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Weekly Update: New Year sees US shale acquisitions continue as Total, Sinopec make moves

US Shale was the big M&A headline-maker in 2011, and 2012 has started on the same track. Sinopec and Total were both involved in big money deals this week, spending a combined total of around $4.5 billion to enter emerging plays.

Sinopec, one of 2011’s most active companies in the E&P acquisitions market, will be joining Devon Energy in 5 new shale ventures. The Chinese company, following compatriot CNOOC into the industry, will spend $2.2 billion and gain a third of Devon’s fields in the Utica (Ohio), Niobrara (Colorado/Wyoming), Mississippian (Oklahoma), Tuscaloosa Marine Shale (Louisiana) and the Michigan Basin.

This agreement was signed earlier this week, with closing expected by the end of the quarter, and it comes only a week after Sinopec completed its $2.9 billion acquisition of Daylight Energy which saw the company significantly increase is Canadian asset holdings, and gained it entry to the highly prospective Montney shale in Alberta/British Columbia. Devon will benefit from the deal as its costs have now been recovered, and Sinopec’s involvement will accelerate development. These plays are all in the very early stages of development, and this deal will likely mean Devon and Sinopec are amongst the first to really put these plays on the map.

In the other big shale deal this week, Total was finally unveiled as Chesapeake’s partner in the Ohio Utica shale, gaining a 25% interest in the play. This deal was signed back at the beginning of November, but Chesapeake and partner EnerVest, remained silent until now as to who their partner was going to be. The deal is made up of a $700 million cash payment, and a further $1.63 billion which will carry Chesapeake and Enervest for 60% of the development costs. This deal is the biggest thus far in the emerging Utica play, and the approximate $15,000 per acre paid is indicative of just how exciting this play is. Total and Chesapeake are building on a successful partnership in US Shale, the pair having worked together in Texas on the Barnett Shale since January 2010.

In other US shale news, Marubeni Corporation became Japan’s biggest owner of American shale oil acreage with its acquisition of in 52,000 net Eagle Ford acres from Dallas-based Hunt Oil. The two companies will now look to jointly acquire further acres in what proved to be 2011’s most expensive shale play (averaging at $10,000 per undeveloped acre).

Repsol YPF also signed a deal this week, furthering its move into Russia with the $230 million acquisition of Eurotek. The Spanish company will commit the assets acquired to its Joint Venture with Alliance Oil. The two fields acquired are the Syskonsyninskoye gas field, which is at an advanced development stage, and the Yuzhno-Khadyryakhinskoye field, which is in the later stages of appraisal. The fields will add a significant 115 million boe of proved and probable reserves to the Alliance Joint Venture, at a very reasonable $2 per barrel.

In Canada, the recently approved 150,000 barrel per day MacKay River oil sands project became the first to be wholly-owned by a Chinese company, as Athabasca Oil Sands sold its remaining 40% interest to PetroChina for approx. US $689 million. The approval of the project triggered a one month window to open in which either company could exercise a put or call option on Athabasca’s interest. Athabasca will use the proceeds from this exercise of its option to fund a boost in the oil sands share of its total production to 50%. This move by PetroChina is unusual for an Asian company, if 2011 is anything to go by.

Nearly all the big money deals signed by companies from the continent were for minority, non-operating stakes in projects, much like the Sinopec-Devon shale deal above, with the selling partner maintaining operator status. There have been reports that PetroChina will be seeking a partner for the project, but the company maintains it has the capability to continue the project alone.

In other Canadian news this week, Alberta saw two relatively large conventional gas deals for a combined total of just under $300 million. Vero Energy’s US$212 million sale of its West Central Alberta assets to an unnamed private company made up the majority of this amount. Guide Exploration increased its own Alberta asset holdings with the US$62 million acquisition of NW Alberta properties from a “senior” Canadian oil and gas producer.

Away from E&P, the biggest deal of the New Year period was Chesapeake dropping down the Appalachia Midstream Services LLC to Chesapeake Midstream Partners LP for $865 million. Appalachia Midstream holds 47% in approx. 200 miles of pipeline in the Marcellus shale region, exposing Chesapeake Midstream to the liquids-rich southern Marcellus. This is the second deal between the two partners inside 18 months. These deals have monetized $1.9 billion of Chesapeake’s midstream portfolio. The company maintains an interest in the assets through its holding in Chesapeake Midstream, which also increased with this deal to 46.1%.

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

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