Weekly Update: Chesapeake deal confirms Utica's status as hottest US play

Eoin Coyne
Evaluate Energy

Chesapeake Energy
(NYSE: CHK) has made the largest deal thus far in the short life of the emerging Utica Shale, in a $2.1 billion transaction with an undisclosed “international major energy company”. Chesapeake didn’t give much away on the identity of the joint venture partner other than it being "somebody big enough for this deal not to be material." 

Companies who may fit this billing include ExxonMobil who has already started amassing acreage in the Utica Shale whilst choosing not to divulge exactly how much and at what price, and Reliance Industries, the Indian heavyweight who has made no secret of its desire to further its shale resources investment.

Despite the assets being virtually wholly undeveloped, the impressive drilling results released by Chesapeake in August 2011 were enough command a value of $15,000 per acre for the 25% interest in 570,000 acres. Chesapeake has been the front runner in the Utica play and it was its Q2 2011 release that sparked the industry’s imagination on how prosperous the play may eventually become. In a later report Chesapeake revealed that its 12 well drilling program resulted in liquids rich production, with one well alone registering an IP rate of 3,000 boe/d, bolstering the argument that its acreage in the play may be worth $20 billion.

The next largest deal of the week also came from a shale play within the US, but at a very different stage in its lifespan. EnCana is divesting its Barnett Shale assets to a partnership of Enervest and EV Energy Partners for $975 million. EnCana bought its stake in the play as far back as 2004 and although being largely responsible for the success of the shale industry in the US, the Barnett Shale has now been superseded by plays closer to the end market, like the Marcellus Shale of Pennsylvania, and plays rich in more economically viable liquids, such as the Eagle Ford play in Texas. The fact that interest for shale resources has been diverted elsewhere has produced very competitive acquisition metrics, with EnCana’s reported 2.3TCF of potential resources from the assets equating to 42¢ per mcf.

The United States was the setting for seven further upstream oil and gas deals, in a week which attracted a total deal value of $4.3 billion. Concho Resources acquired 114,000 net acres in the Delaware Basin for $330 million. North American Energy Resources acquired a package of gas weighted assets along the Gulf Coast for $175 million at a cost per proven boe of $10.99. Energy Partners also made an acquisition in the Gulf Coast area for a fully developed portfolio of oil weighted assets for $80 million, which equated to $30 per proven boe. 

Legacy Reserves LP made two acquisitions for a combined total of $73 million in Wyoming and the Permian basin of Texas and New Mexico. Like the two deals in the Gulf of Mexico, the acquisition metrics varied according to the targeted resource type. The Permian basin acquisition was rich in liquids and resulted in a cost per flowing boe of $88,000 and cost per proven boe of $17.20, whilst the Wyoming acquisition being rich in gas cost $21,000 per flowing boe and $6.46 per proven boe.

In the refining sector, CVR Energy acquired the 70,000 b/d Wynnewood refinery in Oklahoma from Gary-Williams Corp. for $525 million. The purchase price equated to $7,500 per barrel of crude capacity for the 8.8 Nelson index refinery. The deal comes at a time when US refiners have started making healthy profits again following a sustained period of suppressed earnings as a result of a supply and demand imbalance in the United States. Independent US refining companies Marathon Petroleum and Valero Energy both reported +$1 billion profits for Q3 2011 alone. 

Looking for previous deals? Check out the Weekly Updates page for archives.

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