CNOOC to pay $1.1 billion for stake in Chesapeake unit

HONG KONG/NEW YORK Sun Oct 10, 2010 10:33pm EDT

Related Topics

HONG KONG/NEW YORK (Reuters) - CNOOC Ltd (0883.HK) agreed to pay $1.1 billion for a stake in a Chesapeake Energy Corp (CHK.N) shale oil field in South Texas, in the Chinese oil producer's first onshore U.S. deal since the 2005 Unocal furor.

The agreement shows that China is confident that the purchase of a 33 percent stake in the Eagle Ford acreage will get the backing of U.S. regulators and politicians, who stepped in five years ago to block CNOOC's effort to buy U.S. oil company Unocal.

While there is persistent U.S.-China tensions over the value of China's currency, the ties between the two countries have grown since 2005, with China becoming a major, global economic force.

Gordon Kwan, head of Asian energy research for Mirae Asset Securities, sees CNOOC snapping up more assets in the United States.

"Because the U.S. companies are short of cash, while China is on the hunt for assets, especially with the yuan appreciating," Kwan said.

CNOOC shares were trading 3.2 percent higher at 0208 GMT in Hong Kong, outperforming the broader market up 1.2 percent.

CNOOC's purchase comes after a flurry of investments by energy companies in shale -- underground rock formations that hold reserves of oil and natural gas.

Norwegian oil firm Statoil (STL.OL) announced on Sunday it was expanding further its shale gas operations in the United States, creating a joint venture with Canada's Talisman (TLM.TO) to acquire acreage on the Eagle Ford prospect in Texas for $1.3 billion.

CNOOC agreed to fund 75 percent of Chesapeake's share of drilling and completion costs until an additional $1.08 billion has been paid, which Chesapeake expects by year-end 2012, the companies said. The transaction is expected to close in the fourth quarter.

"Partnering with Chesapeake on this project to develop shale oil and natural gas jointly...satisfies the spirit of Sino-U.S. cooperation in the energy sector..." CNOOC Chairman Fu Chengyu said in a statement.

CNOOC swooped in after talks with Indian energy company Reliance Industries (RELI.BO) and Chesapeake collapsed last week. Chesapeake has been looking for a partner for its 600,000 acre position in the Eagle Ford. It said in May that it intended to close the deal by the end of the third quarter, but has since pushed the deadline back slightly.

Chesapeake will conduct all leasing, drilling, completion, operations and marketing activities for the project.

Shale gas accounts for 15 percent to 20 percent of U.S. gas production but is expected to quadruple in coming years, touching off a scramble among producers large and small for access to resources.

Statoil, Exxon Mobil (XOM.N), Mitsui & Co (8031.T) MITSY.O and Royal Dutch Shell (RDSa.L) have all bought in to U.S. shale plays in recent years.

The Eagle Ford shale is seen as an especially attractive prospect as it is believed to be rich in natural gas liquids and condensates, which command higher prices than regular natural gas.

(Additional reporting by Denny Thomas in Hong Kong; Editing by Michael Flaherty and Jean Yoon)

FILED UNDER: