Quicksilver Resources has signed a joint venture (JV) agreement with SWEPI LP, a unit of Shell, to to jointly develop their oil and gas interests targeting the Niobrara formation in the San Wash Basin of Northwest Colorado.
The JV will form an Area of Mutual Interest (AMI) of 850,000 acres in the basin and each company will retain a 50% working interest in roughly 330,000 acres while also retaining a right to a 50% interest in any acquisition within the agreed upon area.
Fort WOrth, TX-based Quicksilver also will receive a payment from SWEPI for 50% of the differential in acreage contributed to the AMI by Quicksilver in excess of the acreage contributed by SWEPI.
SWEPI will be the operator of the majority of the lands subject to the agreement, although Quicksilver will continue to operate wells it drilled prior to the agreement and other designated lands.
“This alliance with Shell in the Sand Wash Basin is a validation of Quicksilver’s efforts over the past two years to unlock significant oil reserves in the Niobrara shale formation. We will now combine our resources to push a much larger project forward,” said Quicksilver chairman Toby Darden in a prepared statement.
The deal is a positive for Quicksilver noted Global Hunter Securities analysts on Tuesday.
“Shell, if not the preeminent operator in the Sandwash, certainly ranks near the top of operators in the area in terms of depth of experience and knowledge operating in the basin. Entering into a partnership with Shell, while even for an undetermined benefit, certainly should rank as a positive for KWK and its Sandwash prospects,” said the analysts.
According to the analysts, a deal involving the company’s Barnett Shale and Delaware Basin assets was expected prior to any deal involving Sandwash Basin assets, however, the execution of the JV deal with Shell “shows that KWK management addressed the entirety of the company's asset portfolio in an effort to strengthen the company,” and allows the company to “take the time to do the right deal rather than just latch on to any deal,” the analysts said.
Closing is expected to occur before year-end 2012.