McClendon’s American Energy Acquires Utica Shale Acreage

American Energy Partners LP, founded by former Chesapeake Energy Corp. (CHK) Chief Executive Officer Aubrey McClendon, agreed to buy 56,000 acres of drilling leases from Exxon Mobil Corp. (XOM) and Paloma Partners LLC to become the dominant explorer in the southern Utica Shale.

Including the 74,000 Utica acres acquired from Hess Corp. (HES) last week for $924 million, American Energy now has about 260,000 net acres in the region, the Oklahoma City-based company said today in a statement. It didn’t disclose how much it paid for the Exxon and Paloma purchases.

The total holdings are more than double the target leasehold announced by American Energy in October after it raised about $1.7 billion and said it was targeting the Ohio formation. Drilling in the Utica has expanded fivefold in the past year as explorers sought to extract natural gas with high concentrations of valuable byproducts such as propane and ethane, according to data compiled by Bloomberg Industries.

“It’s obvious that Aubrey is going to get very active again,” T. Boone Pickens, whose investment company sold at about half a million shares in Chesapeake in 2012, said in an interview today. “We’ll see where we go from there.”

Utica Promise

As CEO of Chesapeake, which he built into the second-largest U.S. gas producer, McClendon led the charge into the Utica. While he declared in 2011 that the formation would rival the Eagle Ford Shale in south Texas, the Utica hasn’t lived up to the hype and explorers have narrowed their focus to a slim section where the pressure and byproducts content are high enough to yield profitable results.

American Energy plans to drill about 2,700 gross wells and 1,600 net wells during the next decade. Houston-based private-equity firm Energy & Minerals Group is lead investor with additional backing from First Reserve Corp. and management of the affiliate, American Energy - Utica LLC, involved in acquiring the acreage.

About 90 percent of American Energy’s acquired acreage is in the core of the southern Utica deposit, defined as southern Jefferson, Belmont, eastern Guernsey, Harrison, Monroe and Noble counties, according to today’s statement.

Exxon said in a statement today that McClendon’s company was the highest bidder for about 30,000 net acres operated by its XTO Energy subsidiary. XTO will continue to drill its own wells on 55,000 acres of drilling rights which it retained.

Separately, Exxon said it agreed to fund exploration of 34,000 acres in the Permian Basin of west Texas by Endeavor Energy Resources LP. Endeavor will continue drilling shallow wells while Exxon’s XTO probes deeper layers, according to the statement.

Hess Sale

Closely held Paloma Partners, based in Houston, anticipated drilling its first Utica well in June, according to its website.

Hess, the New York-based oil company that’s been selling assets and streamlining operations, announced the sale of dry gas acreage in the Utica on Jan. 29, without identifying the buyer. Charlie Rexford, a spokesman for American Energy, confirmed today it was the purchaser.

McClendon resigned from Chesapeake in April after a shareholder revolt led by Carl Icahn and Southeastern Asset Management Inc.’s O. Mason Hawkins. A board inquiry into McClendon’s use of personal stakes in company-owned wells to obtain more than $800 million in private loans cleared him of wrongdoing a year ago.

To contact the reporters on this story: Jim Polson in New York at jpolson@bloomberg.net; Joe Carroll in Chicago at jcarroll8@bloomberg.net

To contact the editor responsible for this story: Susan Warren at susanwarren@bloomberg.net

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