Sinopec to buy stake in Chesapeake assets for $1.02 billion

Mon Feb 25, 2013 9:16am EST

1 of 2. A Chinese New Year lantern installation is displayed outside a Sinopec gas station in Hong Kong February 5, 2013.

Credit: Reuters/Bobby Yip

(Reuters) - China Petroleum & Chemical Corp (Sinopec) (600028.SS) will buy half of Chesapeake Energy Corp's (CHK.N) Mississippi Lime oil and gas properties in Oklahoma for $1.02 billion to increase its presence in the booming North American shale gas industry.

Output from shale fields in the United States and Canada has jumped over the last three years due to the advent of drilling methods such as hydraulic fracturing.

Companies in China, which has the largest shale reserves in the world, are keen to get the know-how of drilling in such unconventional fields.

China's state-owned CNOOC Ltd (0883.HK) has struck a deal to buy Canadian oil and gas company Nexen Inc NXY.TO for $15.1 billion, while Pioneer Natural Resources Co (PXD.N) said last month it would sell a stake in its assets in the Wolfcamp shale field of Texas to Sinochem Group SINOC.UL for $1.7 billion.

Sinopec, Asia's largest oil refiner, will buy 50 percent of Chesapeake's 850,000 acres of net oil and natural gas leasehold properties in the Mississippi Lime shale field in northern Oklahoma, the companies said.

The Mississippi Lime assets will be bought by Sinopec International.

"The deal is about $200 million below our modeled assumption for similar acreage but (with) more production," analysts at investment bank Tudor, Pickering, Holt & Co said.

Chesapeake shares were down marginally at $20.40 in premarket trading on Monday. The stock has risen about 23 percent this year.

However, SunTrust Robinson Humphrey analyst Neal Dingmann. said the deal was very positive for Chesapeake.

"The price based on all metrics appears better than what myself or the Street expected, especially the $2,400 per acre metric," he said.

Chesapeake has about 2.1 million net acres of leasehold in the Mississippi Lime region, which straddles northern Oklahoma and southern Kansas.

Chesapeake's production from the Mississippi Lime region jumped 208 percent to an average of 32,500 barrels of oil equivalent per day in the fourth quarter, the company reported this month.

About 45 percent of the total output was oil, 46 percent was natural gas and the rest was natural gas liquids.

Sinopec's deal with Chesapeake, the second-largest gas producer in the United States, will help the Oklahoma City-based company cut down its debt, which stood at $12 billion as of December 31.

Chesapeake, which closed $12 billion of asset sales last year, is targeting asset sales of $4 billion to $7 billion in 2013, the company said in a presentation earlier this month.

Chesapeake said in December it would sell most of its natural gas processing and gathering assets for $2.16 billion to Access Midstream Partners LP (ACMP.N).

The company's board and big shareholders are trying to rein in spending, pay down debt and increase production of more profitable oil.

Chief Executive Aubrey McClendon, who co-founded the company in 1989, is stepping down on April 1 following a tumultuous year during which the company faced a liquidity crunch and a governance crisis.

Sinopec struck a deal with Devon Energy Corp (DVN.N) in January 2012 to buy a third of the U.S. oil and natural gas producer's interest in five developing fields for about $2.2 billion.

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Comments (4)
Wassup wrote:
Why doesn’t America sell out completely to the Chinese? Since they have poisoned us repeatedly, hacked our military, stolen our technology or bought it as in the article above, we might as well get fiscally sound and move on. The Elite will back it, and Obama can become the first Sino-socialist leader is U.S. history.

Feb 25, 2013 9:48am EST  --  Report as abuse
Harry079 wrote:
Inquiring minds want to know if the outgoing CEO(who did nothing intentionally wrong) according to the Board of Directors will still get his 2.5% off every well?

Feb 25, 2013 10:30am EST  --  Report as abuse
MikeBarnett wrote:
The three deals will be good for the US, Canada, and China. The US and Canadian companies will gain cash to continue operations. Expanding quickly requires resources for development of fields that produce profits. The oil and gas boom will continue because China and India have increasing numbers of drivers and growing industrial needs. China has the investment capital that US and Canadian firms need, so Chinese investments enable US and Canadian development that will benefit users in the three partnering countries and in India, a likely customer.

Feb 25, 2013 1:48pm EST  --  Report as abuse
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