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China makes a big investment in US shale

In new shale deals this week, China’s Sinopec paid $2.5 bln and France’s Total paid $2.32 bln for Devon Energy (Ohio to Alabama) and Chesapeake Energy (Ohio)partnerships. In Energy purchases are delineated for each designed partnership allocating specific oil/shale blocks to new investors for profit / cost sharing in the projects   The Pennsylvania Marcellus shale has been planned as the most profitable because of the natural formation and this one will be close to it but not int he premium territory. Most original owners of Shale have thence parceled out their assets for a fair premium from global explorers

THE US Shale run

Shale assets have been behind most US Oil and Gas deals since 2009, exp in 2010 and even 2011. Shale deals include a KKR buy in the

Tower for drilling horizontally into the Marce...

Image via Wikipedia

sector and multiple purchases by Reliance Industries of India, Shell, BP, Total and Exxon Mobil samong others. Owners of Marcellus shale were only to happy to get new partners and sales by Atlas, Pioneer, Carrizo and others accounted for at least 2 deals every quarter in 2010 and in the third quarter of 2011 again. In 3Q2011 13 shale deals of more than $ 50 mln were reported, most for Marcellus or Utica shale accounting for $23 bln out of the $28 bln in upstream deals reported in the quarter

(“Shale-gas assets continue to attract vast interest from oil and gas companies with five of the top 10

largest deals in the third quarter involving shale plays,” said Steve Haffner, a Pittsburgh-based partner with PwC’s energy practice.
“In the Marcellus Shale, we’re seeing steady activity among the corporates despite the continued weakness of natural gas prices, including new players entering and existing companies expanding acreage.

Chesapeake Energy and Range Resources part from Atlas and Pioneer remain owners of more than amillion acres each iun shale lands. Shale Gas is explored thru the process of Fracking, injecting water and sand into tocks to crack them and release oil and gas. It seems the process is banned in France and the environmental debate on it continues.

Norwegian Statoil and Australian BHP had also made early purchases in Shale, the latter having paid $4.75 bln for Arkansas Shale from

Chesapeake Energy

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Chesapake and $12.5 bln for shale acreage, technical know how and exploration equipment paying a 65% premium back in 2010. Reliance purchased the Atlas and Pioneer shares for more than $3 bln in August 2010.

Most people expected the deals in Q3 to be the last in the sector most acreage having exchanged hands , the last being KKR’s $ 8 bln purchase of Schusterman’s estate headquartered in Oklahoma. The 2011 deals were off the earlier top price of more than $6000 an acre. The development cost of shale is $6 per 100o BTU but the process is much less involved than drilling deep wells. However on last count shale ahd not gained momentum outside US and drilling has been stopped in New Jersey and New York on environment concerns

Expanding China’s Footprint

China’s ambition to make more property purchases in the USA has agrreably coincided  with another of their global ambitions and strengths to operate with larger Energy assets. Their relationship with Brazil and other LatAm partners has included Energy assets on the agenda. China has been infact supporting Brazilian Oil field Development plans. Their last agreements with Central Asia included a 40,000 million cu. mtr capacity pipeline from Turkmenistan where it is also the only Foreign developer in the Yolotan Gas Fields. China is even looking to buy up Afghan Oil reserves for joint/solo exploration

The Central Asia relationship

The rejuvenation of the Silk Road from Central Asia has merged into China’s inland development plans in Uighur and Han populated Xinjiang province since last year. It is also the story of the rejuvenation of the Historic Silk Road ( Silk Route) between China and Europe and is a greater subject on the Advantage China vortex. The $26 bln trade with Central Asia has more than Oil and Gas from Kazakhstana nd Turkmenistan.

Real Estate Tourism

More than China as state, most of the rich Chinese have individually hoped for migration to the West, with nearly 2980 EB Visas issued by the US in 2011 to Chinese setting up a business with $500,000 in investment and 10 employees in the United states The Chinese have been traveling the US to scout and purchase property in the USA since 2009. Tours were organised by real estate companies as Group tours. Meanwhile Chinese have also become the largest buyers of Property in Singapore in 2011

China’s energy wins in Canada

While US works out laws regarding Foreign ownership of assets particularly with Chinese companies buying companies, brands and properties, even closer neighbour has used China’s help to exploit the not so green Oil sands in Alberta near the coast, with Petrochina buying a $2 bln interest

CNOOC was earlier denied a $17 bln bid of US Oil assets back in 2005 and US companies boycotted the Canadian Tar sands  the last three years


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This entry was posted on January 5, 2012 by in China, Dealbook, Mergers etc, Private Equity, US.


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