From the FT's Lex blog
The scramble for shale is gaining momentum. With shale gas accounting for an ever larger share of U.S. natural gas production, international oil companies are queueing up to buy vast tracts of American land -- and U.S. companies are lining up to sell it to them.
Tuesday’s announcement that Total of France has created a $2.3-billion shale gas joint venture with Chesapeake Energy and EnerVest, a smaller local investment partner, illustrates the trend perfectly. The deal further rebalances Total’s portfolio and enables Chesapeake to monetize a valuable but sprawling asset.
The U.S. laments its addiction to oil -- by which it means foreign and in particular Middle Eastern oil. But its vast quantities of shale gas, which can be turned into oil and oil products, could transform its role as a producer and consumer of energy. Shale gas accounts for 34 per cent of U.S. natural gas production and will grow to 43 per cent by 2015, with annual capital expenditure rising to $48-billion, IHS Global Insight notes.
The trick is getting the companies with the deepest pockets and largest appetites to pay for that investment. The agreement between Total and Chesapeake looks to have achieved this. Total is paying Chesapeake and EnerVest $700-million for 25 per cent of their 619,000 acres in a part of Ohio known as the Utica shale play, but the French group will fund the joint venture’s capex to the tune of 60 per cent, or $1.6-billion, for seven years. Total will pay around $15,000 an acre in Ohio; Statoil paid about $12,000 an acre when it bought Brigham Exploration of Texas last October. That trend looks set to continue, at least until demand peaks.
Fracking, the hydraulic technique used to extract gas from rock, is the ugly downside to shale. Its polluting effect is at the heart of court cases in the U.S. that could determine the sector’s economics. For now, though, shale looks like the new gold rush.