With dry gas prices continuing to disappoint, the oil and liquids-rich Eagle Ford Shale in South Texas is continuing to draw numerous investors and billions of dollars from near and far, including most recently China's CNOOC Ltd. (China National Offshore Oil Corp.) in a deal valued at more than $2 billion.
CNOOC on Sunday said it agreed to buy a one-third stake in Chesapeake Energy Corp.'s 600,000 net acres in the Eagle Ford Shale in South Texas for $1.08 billion in cash and said it will fund 75% of Chesapeake's share of drilling and completion costs up to another $1.08 billion.
Also on Sunday, a venture of Talisman Energy Inc. and Statoil ASA said it is acquiring acreage in the Eagle Ford Shale in South Texas from Enduring Resources (see related story).
It was China's first bid for ownership of a major piece of U.S. oil and gas assets since its unsuccessful $18.5 billion offer for Unocal Corp. in 2005. CNOOC withdrew that offer in the face of a firestorm of political opposition to China taking over a U.S. company (see Daily GPI, Aug. 3, 2005).
In the deal with Chesapeake the companies made clear that as operator, Chesapeake will conduct all leasing, drilling, completion, operations and marketing activities of the joint venture. Over the next several decades, the companies said they plan to develop net unrisked unproved resource potential up to 4 billion boe (after deducting an assumed average royalty burden of 25%).
"This transaction will provide the capital necessary to accelerate drilling of this large domestic oil and natural gas resource, resulting in a reduction of our country's oil imports over time, the creation of thousands of high-paying jobs in the U.S. and in the payment of very significant local, state and federal taxes," said Chesapeake CEO Aubrey McClendon. "...[T]his project will advance the efforts of both the U.S. and China to reduce greenhouse gas emissions and accelerate commercial opportunities for the development of shale gas resources in China, furthering the objectives of the U.S. -- China Shale Gas Resource Initiative announced by the White House on Nov. 17, 2009."
Analysts at Jefferies & Co. Inc., which advised Chesapeake on the deal, noted that the price paid was in line with that of the Talisman Energy Inc. and Statoil ASA Eagle Ford acquisition. The Chesapeake deal works out to $10,800 per acre while the Eagle Ford acquisition by Talisman and Statoil came in at $10,900 per acre, the analysts noted.
Chesapeake is currently utilizing 10 operated rigs to develop its Eagle Ford leasehold, and with the additional capital from CNOOC anticipates increasing its drilling activity to approximately 12 operated rigs by year-end, approximately 31 rigs by year-end 2011 and approximately 40 rigs by year-end 2012. About 900 wells are expected to be drilled by year-end 2012.
Currently, Chesapeake has 10 horizontal Eagle Ford wells in production with initial production rates of up to 1,160 bbl of oil and 0.4 MMcf of natural gas per day in the oil window and 4 MMcf of natural gas and 1,200 bbl of oil per day in the wet gas window. Chesapeake anticipates that the project will reach its peak production of 400,000-500,000 boe/d in the next decade.
The assets are principally in the counties of Webb, Dimmit, LaSalle, Zavala, Frio and McMullen, and are primarily in the oil window (about 85%) and the wet gas window (about 15%) of the Eagle Ford and in the dry gas window of the Pearsall Shale. CNOOC will have the option to acquire its 33.3% share of any additional acreage acquired by Chesapeake in the area and also the option to participate with Chesapeake for a 33.3% interest in midstream infrastructure related to production established from the assets.
"This brings the combined proceeds from our shale development ventures, including upfront cash payments and drilling carries, since 2008 to approximately $13 billion," McClendon said. "Chesapeake has continued to maintain a majority position in each of the five major projects subject to development arrangements ranging from 67% to 80%. The implied predevelopment value of Chesapeake's retained interest in those shale ventures is approximately $37 billion based on the valuations in the sale transactions."
Hong Kong-based CNOOC is China's largest producer of offshore crude oil and natural gas and one of the largest independent oil and gas exploration and production companies in the world. "