Shell swoops in $4.7bn deal to tap US shale gas reserves

Royal Dutch Shell has increased its holding of unconventional "shale gas" by buying a privately owned US company – East Resources of Pennsylvania – for $4.7bn (£3.2bn).

As well as taking over one million acres of land in the East Resources deal, the oil major bought another 250,000 acres of mineral rights at the Eagle Ford shale play in south Texas. Taken together, the new reserves have the potential to yield more than 2.7 billion barrels of oil equivalent (boe).

East Resources operates more than 2,500 wells producing oil and gas in New York, Pennsylvania, West Virginia and Colorado, and is exploring drilling programmes in Wyoming.

Recent technical breakthroughs in extracting natural gas from shale – sedimentary rock composed of mud, quartz and calcite – have changed the economics of the unconventional reserves, prompting a rush of interest from oil and gas companies.

Peter Voser, the Shell chief executive, said its latest deals were intended to enhance its portfolio for "profitable growth". "These acreage additions form part of an ongoing strategy, which also includes divestments, with an objective to grow and to upgrade the quality of Shell's North America tight gas portfolio," he added. "The opportunity now is to consolidate our tight gas portfolio, divest from non-core positions across North America, and to invest for profitable growth, by deploying Shell's technology and capabilities on a large scale."

Shell first showed interest in shale gas in 2001, with the acquisition of reserves in Wyoming, and massively increased its holding in 2008 with the purchase of Duvernay. Last year, the group's US shale gas production hit 140,000 boe per day – 62 per cent more than the year before.

Shell's target is to reach annual production of more than 400,000 boe per day by 2020 "subject to annual investment rates". Yesterday's acquisitions boosted its total US shale gas portfolio to 3.6 million acres.