Hardly anyone, it seems, believes that China’s shale gas efforts are going to hit paydirt any time soon.
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As part of our asset monetization planning and capital expenditure budgeting process, we closely monitor the resulting effects on the amounts and timing of our sources and uses of funds, particularly as they affect our ability to maintain compliance with the financial covenants of our corporate revolving bank credit facility. While asset monetizations enhance our liquidity, sales of producing natural gas and oil properties adversely affect the amount of cash flow we generate and reduce the amount and value of collateral available to secure our obligations, both of which are exacerbated by low natural gas prices. Thus the assets we select and schedule for monetization, our budgeted capital expenditures and our commodity price forecasts are carefully considered as we project our future ability to comply with the requirements of our corporate credit facility. As a result, we may delay one or more of our currently planned asset monetizations, or select other assets for monetization, in order to maintain our compliance. Continued compliance, however, is subject to all the risks that may impact our business strategy.
Chesapeake Energy is seeking to raise up to $12bn through asset sales this year, as the company seeks to plug a funding gap that has been exacerbated by low natural gas prices, reports the FT. The second-largest US gas producer had already responded to decade-low prices by idling rigs and seeking to raise production of oil and liquid natural gas, so-called “liquids”, which fetch higher prices. But Chesapeake still needs to raise funds to meet planned expenditures in 2012. The company said on Monday that it was nearing a deal to sell future output from the liquid-rich Granite Wash in the Texas panhandle. It said it also hopes to raise up to $8bn through joint ventures and asset disposals, including a possible sale of its entire interest in the Permian Basin in Texas, a thinly developed field, but one that is thought to be rich in oil and liquid gas.
Chesapeake Energy, the second-largest US gas producer, said it will slash gas drilling by nearly half, the WSJ reports. The move is an abrupt turnabout by the company which calls itself “America’s Champion of Natural Gas” and helped pioneer the US shale gas boom. The announcement was greeted with exuberance by traders and investors, who have been waiting for months for a sign energy producers are willing to make dramatic changes in their gas-drilling behavior. Natural-gas futures jumped 7.8 per cent Monday to close at $2.525 per mmBTU, after two weeks of sharp declines.
Total SA has acquired a stake in Ohia’s shale region from Chesapeake Energy Corp and EnerVest Ltd, in a deal worth $2.32bn, according to Bloomberg. This will give France’s largest oil company a 25 per cent stake in the shale deposit which is rish in liquids and natural gas. The extraction of hydrocarbons from such reserves has made the US the world’s largest gas producer. Total had also bought a share in another Chesapeake shale field in Texas in 2010.
BHP Billiton has moved to bulk up its energy holdings, entering the US shale market with a deal to buy Chesapeake Energy’s Arkansas-based gas business for $4.75bn, reports the FT. The Anglo-Australian miner said in a statement on Monday that it would buy 487,000 acres of leasehold gas properties in the Fayetteville shale, funding the deal from its existing cash balances. Reuters adds that BHP Billition’s shares are up 1.9 per cent on the deal while Standard & Poor’s says the company’s rating would not be affected.
BHP Billiton has moved to boost its energy holdings, entering the US shale market with a deal to buy Chesapeake Energy’s Arkansas gas business for $4.75bn, reports the FT. The Anglo-Australian miner said on Monday it would buy 487,000 acres of leasehold gas properties and pipeline in the Fayetteville shale, funding the deal from existing cash balances. The assets, which currently produce about 400m cubic feet of gas per day, will increase BHP’s oil and gas reserves from current levels by about 45%. The company sees potential to triple the production from the Fayetteville acreage during its 40-year operating lifetime. The WSJ adds that BHP plans further investment in its Fayetteville expansion plans.
Cnooc, China’s largest offshore oil and gas producer, will invest up to $1.3bn in its second deal with Chesapeake Energy to expand its presence in the US shale oil and gas industry, reports the FT. Four months after taking a stake in Chesapeake’s Texas shale assets, the state-owned Chinese company – whose $18.5bn bid for Unocal in 2005 failed amid a US political backlash – will pay $570m in cash for a 33% stake in Chesapeake blocks in Wyoming and Colorado, providing access to Chesapeake’s expertise in extracting fossil fuels from shale rock. Cnooc will pay a further $697m to cover some operational and drilling costs of the project until the end of 2014, bringing the total deal price to $1.27bn.
Shares in Chinese offshore oil giant Cnooc have hit a three-year high after the company unveiled a $1.1bn stake in a US shale oil and gas field, Reuters reports. Cnooc struck the deal with Chesapeake Energy over the Eagle Ford Shale in southwestern Texas, a deposit of large and valuable liquid natural gas assets. The acquisition is the state-owned enterprise’s first into the onshore US market since failing to buy the explorer Unocal in 2005, the WSJ says, testing its American welcome — and also potentially giving it needed expertise. Eagle Ford also marks another step in China’s race for ‘unconventional’ natural resources in areas like shale, in which it faces some competition, the FT says. Indeed, Cnooc’s $1.1bn acquisition may prove to be worth double that amount, NYT Dealbook suggests.
The sovereign wealth funds of China and South Korea are set to lead a $900m investment in a top US producer of shale gas, becoming the latest Asia-based groups to focus on the sector, reports the FT. CIC and Korea Investment Corp are in advanced talks to join a consortium planning to acquire convertible preferred stock in New York-listed Chesapeake Energy. The talks follow last week’s news that Singapore’s Temasek and Chinese buy-out firm Hopu had acquired $600m of Chesapeake’s convertible preferred stock.
Two of Asia’s most active investment funds, Temasek of Singapore and Beijing-based Hopu Investment Management, have agreed to pump more than $1bn into Chesapeake Energy, a leading US producer of natural gas from shale rock, the FT reports.
Several oil and natural gas companies in the US and Europe boosted their chief executives’ remuneration last year, in spite of often missing performance targets or other measures of investor value, data collected by the Financial Times show. The most significant bonus of 2008 was that of Aubrey McClendon, chief executive of Chesapeake Energy, one of the US’s biggest natural gas producers, the FT said.