Sunday, July 11, 2010

Chesapeake's China Syndrome

The Wall Street Journal reported last week that Chesapeake Energy is seeking suitors in China for a 20%investment in its Eagle Ford Shale acreage as well as possibly a 10% share of its Marcellus Shale assets (Norway's StatoilHydro is already a minority investor in this acreage).  Chesapeake recently sold $1.7 billion of preferred stock to Asian investors, but it is likely that the next in a long line of Chesapeake partners will be an operating company to learn at the feet of the perceived master. 

It is not the first time that Chesapeake has entertained a Chinese joint venture.  Two years ago, Chesapeake was in talks with China National Petroleum Corp. for minority stakes in either the Fayetteville or Marcellus Shales.  Recently, EnCana announced that the company is in discussions with China National Petroleum Corp. for a joint venture for some of its western Canadian shale assets.

China will continue to be an interesting shale gas story.  Much is being made of shale gas in Europe, but with the myriad of international boundaries and high level of urbanization there are lots of obstacles to realizing the dream on The Continent.  China, on the other hand, has a large contiguous land mass, a strong central government and a demonstrated ability to realize ambitious goals.  It also has an insatiable need for energy and an increasing desire to do some "social climbing" on the world stage.  A viable domestic natural gas industry would fit in nicely.  It could help China reduce its dependency on coal and foreign oil.  China  has had to forge some uncomfortable (and expensive) international relationships to feed the machine.  It has also been branded as the world's biggest polluter.

 Keep  your eyes on China.  I think they get it. It will be interesting to see to what extent Western companies can participate in Chinese shale.  I imagine a partnership agreement like Chesapeake and EnCana are contemplating is a good first step.

No comments: