China: Chesapeake deal highlights growing confidence in the US shale gas industry

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10 February 2011, Oil, Gas

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Despite political and economic rivalry, China National Offshore Oil Corporation (CNOOC) has agreed to buy a 33.3% stake in Chesapeake's Niobrara shale gas project as part of its ambitious capital expenditure plans for 2011. This latest US-based venture follows the company's October 2010 investment of $2.16bn in Chesapeake's Eagle Ford, Texas shale asset, as well as similar deals in Nigeria, Venezuela, and Australia.

The Niobrara prospect is primarily located in northeastern Colorado, and also straddles parts of neighboring Kansas, Wyoming, and Nebraska. Comprised of a total of 800,000 acres, the deal is worth $1.3bn, which includes funding of 66.7% of Chesapeake's share of drilling and completion cost up to a limit of $697m. The development confirms CNOOC's growing confidence in the US shale gas market, and also strengthens its position ahead of the upcoming shale block auctions to be held in China in the first quarter of 2011.

As part of its plans for 2011, CNOOC has earmarked $8.8bn specifically for oil and gas expenditures. The company has also set aside $150bn for investments in offshore projects and overseas operations over the next five years, which will increase its production output even further. Datamonitor believes that the company will maintain steady growth in the short to medium term, and that this growth will be achieved mainly through strategic mergers and acquisitions. In 2010, Chinese oil and gas deal activity totaled $26.5bn, up 67% from the 2009 figure of $15.8bn. This upward trend is likely to continue driving capital expenditure in the industry in the near future.

The activities of CNOOC are symptomatic of a longer-term trend whereby a greater share of investments will come from the ranks of emerging energy players, of which CNOOC is a key member. The international energy companies will face increasingly strong competition for major energy opportunities over the coming years.

Source: Datamonitor

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