Storm Cat Energy (fka SCUEF)

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Total to Buy Chesapeake Shale Stake for $2.25 Billion (Update4)
January 04, 2010, 04:16 PM EST

MORE FROM BUSINESSWEEK


By Tara Patel and Jim Polson

Jan. 4 (Bloomberg) -- Total SA, Europe’s third-largest oil company, accelerated its expansion in unconventional energy by agreeing to buy a stake in Chesapeake Energy Corp.’s assets in the biggest U.S. natural-gas field for as much as $2.25 billion.

Total will pay $800 million for the 25 percent stake and as much as $1.45 billion over as long as six years by funding 60 percent of Chesapeake’s costs in the Barnett Shale formation of North Texas, the companies said today in separate statements. The Barnett field produces about half of all shale gas in the U.S., according to Oklahoma City-based Chesapeake.

Shale-gas deposits are a priority for Paris-based Total as it moves to fill a development gap, Chief Executive Officer Christophe de Margerie said last month in Beijing. Total’s bet follows Exxon Mobil Corp., the biggest U.S. oil company, which agreed last month to buy shale-gas producer XTO Energy Inc. for $29.2 billion. Total has so-called unconventional gas projects in South America, Africa and China.

“This is clearly in line with Total’s strategy to get into U.S. shale gas,” said Aymeric de Villaret, an analyst at Societe Generale in Paris. “The price looks reasonable.”

Total rose 1.8 percent to 45.795 euros in Paris. Chesapeake jumped $2.21, or 8.5 percent, to $28.09 in New York Stock Exchange composite trading.



Barnett Shale



The Barnett Shale is the most productive U.S. gas field and accounted for 52 percent of Chesapeake’s third-quarter output. It was the first geological formation where improved technology enabled producers to bore sideways through thousands of feet of rock and fracture it with a mixture of water, sand and chemicals to make gas flow.

Shale-gas successes prompted the Potential Gas Committee, a group of industry, academic and government volunteers, to boost its estimate of U.S. gas reserves by 39 percent last year.

Chesapeake said assets going into the joint venture with Total include about 270,000 net acres of leaseholds in the Barnett, 700 million cubic feet of daily gas output and reserves equivalent to 3 trillion cubic feet of gas. Total estimated the expanse at about 300,000 net acres.

Chesapeake sold a $1.25 billion stake in its holdings in another U.S. shale-gas development, the Marcellus, to Norway’s Statoil ASA in 2008. The company, which sought partners to help fund its shale-gas projects, cut its estimate for 2010 drilling costs to $4 billion to $4.3 billion from a previous forecast of $4.4 billion to $4.7 billion.



Cash to Drill



“This pretty much eliminates the cash-flow deficit investors were looking at in 2010 from Chesapeake’s drilling plan and starts taking care of 2011,” said Scott Hanold, an analyst at RBC Capital Markets in Austin, Texas, who rates the company’s shares at “outperform” and owns none. “For a 25 percent working interest, it’s a good deal for Chesapeake.”

The deal with Total brings Chesapeake’s proceeds from shale-gas ventures in the past 18 months to $10.8 billion, Chief Executive Officer Aubrey McClendon said in the statement.

Chesapeake said it’s in talks with Total for a joint venture in the Eagle Ford Shale in southern Texas and “several” Canadian shale developments. Major oil companies are increasingly investing in independent producers that can advance their know-how in tapping shale-gas deposits.

“It will allow Total to develop its expertise in unconventional hydrocarbons” to expand in such developments worldwide, de Margerie said in Total’s statement.



Profit Outlook



Chesapeake’s per-share profit in 2010, excluding gains or losses on hedging contracts, will be $1.90 to $3.18 a share, depending on the price of gas, the company said today in slides for a presentation to investors. The company was expected to earn $2.43 a share, the average of 32 analysts estimates compiled by Bloomberg.

BP Plc paid Chesapeake $1.9 billion for 25 percent of its Fayetteville Shale holdings after buying its Woodford Shale assets in Oklahoma for $1.75 billion. Plains Exploration & Production Co., based in Houston, has a joint venture with Chesapeake for development of the Haynesville Shale formation of east Texas and west Louisiana.

The Marcellus and Haynesville Shale plays are likely to become the largest gas fields in the U.S., according to Chesapeake.

Royal Dutch Shell Plc of The Hague and London-based BP are Europe’s biggest oil companies, ranking ahead of Total.


http://www.businessweek.com/news/2010-01-04/total-to-buy-chesapeake-shale-stake-for-2-25-billion-update4-.html