Meet EXCO's Powerful New Partner

Boy, just as soon as I finish remarking on the recent uptick in decent-sized oil & gas deals, an even bigger announcement hits the wires.

Yesterday, EXCO Resources (NYSE: XCO  ) kicked some assets (mostly developed properties) to Encore Acquisition (NYSE: EAC  ) , including some of the former's East Texas assets. Today, the U.K.'s BG Group has scooped up a 50% stake in a bigger piece of EXCO's East Texas holdings, in addition to a slug of Louisiana acreage, for a little over $1 billion. In total, we're talking about 120,000 net acres.

As I noted yesterday, the Cotton Valley play is nothing to get excited about at today's (or arguably tomorrow's) gas prices. Elsewhere, I've pointed out that other Cotton Valley players like GMX Resources (Nasdaq: GMXR  ) have all but abandoned the target for the time being. Critically, then, 70% of this area of mutual interest being formed with BG is prospective for the Haynesville shale formation. That's really what the European E&P is eyeing.

BG may not be too well known to U.S. investors, but it's a serious player in international exploration and production. The firm has a foothold in Brazil's deepwater that is no doubt the envy of many a supermajor. BG is also big into coalbed methane and LNG, thanks to its recent multibillion-dollar takeover of Australia's Queensland Gas.

Shale gas is a natural foray for BG, and the firm follows in the footsteps of other European heavyweights like BP (NYSE: BP  ) and StatoilHydro (NYSE: STO  ) as it teams up with a U.S. player to cut its teeth as a horizontal driller. Operationally, EXCO is no Chesapeake Energy (NYSE: CHK  ) , but technical knowledge spreads quickly in the oil patch, and the firm shouldn't have too much trouble getting up to speed.

Speaking of Chesapeake, it shouldn't be long before the firm unveils yet another in its long line of joint ventures. Given the European flavor of clientele to date, I wouldn't be surprised to see someone like Total SA (NYSE: TOT  ) become the next energy giant to join the great shale game.

Chesapeake Energy is an Inside Value selection. StatoilHydro and Total are Income Investor recommendations. See if any of our newsletters spins your drill bit with a free 30-day trial.

Fool contributor Toby Shute doesn't have a position in any company mentioned. Check out his CAPS profile or follow his articles using Twitter or RSS. The Motley Fool has a disclosure policy.


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