Eric Watkins
Oil Diplomacy Editor
The Chinese oil and gas industry has wanted to make inroads into the US for years, and now they are under way. They've learned from the first time around, when US politicians blocked the purchase of Unocal Corp. back in 2005.
The lessons learned became evident last week when Chesapeake Energy Corp. said CNOOC International Ltd., a wholly owned subsidiary of CNOOC Ltd., will purchase 33.3% undivided interest in Chesapeake's 800,000 net oil and natural gas leasehold acres in the Denver-Julesburg (DJ) and Powder River basins in northeast Colorado and southeast Wyoming. It's their second deal together.
Small change?
The consideration for this transaction is not small change, either, coming in at $570 million in cash. Not least, CNOOC Ltd. 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 yearend 2014. Closing of the transaction is anticipated in this year's first quarter.
"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," said Aubrey K. McClendon, Chesapeake chief executive officer.
Not least, said McClendon, "this project will advance the efforts of both the US 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 US—China Shale Gas Resource Initiative announced by the White House on Nov. 17, 2009."
Good for US economy
That's a mouthful, and it is meant to convey that the deal is good for the country. US lawmakers are likely to agree, especially given the need of the US economy to increase employment and revenues. The sweetener, of course, is that the planned development will be good for the environment, too.
About the only cause for concern, at least in some quarters is the idea that the deal will accelerate commercial opportunities for the development of shale gas resources in China, which will be interpreted to mean the transfer of technology—something that still raises hackles among some politicians. But that concern will be trumped by the revenues, jobs, and green credentials. "This second transaction with Chesapeake represents another success in our overseas development as we implement a value-driven M&A strategy," said Yang Hua, vice-chairman and chief executive officer of CNOOC Ltd.
This is a purchase that is likely to meet with approval all around, especially in Washington, DC.
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