer" than capital spending for oil and gas producers. "With depressed exploration and production valuations . . . the opportunity for the majors to cheaply replenish portfolios at below organic finding and development costs increases," he added.

Mr Rats saw a "sweet spot" of rising oil prices and falling costs, the result of companies' efforts to slash expenses, leading to a recovery in free cash flow and increased transactions.

Big oil groups were likely to turn to acquisitions, following the Shell-BG deal, having replaced just 88 per cent of their production in 2014, versus 111 per cent the previous year, he added.

Noble's Mr Stover added that the company was not yet planning to step up drilling on its existing assets.

"I think folks are going to be feeling comfortable with that if we're heading back towards $70," he said. "I would not expect to see a big change in activity unless we get back to that area."

The Noble-Rosetta deal received an initially negative response from investors, with Noble's shares being marked down about 5 per cent in early trading in New York.

The deal offers 0.542 shares in Noble for every Rosetta share, valuing the target's equity at $1.9bn based on the buyer's share price of about $46.60 on Monday morning. Noble is also taking on about $1.8bn in debt.

At that valuation, the offer is worth $25.26 per Rosetta share, a premium of 31 per cent to its closing price on Friday.

However, the offer is still worth less than half Rosetta's share price at its peak of over $60 in 2013. The company reported disappointing results earlier this month.

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