China's China Petroleum & Chemical Corp. (Sinopec) and France's Total SA made major purchases into the U.S. energy sector on Tuesday, pouring $4.5-billion (U.S.) into deals to buy into booming production from shale rock formations.
The ventures showed that the global appetite for U.S. energy assets remained strong, with foreign oil and gas producers eager to invest in several of the mostly undeveloped fields that are believed to hold billions of cubic feet of natural gas and liquids.
Sinopec's Sinopec International Petroleum Exploration and Production Co. made its first foray into U.S. shale with a $2.2-billion investment to create a joint venture with Devon Energy Corp.
That gives Sinopec a one-third interest in five fields, while Total's $2.3-billion deal with Chesapeake Energy Corp. is its second joint shale venture with the U.S. company.
U.S. oil and gas producers have been in a frenzied land grab in recent years to buy up rights that allow them to tap into the lucrative fields under development in Texas, Pennsylvania, Ohio and other states.
That has left many looking for deep-pocketed partners to form joint ventures to help pay for the expensive hydraulic fracturing technology that allows them to crack the brittle shale rocks and extract the natural gas and other products.
"It looks like the preferred transaction structure for a lot of these players, whether they are European or Asian, who are behind the curve on this technology. The more exposure they get, the better," said Mark Hanson, an oil and gas analyst at Morningstar Inc.
Chesapeake had said in November that it was close to a deal to bring in a partner to help it develop the Utica field in Ohio, where the company is ramping up drilling in fields that it says are rich in liquids as well as natural gas.
With U.S. benchmark natural gas prices slumping below $3 per million British thermal units, their lowest levels in more than two years, energy producers are focused on wells that contain high amounts of liquids such as propane, butane and ethane, whose price are linked to crude oil.
That helped Chesapeake strike the Utica deal for nearly $15,000 an acre, analysts said, a high price for the field where only about a dozen wells have so far been drilled. That price is well above the $7,000 to $9,000 completed recently in the neighbouring Marcellus Shale, but below the peaks near $20,000 seen in Texas's Eagle Ford field.
"They got Total to pony up pretty good money. They definitely know how to squeeze their [joint venture]partners," Hanson said.
The Devon deal was unexpected, since the company does not have the heavy debt load of Chesapeake.
"Devon isn't in dire need of the proceeds," analysts at Sanford Bernstein wrote in a note to investors, but the move will pad its balance sheet and perhaps allow it to expand into new areas.
Total's deal with Chesapeake, which also includes smaller group Enervest, comes as officials in Ohio grow increasingly concerned about several small earthquakes that have occurred near the sites of some disposal wells.
The state said on Sunday that it had suspended operations at five wells used to dispose of the hazardous fracking fluids used by energy companies just one day after a 4.0 quake.
Those earthquakes, which have also been recorded near disposal sites in Arkansas and around wells in Oklahoma and Texas, come as environmental groups are pressuring federal and state regulators to tighten rules around the use of those fracking fluids.
For many of the foreign companies, the investments are also designed to bring technical knowledge on how to use the fracking technology in shale and other fields around the globe that are believed to hold huge energy reserves.
Statoil ASA of Norway last October paid $4.4-billion for Brigham Exploration Co. to boost its unconventional energy resources in the United States, one of its key growth areas, while India's Reliance Industries Ltd. is also looking to invest more in the U.S. shale gas industry.
Devon's deal calls for Sinopec to invest in 1.2 million acres in Devon's positions in the Tuscaloosa Marine Shale in Alabama and Mississippi, the Niobrara in Colorado, the Mississippian, the Utica Shale in Ohio and the Michigan Basin.
Sinopec has been on an acquisition hunt over the past year, buying a stake in Chevron Corp's deepwater Indonesian project in October, an Australian LNG joint venture, a deal to buy into a Brazilian oil services group, and the $2.1-billion acquisition of Canada's Daylight Energy Ltd. (Reporting By Matt Daily and Mike Erman in New York, Anna Driver in Houston, Swetha Gopinath in Bangalore and James Regan and Caroline Jacobs in Paris.)