International players jump at U.S. shale

01 04, 2012 by Fuel Fix

Energy companies are funneling billions of dollars into the booming business of U.S. shale drilling. They are investing euros, yuan and krone, too.

Chinese corporation Sinopec and French company Total this week became the latest in a string of foreign firms to announce big bets on the resurgence of U.S. fossil fuel production.

International energy companies are signing billion-dollar deals with U.S. firms to reap the financial benefits of their oil fields and siphon knowledge from their experience in extracting petroleum from dense shale rock to carry the skills overseas.

In return, they are ponying up the funds to get more wells drilled, so the oil and natural gas bounty trapped deep below can get to market quickly.

“The big motivation for (U.S. companies) wanting to find a partner is finding someone with big pockets,” said Scott Hanold, energy research analyst for RBC Capital Markets. “They are just money men at the end of the day.”

Total signed its second shale compact with Oklahoma-based natural gas producer Chesapeake Energy last week to secure acreage in Ohio’s burgeoning Utica shale. The French energy giant got 25 percent interest in a 619,000-acre joint venture with Chesapeake and Houston-based EnerVest. In exchange, it forked over $700 million cash along with a promise to fund 60 percent, or about $1.63 billion, of the group’s drilling and well completion costs in the Utica.

The companies plan to have 25 rigs operating by 2014.

China’s Sinopec International Petroleum Exploration & Production Corp. muscled its way into U.S. shale with a $2.2 billion investment in oil fields owned by Oklahoma-based energy company Devon, announced Tuesday.

The Chinese corporation gains one-third interest in Devon’s 1.2 million acres in the Utica shale, the Michigan Basin, the Mississippian in Oklahoma, the Tuscaloosa marine shale in Louisiana and the Niobrara in Wyoming.

Sinopec will pay $900 million cash when the deal closes, expected in 2012′s first quarter, and cover 70 percent of Devon’s drilling costs, about $1.6 billion.

Total and Sinopec follow other international energy powerhouses who have crossed the Atlantic recently, including Norway’s Statoil.

“It’s a continuation of a very fevered process of large international companies with cash coming into North America,” Hanold said.

Including Total’s deal, overseas-based companies spent about $33 billion buying into U.S. shale through acquisitions or joint ventures last year, according to data from research firm IHS.

That’s more than double the amount they shelled out in 2010, about $15.8 billion. In 2009, they spent just $3.6 billion.

For the international energy behemoths, North America’s rapidly expanding shale fields can be viewed as a sure and easy bet, requiring big bucks, but little work, said John Parry, principal analyst for IHS.

The oil and natural gas has been located and the pipelines and infrastructure are in often place. For example, 13 wells had already been drilled in Chesapeake’s Utica shale acres, “with very promising results,” when Total signed on, the French company noted in its news release.

“The exploration phase, that risk, is largely removed. You don’t have to go out and find this gas. You already know it is there,” Parry said. “They can come on and start drilling right away because everything is in place.”

The deal is a win-win, he said. Partnerships can help U.S. companies spread the risk of drilling for oil and natural gas, which, with fluctuating commodity prices, isn’t always an economical business.