Should we be concerned about non-US companies buying US energy assets?

The headlines say it all:

• Norway's Statoil acquires Marcellus acreage
• Chesapeake sells $4.75B Fayetteville shale assets to Australian company
• South Africa's Sasol buys 50% stake in Talisman's Montney shale assets
• Anadarko and Japan's Mitsui partner in Marcellus
• Chinese companies on shopping spree in North America

Here in America, we are accustomed to US companies acquiring oil and gas assets abroad or partnering with state-run companies overseas. However, in recent years, it seems the tables have turned. Large, cash-rich foreign companies have been gobbling up properties here in the US and in Canada.

What does it mean, and should Americans and Canadians be concerned?

Before attempting to answer that question, let's look at some recent history. Before Chevron acquired Unocal for $18 billion in 2005, it was widely known that the California-based company was for sale. Its suitors included Italy's ENI SPA and China National Offshore Oil Corp. (CNOOC). When it looked as if CNOOC would be the highest bidder, there were rumblings in the US Congress and elsewhere that "The Chinese want to take over our oil supplies." People began calling and writing their elected representatives in opposition to the buy-out, and a few Members of Congress seriously discussed legislation that would outlaw such a deal.

In light of the public furor, CNOOC quietly withdrew its offer. Its executives must have felt as if they had other opportunities, so why bother pursuing a company in the face of heated anti-Chinese rhetoric and possible lack of regulatory approval.

Would opposition have galvanized if the acquiring company had been Dutch or Norwegian or British? Probably not. Those countries are long-time US allies, while China is the last remaining bastion of communist power after the fall of the old Soviet empire. It doesn't matter than China is more adept at practicing capitalism today than many old-line capitalist countries; Beijing is still our enemy as far as some Americans are concerned.

Fast forward to October 2010. CNOOC and Chesapeake enter into a $2.16 billion joint venture in the Eagle Ford shale guaranteeing the Chinese company access to millions of barrels of oil and billions of cubic feet of natural gas from one of the world's major shale plays. In addition, CNOOC will benefit from the expertise of Chesapeake engineers in drilling and completing wells in such formations – expertise the Chinese company can use elsewhere.

Did you hear any loud voices speaking in opposition to the Chesapeake-CNOOC deal? Were there any bills introduced in Congress that would ban this type of transaction? Any petitions to the SEC to deny the companies approval? I heard nothing.

So what was different this time, just five years after the aborted Unocal buyout?

For one thing, a joint venture agreement isn't the same as buying an entire company. Also, the size of the deal (just over $2 billion) was modest compared to the $18 billion purchase of a company that was a household name to many Americans. Nevertheless, one would expect some opposition.

The difference, in my view, is that Chesapeake had already set the table for this JV by entering into prior agreements with foreign-based companies. In 2008, Chesapeake signed a partnership agreement with Norway's Statoil in the Marcellus shale in 2008 valued at $3.4 billion, and Statoil has since increased its acreage in the play. A few months prior, Chesapeake had sold BP a one-quarter interest in its Fayetteville shale holdings, and the two companies signed a similar agreement in the Woodford shale.

Suddenly, companies like France's Total, India's Reliance Industries, the UK's BG Group, and numerous other overseas entities were acquiring acreage in the core of America's oil and gas infrastructure, most via partnerships and JV-type agreements, although some were outright purchases of reserves and producing wells, such as the Australian mining giant BHP Billiton's $4.75 billion acquisition of all of Chesapeake's assets in the Fayetteville.

The alliances were a win-win for those involved. They provided the funding needed for the US companies to develop their assets quickly and enabled the foreign companies to gain experience and acquire expertise in multi-stage hydraulic fracturing and horizontal drilling and completion technology. Many are already benefiting from this technology transfer and are developing shale plays at home and elsewhere.

I think this competition and sharing of information is beneficial to the industry and ultimately a good thing for the public, which will benefit from lower prices and a steady supply of fuels. It would have been hypocritical of the US and not in our best interests to deny Chinese companies access to energy reserves that we had opened up to other international companies. Friendship and cooperation between nations are always better for business than an act of hostility.

Have an opinion about this? Visit www.ogfj.com to comment.

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