hesapeake Deal Confirms Utica’s Status as the Hottest Play in the US

Chesapeake Energy 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and although being largely responsible for the success of the shale industry in the US, the Barnett shale has now been superseded by plays closer to the end market, like the Marcellus shale of Pennsylvania, and plays rich in more economically viable liquids, such as the Eagle Ford play in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 7 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.

Acquirer Target Company Target Business Segment Brief Description Total Acquisition Cost ($000) Unspecified Chesapeake E&P Chesapeake divests a 25% interest in 570,000 acres of of leasehold in the wet natural gas area of the Utica Shale play to an undisclosed international major energy company 2,140,000 Enervest EnCana Corporation E&P EnCana divests certain North Texas gas properties to EV Energy Partners and Enervest for $975 million 672,750 CVR Energy Gary-Williams Energy Corporation R&M CVR Energy acquires the Wynnewood refinery in Oklahoma from Gary-Williams Energy Corporation 525,000 Concho Resources Inc Unspecified E&P Concho Resources acquires 114,000 net acres in the “Delaware Basin” segment of the Permian Basin 330,000 EV Energy Partners EnCana Corporation E&P EnCana divests certain North Texas gas properties to Enervest and EV Energy Partners for $975 million 302,250 Unspecified Enervest E&P Enervest divests a 25% interest in 80,000 acres of of leasehold in the wet natural gas area of the Utica Shale play to an undisclosed international major energy company 300,000 Genesis Energy L.P. Marathon Oil Corp Midstream Genesis Energy L.P. acquires Marathon Oil Company interests in several Gulf of Mexico crude oil pipeline systems, including its 28% interest in Poseidon Oil Pipeline Company, L.L.C., its 29% interest in Odyssey Pipeline L.L.C., and its 23% interest in the Eugene Island Pipeline System 205,760 North American Energy Resources, Inc. Unspecified E&P North American Energy Resources acquires an interest in 34 fields along the Gulf Coast 175,000 Enervest Unspecified E&P Enervest acquires Barnett shale interests from an undisclosed seller 160,770 Energy Partners Stone Energy E&P Energy Partners, Ltd acquires oil and natural gas assets in the shallow-water central Gulf of Mexico (GOM) from a subsidiary of Stone Energy Corporation for $80.0 million 80,000 EV Energy Partners Unspecified E&P EV Energy Partners acquires Barnett shale interests from an undisclosed seller 72,230 Celtic Exploration Ltd. Talisman Energy E&P Celtic Exploration acquires natural gas assets located at Grande Cache, Alberta 50,903 Legacy Reserves LP Unspecified E&P Legacy Reserves LP acquires gas assets located in Wyoming for $45 million 45,000 Legacy Reserves LP Unspecified E&P Legacy Reserves LP acquires Permian basin assets for $28 million 28,204 Underground Energy Corporation Unspecified E&P Underground Energy Corporation acquires 33,037 net acres of oil and gas leases including production properties in California. The acquired lands are primarily prospective for Monterey and other analogous oil-prone shale plays 5,500 Sinopec Pecten Cameroon Company LCC E&P Addax, a wholly owned subsidiary of Sinopec, acquires Royal Dutch Shell’s 80% share in Pecten Cameroon Company LCCUnspecified

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On November 7th, 2011, posted in: Companies, E&P, Independents, Integrated, R&M, Shale Gas by Eoin Coyne Tags: Acreage, Barnett Shale, Chesapeake Energy, Drilling Program, Drilling Results, Eagle Ford, Encana, Energy Company, Energy Partners, Enervest, Exxonmobil, Joint Venture, Lifespan, Liquids, Marcellus Shale, Q2, Reliance Industries, Utica, Venture Partner, Well Drilling