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Japanese Trading House Buys Stake in Barnett Shale

Japanese trading house Sumitomo Corp. said last Tuesday it would pay an estimated $15.7 million to acquire a one-eighth (12.5%) stake in 16 of Carrizo Oil & Gas Inc.'s Barnett Shale drilling units, including six recently completed wells. Sumitomo is said to be the first Japanese company to participate in the U.S. gas shale business.

According to Carrizo, the wells in which Sumitomo is participating now produce around 1.25 MMcf/d net. As part of the joint venture agreement Sumitomo would participate in completing 18 drilled wells and the drilling and completion of 12 more wells under similar terms. In addition Sumitomo has the option to participate at the same working interest in up to 56 future wells within the Barnett units.

"We view Sumitomo as a strong partner that will permit us to opportunistically accelerate drilling in our core Barnett Shale development area," said Carrizo CEO S.P. "Chip" Johnson IV. "We believe that this joint venture relationship with Sumitomo also has the potential to expand into other exciting resource plays as well."

Sumitomo CEO Susumu Kato said the Tokyo, Japan-based company "intends to expand our business in the shale gas industry and strengthen our partnership with Carrizo to achieve mutual growth..." Sumitomo plans to be "actively seeking opportunities for investment in the near future" to expand its exploration business worldwide.

Pacific Summit Energy LLC, which is a subsidiary of Sumitomo, now trades natural gas in the United States, Kato said, "and will be able to handle the equity gas of Barnett Shale at the earliest. Through this participation, an establishment of a value chain from upstream gas development to sales of the production gas is created." In addition, Sumitomo, which is a major supplier of Oil Country Tubular Goods in the United States, "has focused on the shale gas business, which has future growth potential. This participation would enhance our integrated corporate strength in the U.S.A."

Sumitomo's main U.S. office is in New York City. It also has U.S. offices in Atlanta, Chicago, Denver, Detroit, Houston, Los Angeles, Pittsburgh, Portland, OR, and Washington, DC. Its Canadian offices are in Calgary, Montreal, Toronto and Vancouver.

In July Sumitomo Corp. of America (SCOA), in conjunction with its parent corporation, entered the U.S. wind energy business by purchasing a 42.5% interest in Stanton Wind Energy LLC from AIG Financial Products Corp.

The Stanton 120 MW wind farm in Martin County, TX, is operated by Stanton Wind Holdings LLC, a subsidiary of Invenergy Wind North America LLC. The project began commercial operation in February 2008. GE Energy Financial Services also holds a stake in the project.

SCOA said in July the company intends to vigorously develop the wind business in North America.

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