Japan's Sumitomo Corp. is reportedly looking to add more American shale gas investments to its energy portfolio and is shopping for new opportunities in shale oil, but it might wait to make a move on shale gas until natural gas prices are higher.
"We have already invested in gas assets in the United States but would like to expand further if there are opportunities," Bob Takai, the company's energy division manager, told Reuters in an interview. He predicted that the shale gas market would continue to grow.
Sumitomo already has investments in the Barnett and Marcellus shale plays. The company bought a 12.5% stake in 16 of Carrizo Oil & Gas Inc.'s Barnett Shale drilling units for about $15.7 million in December 2009 (see Daily GPI, Dec. 18, 2009).
Then last August a Sumitomo subsidiary, Summit Discovery Resources II LLC, forged a joint venture (JV) agreement with Rex Energy Corp. in the Marcellus (see Daily GPI, Sept. 1, 2010). Under the JV, Rex sold Sumitomo 12,900 net acres, wells and other midstream assets in Butler County, PA, for about $88.4 million in cash and another $52 million in a drilling carry.
Takai said the company would wait until natural gas prices rose from $4.50/MMBtu, the current price, to $6/MMBtu before making additional forays into the shale gas market. He also predicted that growing demand for natural gas in the United States, as well as continuing concerns over the safety of nuclear power, would prevent prices from falling below $3/MMBtu.
Shale oil, however, is a different story.
"Given the high price of oil, it is better to hold oil assets now," Takai said. "We would like to pick U.S. shale oil assets with large reserves. For instance, if there is a company looking to sell a good asset in a big reserve like the Eagle Ford, then that would be a target. Reserves in the North Sea are declining so for the purpose of diversification by region, we are shifting our portfolio to the U.S. where reserves are abundant."
Takai indicated that so long as natural gas prices remain low, Sumitomo could shed some of its shale gas assets in order to acquire more oil assets, including shale oil in the United States.
But investment in shale oil could also hinge on prices. Takai said he predicts that Brent (North Sea) crude will rise to between $130/bbl and $140/bbl in 2012, and that the gap between Brent and U.S. crude oil futures would widen from about $20/bbl now to $40/bbl within the next two years. Takai said Brent's rise -- coupled with the United States reducing its reliance on foreign oil and shifting to natural gas -- would continue to drive down prices for U.S. crude oil.
Takai said that while other investment opportunities were out there -- specifically mentioning Brazil, Africa and Asia -- he indicated that Sumitomo was primarily focused on opportunities in the United States.
Takai added that the company was not planning to export the natural gas it was drawing from the Barnett and Marcellus shales to Asia as liquefied natural gas (LNG) because of the costs to build liquefaction facilities and U.S. export regulations.