UPDATE 2-Chesapeake, CNOOC strike second shale deal for $1.3 bln

Sun Jan 30, 2011 11:09pm EST

* CNOOC buying 33 pct interest in DJ, Powder River Basins

* CNOOC pays $570 million, funds 67 pct of Chesapeake costs

* Deal expected to close in first quarter

* CNOOC shares down 1.5 pct, in line with Hang Seng Index

(Updates throughout)

By Paritosh Bansal and Farah Master

NEW YORK/HONG KONG, Jan 30 (Reuters) - CNOOC Ltd will pay $1.3 billion in its second shale deal with America's Chesapeake Energy Corp , the latest move by China's top offshore oil producer in its aggressive drive for overseas acquisitions.

In line with CNOOC's strategy to expand into the oil-rich shale deposits in North America, the state-owned company will buy a 33.3 percent stake in Chesapeake's leasehold acres in northeast Colorado and Southeast Wyoming for $570 million, the U.S. natural gas producer announced on Sunday.

State-owned CNOOC has also agreed to fund 66.7 percent of Chesapeake's share of drilling and completion costs until an additional $697 million is paid, which Chesapeake expects will happen by the end of 2014, the companies said.

"It's a win-win deal. Smaller cap Chesapeake Energy is cash strapped ... CNOOC has the money but still wants more resources and technology," said Gordon Kwan, head of regional energy at Mirae Asset Securities in Hong Kong. "It is consistent with their (CNOOC's) opportunistic acquisition strategy."

Kwan said the valuation was fair based on his estimates and he expected more to come in the form of sizable but minority stakes.

"The total investment of $1.27 billion in this deal through 2014 is manageable and equates to about 14 percent of CNOOC's budgeted $9 billion for 2011," he said.

Hong Kong-listed shares in CNOOC were down 1.5 percent by 0314 GMT. Rival China Petroleum & Chemical Corp (Sinopec) was 1.3 percent lower, while the benchmark Hang Seng Index was down 1.1 percent.

The deal between the two companies, expected to close in the first quarter, follows an agreement in October under which CNOOC agreed to buy a 33.3 percent interest in Chesapeake's 600,000 net oil and natural gas leasehold acres in the Eagle Ford Shale project in South Texas for about $1.1 billion cash.

The U.S. natural gas producer has 800,000 net oil and natural gas leasehold acres in the Denver-Julesburg and Powder River Basins in northeast Colorado and southeast Wyoming.

SHALE PUSH

Chinese oil companies have been stepping up acquisitions in unconventional gas deposits, as part of the central government's new five-year plan to focus on the development of domestic unconventional gas resources.

In 2010, outbound deals by Chinese oil and gas companies totalled about $26.5 billion, eclipsing $15.8 billion in deals for all of 2009, according to Thomson Reuters data.

Most outbound acquisitions by Chinese energy companies have been in risky areas such as Africa, which Western rivals have avoided, or in locations with aging assets. But analysts say there are likely to be more moves to solidify Chinese presence in North America's oil-rich shale deposits.

Kwan of Mirae Asset said the new agreement between Chesapeake and CNOOC was unlikely to encounter political hurdles because of the nature of the deal and previous agreements between the companies.

"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 United States and in the payment of very significant local, state and federal taxes," Chesapeake Chief Executive Aubrey McClendon said in a statement. (Editing by Chris Lewis and Muralikumar Anantharaman)

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