China National Offshore Oil Corporation (CNOOC) Monday announced its second shale deal with America's Chesapeake Energy Corporation, a development valued at $1.27 billion.
CNOOC will purchase 33.3 percent undivided interest in Chesapeake's 800,000 net oil and natural gas acres in the Denver-Julesburg (DJ) and Powder River Basins in northeast Colorado and southeast Wyoming. The transaction is set at $570 million in cash if it comes to fruition as expected in the first quarter, according to the statement issued Monday by CNOOC.
In addition, CNOOC has agreed to fund 66.7% of Chesapeake's share of drilling and completion costs until an additional $697 million has been paid, which Chesapeake expects to occur by the end of 2014.
CNOOC also bought a 33.3 percent interest in Chesapeake's 600,000 net oil and natural acres in the Eagle Ford Shale project in south Texas for about $1.1 billion cash last October.
Li Chaolin, a Beijing-based energy market observer, told the Global Times that the company's expansion into these overseas sectors was an inevitable trend.
Chen Weidong, CNOOC's chief energy researcher at its Energy and Economics Institute, also stressed that the company is looking to natural gas trapped in shale rocks as a major future line of business, the Canadian Financial Post noted.
Yang Hua, vice chairman and chief executive officer of CNOOC, said in an official statement, "This second transaction with Chesapeake represents another success in our overseas development as we implement a value-driven merger and acquisition (M&A) strategy. I am confident the project will not only strengthen our solid resource and production base in overseas but create value to the shareholders in the long term."
Li considered that minority share holding was more likely to yield success in CNOOC's overseas M&A strategy, a lesson learnt in the withdrawal of its acquisition offer for Russian Unocal Oil Company in 2005.
"The US used to be sensitive in letting Chinese companies invest in key economical sectors such as petroleum," he added, "now they need our investment and the huge market."
Aubrey K. McClendon, Chesapeake's chief executive officer, commented in a joint statement, "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 US and in the payment of very significant local, state and federal taxes."
A staff member in investor relations of CNOOC Limited Monday told the Global Times that despite the transaction being anticipated for the first quarter of 2011, hurdles, especially political ones, are far less likely to be encountered because of previous agreements between two companies.
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