Joint ventures (JV) have given Chinese and Korean companies a toehold in U.S. shale gas plays while hardly raising an eyebrow among those who might oppose an outright corporate takeover of a U.S. energy company by such a foreign interest. However, it's only a matter of time before such a deal happens, Deloitte LLP consultants said.
While previous corporate plays for U.S. companies by foreign interests "didn't go off so well," JVs have been "a popular mechanism for getting access into the U.S. environment," Deloitte's Trevear Thomas told reporters during a briefing Tuesday in Houston. But "it's just a matter of when, not if," before a company from China, Korea or somewhere else buys a U.S. energy company, he said.
Deloitte's Jim Dillavou allowed that there has been unease about having Chinese firms or entities from other nations owning U.S. companies, "but that will probably dissipate with their involvement in the marketplace [through JVs] and as time goes by," he said. "I think experience would say that makes it easier for them to do it, once they have a presence, have a company, maybe even have a vehicle that's operating that seems more like a U.S. company that helps break down those barriers over time, but I'm not saying it's going to be 2011.
"This is clearly in my mind a stepping stone."
Dillavou said there likely would be more resistance to ownership of a U.S. energy company by a state-owned/controlled entity. "It certainly will give some pause politically, but probably something that dissipates with time," he said. "It also may be a whole lot different when you're talking about a [target] company with $5 billion in market cap versus an ExxonMobil... Clearly taking one of the majors would be a whole different story."
In February China National Offshore Oil Corp. (CNOOC) struck its second deal with Chesapeake Energy Corp. (see Daily GPI, Feb. 3; Oct. 12, 2010). More recently, Korea National Oil Corp. entered a JV with Anadarko Petroleum Corp. (see Daily GPI, March 22). These deals followed the unsuccessful attempt by CNOOC to acquire Unocal Corp. nearly six years ago (see Daily GPI, Aug. 3, 2005).
"I think it's a very good model, and they're exploiting it," Thomas said of the JV strategy. "You look at the foreign entrants; they're all over the globe that are coming into the U.S. and structuring these types of arrangements. So it seems to be a very accessible model to get into the U.S. market in that fashion versus a corporate play."
One impetus for international companies to buy into U.S. shale plays has been to learn about technologies used to ply the shales and then apply them elsewhere, Dillavou said. "'We need to get involved and understand shale because we're global; we're maybe more interested in something somewhere else on another continent, but we really need to get into the market and involved in a venture and understand it so we can take this somewhere else.'"
Thomas called activity around unconventional U.S. plays a bonanza. "It's pretty interesting in terms of foreign entrants coming in from around the world, coming in and partnering with some of the independents to exploit this opportunity."
More broadly, Deloitte said this year will be a strong one for energy industry deal activity.
"Right now, North America remains the center of E&P [exploration and production] transaction activity as domestic and international buyers of all types continue to be drawn to unconventional assets," wrote the firm's Gary Adams, vice chairman for U.S. oil and gas, in the introduction to "Oil & Gas Mergers and Acquisitions: A lot of talk, much more action," a new report. "The openness of the North American markets to outside investment and the long-term potential of the region's shale and oilsands fields attract investors despite recent weakness in natural gas prices."
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