Monday, October 11, 2010

Chesapeake and CNOOC Sign Eagle Ford Deal

Chesapeake Energy announced yesterday that the Chinese National Offshore Oil Company (CNOOC) has agreed to purchase a 33% stake in the company's Eagle Ford Shale assets for $1.08 billion cash (article).  CNOOC will also fund 75% of Chesapeake's drilling costs on the 600,000 acres up to another $1.08 billion.

Chesapeake currently runs ten rigs in the play but expects to expand that figure to 31 by year end 2011 and 40 by year end 2012.  Presumably most of those rigs will be moved  from the Haynesville Shale.

Asian investors are nothing new to Chesapeake. The company saw several Asian sovereign wealth funds subscribe to a securities offering earlier this summer.  That a Chinese company would partner with Chesapeake in the Eagle Ford has been speculated on for some time.  It is a natural fit.  Chinese companies are looking to build reserves and have heretofore been playing in risky areas like Africa.  They have lots of cash and that's what shale drillers need.  China is also prospective for shale gas development so Chinese companies will want to attend Chesapeake University to learn to drill the stuff.  North America is a desirable place to invest, but after the CNOOC/Unocal debacle a few years ago, Chinese companies are a little gun shy, understandably so.  The Eagle Ford investment doesn't require the same level of approvals, and the type of investment seems a little more palatable to regulators (and protectionists).

The Eagle Ford definitely is hot these days.  Yesterday Talisman Energy of Canada and Statoil of Norway joined together to purchase 97,000 net acres for $1.35 billion.  Everyone is after the liquids!

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