Tuesday, August 25, 2009

More on International Attention to Shale

The Financial Times has an interesting article and blog post about the attention major international energy producers have paid to shale gas.  Many of the deals are well-known, such as Chesapeake Energy's deals with StatoilHydro and BP, as well as Exco Resources' deal with BG Group (the old British Gas). (Note: you may have to register (for free) to view more than two stories at FT.com, but don't hesitate, because it's a great paper.)  I've noted previously much of what the stories report, but they offer a good overview of what is going on and there are a few new and interesting morsels in each story. 

One of the most interesting points is that the strategy of buying production or creating a joint venture is likely a technique that will be repeated rather than straight acquisitions or mergers.  The acquisition of Burlington Resources by Conoco a few years ago left Conoco with huge financial and accounting burdens, from which it is still trying to extricate itself.  The energy industry watched the aftermath of that deal closely with a "there but for the grace of God go I" feeling.  The new transaction strategy, largely pioneered by Chesapeake, provides access to the resources and the technology behind its extraction without the accounting and management burdens of typical M&A deals. 

Which leads to the second point:  using the gas shale techniques that are being developed in the U.S. could potentially quadrouple the gas resource in the world, says energy industry consultant PFC Energy.  It's no secret that the gas is out there.  The question has always been, how do we get it economically? 

The next few years are going to be exciting in the energy industry.  Natural gas will become a more abundant resource all over the world, and I think this change will lead to significant geopolitical changes down the road.  But the big point that the blog post makes at the end is that those who take the plunge into shale gas now will be the winners down the road.  Chesapeake is likely to make another big JV deal before the end of the year.  The question is which major, from which country will be the partner?

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