Not long ago, supermajors, both foreign and domestic, entered into multi-million and multi-billion dollar agreements with US independents to get in on the North American shale gas boom. With deflated gas prices, it seems some companies may be looking to decrease their level of investment.
RBC Capital Markets analyst Peter Hutton reported in a note to investors Thursday that Total’s CEO Christophe de Margerie confirmed to French newspaper Le Monde that the company will decrease additional investments in US gas.
In January 2010, Total paid $800M to enter the US shale gas business—earning a 25% interest in Chesapeake Energy Corp.’s gassy Barnett Shale assets by way of a joint venture agreement. The assets subject to JV include roughly 270,000 net acres of leasehold in the Barnett, approximately 700 million cubic feet of natural gas equivalent per day of current net production and approximately 3.0 trillion cubic feet of natural gas equivalent (tcfe) of proved reserves (0.75 tcfe net to Total).
At the time the deal was announced, de Margerie told OGFJ that the transaction provided support for Total to "further build the gas value chain position that has been established in the US, the world's largest and most liquid natural gas market, with our existing capacity rights in the Sabine Pass LNG terminal and our gas trading and marketing organization."
Fast forward a few years and the gas market is not what may have been expected. According to Hutton, Margerie told Le Monde that Total planned on $6/mcf (Henry Hub is now $3.2/mcf).
Hutton goes on to say that the move “is further confirmation both of what we have seen at other companies (e.g., Shell, BG and BP) and the IHS rig count indicator, with Chesapeake down to 4 rigs reported last week in the Barnett Shale from 14 in January last year. Our estimates assume growth of 20kboed in 2012 and 10 kboed in 2013, equivalent to 0.4% of total production.”
“BG has already taken a writedown on some US gas assets to estimated values at $4/mcf, and this confirmation may signal a similar action by Total, although long time price assumption may differ (RBC long term forecast is $5/mcf, as in our Commodity Price Update report 8th January 2013),” Hutton concluded.