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CNOOC in US shale oil deal
By Richard Fu |
October 11, 2010, Monday
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Online Edition
Online Edition
CNOOC Ltd agreed to pay US$1.08 billion (7.2 billion yuan) for a one-third interest in a Chesapeake Energy Corp shale oil and gas field in Texas, in its first acquisition deal in the United States after the failed Unocal Corp bid in 2005.
This could be a win-win deal for the Chinese company because Chesapeake has a weak balance sheet, which has hindered its ability to fully monetise its vast gas resources, while CNOOC's extraordinary production growth has outpaced its reserves increase in recent years, analysts said.
In the deal worth up to US$2.16 billion announced today, CNOOC plans to buy a 33.3 percent stake in the 600,000 acres that Chesapeake leases in the Eagle Ford shale project. CNOOC also agreed to fund 75 percent of Chesapeake's share of drilling and completion costs until an additional US$1.08 billion has been paid.
CNOOC withdrew an US$18.5 billion bid for Unocal in 2005 amid US political opposition. Soon after, Unocal merged with Chevron. This time CNOOC shows confidence as it expects the transaction to be closed in the fourth quarter this year.
"We see no regulatory hurdles in this deal," Mirae Asset Securities analyst Gordon Kwan said.
Kwan estimated CNOOC's acquisition cost is about US$18 per barrel of oil equivalent in the Eagle Ford deal, which is attractive when compared to its existing proved reserves valued at US$35.
Chesapeake expects the project will reach its peak production of 400,000 to 500,000 barrels of oil equivalent per day by 2020. Kwan said CNOOC's stake will translate to about 150,000 barrels, or about 17 percent of its current production rate.
Shale is the rock formations underground that hold oil and natural gas reserves, and has become a key energy source in the US thanks to new techniques. Chesapeake CEO Aubrey McClendon said the project will advance the efforts of both the US and China to reduce greenhouse gas emissions and accelerate commercial opportunities for the development of shale gas resources in China.
The CNOOC-Chesapeake deal came the same day as Canada's Talisman Energy and Norway-based Stateoil announced they were going to acquire acreage on the Eagle Ford prospect for US$1.3 billion.
This could be a win-win deal for the Chinese company because Chesapeake has a weak balance sheet, which has hindered its ability to fully monetise its vast gas resources, while CNOOC's extraordinary production growth has outpaced its reserves increase in recent years, analysts said.
In the deal worth up to US$2.16 billion announced today, CNOOC plans to buy a 33.3 percent stake in the 600,000 acres that Chesapeake leases in the Eagle Ford shale project. CNOOC also agreed to fund 75 percent of Chesapeake's share of drilling and completion costs until an additional US$1.08 billion has been paid.
CNOOC withdrew an US$18.5 billion bid for Unocal in 2005 amid US political opposition. Soon after, Unocal merged with Chevron. This time CNOOC shows confidence as it expects the transaction to be closed in the fourth quarter this year.
"We see no regulatory hurdles in this deal," Mirae Asset Securities analyst Gordon Kwan said.
Kwan estimated CNOOC's acquisition cost is about US$18 per barrel of oil equivalent in the Eagle Ford deal, which is attractive when compared to its existing proved reserves valued at US$35.
Chesapeake expects the project will reach its peak production of 400,000 to 500,000 barrels of oil equivalent per day by 2020. Kwan said CNOOC's stake will translate to about 150,000 barrels, or about 17 percent of its current production rate.
Shale is the rock formations underground that hold oil and natural gas reserves, and has become a key energy source in the US thanks to new techniques. Chesapeake CEO Aubrey McClendon said the project will advance the efforts of both the US and China to reduce greenhouse gas emissions and accelerate commercial opportunities for the development of shale gas resources in China.
The CNOOC-Chesapeake deal came the same day as Canada's Talisman Energy and Norway-based Stateoil announced they were going to acquire acreage on the Eagle Ford prospect for US$1.3 billion.
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