International suitors for North America’s onshore natural gas reserves continue to knock at the door, with India’s Reliance Industries Ltd. last week doubling its stakes in U.S. shales, Abu Dhabi National Energy Co. increasing its stake in Western Canadian gas properties and China National Petroleum Corp. (CNPC) tentatively agreeing to partner with Encana Corp. in British Columbia.
Domestic onshore gas giant Chesapeake Energy Corp. also boasted last week of increased global investments, which it suggested may have been triggered by the Macondo well disaster.
“With the April BP and Transocean deepwater oil spill soiling the Gulf of Mexico more by the minute in what has become the biggest environmental disaster in U.S. history, Chesapeake’s investors apparently had their interest aroused by the opportunity to participate in U.S. onshore plays,” said Motley Fool’s David Lee Smith. “It has seemed to me for some time that natural gas might save us and our environment prior to the eons-away viability of renewable fuels. It now seems that Chesapeake, armed with this new cash from this round of funding, is ready to have an even brighter burning future.”
In a placement that closed June 18, Chesapeake sold $900 million in preferred stock to a group of private investors, including Asian sovereign wealth funds. The transaction followed Chesapeake’s sale in May of $1.7 billion in preferred stock (see NGI, May 17).
In the latest sale, Chesapeake sold shares to sovereign wealth funds China Investment Corp., Korea Investment Corp. and Temasek Holdings, as well as Chinese private equity fund Hopu Investment Management Co. and Hong Kong’s Li Ka Shing Foundation. Abu Dhabi’s sovereign wealth fund and Japan’s Daiwa Securities also are said to be investors.
Reliance, India’s largest oil and gas producer, made the biggest land grab last week, doubling its U.S. shale stakes in a deal with Pioneer Natural Resources Co. (see related story). The transaction, initially estimated at $1.15 billion, gives Reliance a 45% stake in the Dallas-based producer’s Eagle Ford Shale properties in South Texas and adds to a portfolio that includes a substantial partnership in the Marcellus Shale with Atlas Energy Inc.
Also last week Calgary’s Suncor Energy agreed to sell TAQA North, a subsidiary of Abu Dhabi National Energy Co., gas-related properties in Western Canada for C$285 million. Current production on the assets to be sold is about 6,100 boe/d. The sale includes the Bearberry and Ricinus properties, which are located in west central Alberta, near Sundre. The sale is expected to close by the end of September.
TAQA-related subsidiaries have been making a name for themselves in North America, and now are among Canada’s biggest gas production and processing companies (see NGI, May 31; Dec. 3, 2007; Oct. 1, 2007; June 4, 2007). TAQA also has been prowling for U.S. generating assets (see NGI, Dec. 22, 2008).
The biggest deal still in negotiations last week was one by Encana Corp., Canada’s largest gas producer and one of the biggest independents in North America. Late Thursday it announced the preliminary outline of a potential whopper investment in British Columbia by CNPC, China’s largest state oil company.
The memorandum of understanding (MOU), or heads of agreement between Encana and CNPC, outlines a framework for the two companies to negotiate a potential JV investment to develop Encana’s northeast BC gas plays. The JV would cover development in the Horn River, Greater Sierra’s Jean Marie formation and in Cutbank Ridge in the Montney formation.
“With this potential CNPC joint venture, we would expect, upon successful completion of a transaction, to lower costs, reduce risks, increase our capital efficiencies, improve project returns, optimize production techniques and tap natural gas opportunities that would otherwise remain dormant for some time,” said Encana CEO Randy Eresman.
The recent “breakthrough technologies” that have opened up gas plays across the United States could be translated into Canadian tight gas and shale developments, he noted. The initiative with CNPC “has the potential to significantly benefit Canada’s economy through increased investment in our three British Columbia natural gas plays.
“New investments of this nature hold considerable promise for creating jobs and new markets, expanding resource revenues for governments and substantially enhancing the competitiveness of Canadian natural gas in North America.”
The MOU signals that Chinese state producers may begin a more aggressive approach to acquire tight gas expertise. A report issued last week by the International Energy Agency estimated that China has about 26 trillion cubic meters of shale gas reserves that it hasn’t been able to access because of a lack of drilling expertise (see related story).
China now is using other countries’ know-how and technology to unlock its energy resources. A Sino-U.S. Shale Gas Resource Cooperation Initiative was launched last year during President Obama’s first state visit to China.
On its website, CNPC noted that a delegation visited ConocoPhillips’ Barnett Shale gas development in mid-April. The Chinese government wants natural gas to make up 10% of the nation’s energy mix by 2020. It now accounts for around 4%.
There could be more transactions in the works for Encana. In the past three years the producer has attracted more than $4 billion of JV capital commitments in the United States and Canada, with about $900 million to be invested this year. Encana is targeting annual JV investments of between $1 billion and $2 billion, and a JV with the Chinese producer “could contribute significantly towards achieving that investment target.”
Under a potential JV, Encana would act as the operator of all of the developments, including drilling and completion of the wells, building the processing facilities and pipelines, and conducting all field work. CNPC would invest capital to earn an interest in the assets and to “gain an advanced understanding of unconventional natural gas development through an ongoing sharing of technical knowledge,” Encana said.
It may take several months to negotiate the potential JV, and if an agreement is reached, it would require approval by Encana’s board and some Canadian regulatory approvals.
Across North America, Encana has more than 7.5 million net acres of undeveloped land. Based on an independent assessment, Encana has estimated that its natural gas assets are large enough to support around 23,000 drilling locations — an 18-year inventory at the company’s current pace of development.
In northeast British Columbia, Encana’s Greater Sierra key resource play holds about 275,000 net acres of land that covers the Devonian shale formation in its Horn River play and about 1.7 million net acres covering the Jean Marie formation. The Cutbank Ridge resource play holds about 720,000 net acres of land covering the Montney formation. Combined, 1Q2010 production from these key resource plays was about 535 MMcfe/d.
Encana said it will continue to pursue other partnerships to develop its North American portfolio, a plan that has proven wildly successful for other North American gas producers and international companies.
Norway’s Statoil ASA in March expanded its two-year Marcellus Shale partnership with Chesapeake (see NGI, March 29). In February an affiliate of Japanese trading giant Mitsui & Co. Ltd. acquired a one-third stake in Anadarko Petroleum Corp.’s Marcellus leasehold (see NGI, Feb. 22).
Total E&P USA Inc., a unit of France’s Total SA, early this year acquired a quarter stake in Chesapeake’s Barnett Shale property (see NGI, Jan. 11). Last year Italy’s Eni formed a strategic alliance with Quicksilver Resources Inc. to develop some Barnett land (see NGI, May 25, 2009). And BP America, which has its hand in gas resources onshore across North America, gained entry in the Fayetteville and Woodford shales in JVs also with Chesapeake (see NGI, Feb. 8, 2008; Aug. 4, 2008).
The world’s largest producers also are grabbing some shale producers outright. On Friday ExxonMobil Corp. completed its $43 billion acquisition of XTO Energy Inc. (see related story).
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