US Shale Plays To Serve As Labs for Total, Other Large Players
French oil giant Total on Monday became the latest major oil company to cut a deal for access to prolific shale gas fields in the U.S., but it probably won’t be the last.
Oil companies are looking to expand holdings of natural gas amid stricter environmental laws and forecasts that use of cleaner-burning fuel will grow in coming years. They also see complex U.S. shale plays as ideal laboratories for honing technology and expertise that can be used to unlock similar formations in other parts of the world.
“Many of the companies that weren’t first in have done their homework now, and are making their move to try to correct that,” said Bob Fryklund, an analyst with IHS-Cambridge Energy Research Associates in Houston.
In Total’s case, that meant agreeing to pay $2.3 billion for 25 percent of Chesapeake Energy Corp.’s acreage in the Barnett Shale play in North Texas, as well as forming a joint venture with the Oklahoma City-based producer in the region.
Total E&P USA, a Houston-based subsidiary of the French oil company, will be the joint venture partner.
Chesapeake said Monday it had also agreed to talk to Total about teaming up to develop acreage in the Eagle Ford Shale play in South Texas and in several Canadian natural gas plays.
Similar deals have taken place in recent years as high commodity prices and improved technology enabled oil and natural gas companies to crack open dense shale rock formations and boost U.S. natural gas output.
Last month, Exxon Mobil Corp. said it would acquire Fort Worth’s XTO Energy, also a big player in the Barnett Shale, in a deal valued at $41 billion. Royal Dutch Shell, BP and others have also written big checks for access to North American shale plays.
“If you look at it, we’re close to $60 billion from mostly supermajors that have come in,” Fryklund said, counting the recent Exxon Mobil deal.
“They’re all kind of validations of shale gas developments and underpin a positive outlook for those plays and the U.S. natural gas plays in general,” said Keith Behrens, managing director of energy markets with Stephens Inc. Investment Bankers in Dallas.
Chesapeake has been involved in several large shale deals recently. The Total deal marks the company’s fourth joint venture transaction in major U.S. shale plays in the last 18 months, after transactions with London’s BP, Norway’s Statoil and Houston’s Plains Exploration and Production Co. Those moves steered a combined $10.8 billion to Chesapeake.
Chesapeake CEO Aubrey McClendon said the Total deal will allow the company to reduce its financial leverage and future capital expenditures and “further position us to deliver industry-leading finding and development costs and returns on capital for years to come.”
Under the deal, Total will pay $800 million in cash and an additional $1.5 billion in drilling and development costs. Assets covered by the joint venture include about 270,000 acres, with some 700 million cubic feet of natural gas in production and about 3 trillion cubic feet of natural gas in proven reserves.
Total CEO Christophe de Margerie said the joint venture gives his company “a solid position in an attractive long-term resource base” and praised Chesapeake as the “world’s leading shale gas operator.”
The venture also will allow Total to develop expertise it can use in other unconventional resource plays, he said.
Other major oil companies, wary of missing out on such potential, may also be on the hunt for assets in U.S. shale plays, Behrens said.
“To the extent that some of the other majors haven’t done a deal yet, yeah,” he said. “They could be looking.”
Source: RIGZONE
