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Permalink Reply by JHH on August 3, 2012 at 8:12

Here are a few details:

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By Tess Stynes
--Deal with Sumitomo will fund shale projects

--Sumitomo's total investment in the projects will be $2 billion

--Weaker commodities prices offset production growth in quarter

(Adds comments from Sumitomo, background)

Devon Energy Corp. DVN +1.74% has agreed to sell 30% of its interest in about 650,000 net acres in the oil-rich Cline and Midland-Wolfcamp Shales in West Texas to Japan's Sumitomo Corp. in a deal valued at about $1.4 billion.

The deal with Sumitomo is Devon's latest with a major international investor. In January, Sinopec International Petroleum Exploration & Production Corp. agreed to pay Devon $2.2 billion for a one-third interest in five alternative shale plays.

This is also the latest example of a series of investments by Japanese companies in North American shale assets.

Sumitomo itself has been a partner in the Marcellus and Barnett shale projects in the U.S. Other Japanese companies such as Marubeni Corp. (8002.TO) and Mitsui & Co. (8031.TO) have also invested in North American shale assets in recent years.

In the deal with Devon, the "focus is on crude oil," which has been much more profitable than natural gas due to oversupply, a Sumitomo spokesman said.

Sumitomo will pay $340 million when the deal closes, expected in the third quarter, and commit an additional $1.025 billion toward funding the joint venture's drilling, covering 70% of Devon's capital requirements.

As a result, Sumitomo would cover about 79% of overall drilling and completion costs during the so-called drilling carry period, in which Devon's partner will carry most of the drilling costs. That period is expected to conclude by mid-2104.

Devon will serve as the operator of the project and be responsible for marketing.

Analysts with Tudor, Pickering, Holt & Co. said the deal had a "nice price tag," and that even though it reduced Devon's potential gains from the emerging area, it also completely eliminated its capital-expenditure funding gap for the second half of 2012 and 2013.

A number of energy producers, including Devon, have been cutting natural gas production and focusing more on natural-gas liquids and crude projects.

Devon's oil production has risen 26% to 149,000 barrels per day, mostly on the back of growth from its Jackfish projects in Canada and from the Permian Basin. Chief Executive John Richels said during an earnings call that oil production will grow 20% by the end of the year, and amount to about 40% of the company's total output.

On Wednesday, the company unveiled a large position in the emerging Mississippi Lime shale, an oil-rich formation underlying Oklahoma, Kansas and Nebraska.

Devon said it added 400,000 net acres in the area, and its position there now totals 545,000 acres.

"This is a position that can truly move the needle for a company of Devon's size," David Hager, Devon's head of exploration, said.

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Permalink Reply by Krkyoldhag on August 3, 2012 at 9:09

I know that the people who have Devon doing their drilling and on their land are mostly satisfied with the company and its methods. 

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Permalink Reply by Hopeful About Natural Gas on August 3, 2012 at 12:56

It feels strange to me too, for foreign companies and nations to own so much of our shale. Does not feel right, but I guess it's all legal.

Anyone got a guess as to how much of the Haynesville (or any other shale) is owned by people outside the US.

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Permalink Reply by JHH on August 3, 2012 at 13:07

There was a time foreign companies could not own a U.S. communications company. But that changed years ago. When China decides to collect on its mineral holdings... and Canada or our Congress says... hey not so fast... there could be trouble.

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Permalink Reply by Skip Peel - Mineral Consultant on August 3, 2012 at 13:16

British Gas (BG) owns a 50% interest in EXCO's Haynesville leasehold and operations.

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Permalink Reply by Krkyoldhag on August 3, 2012 at 15:56

My first thoughts were..maybe foreign companies could be minority owners..but now Mr. Peel says BG owns 50% of Exco's leases...in shale.  Maybe as long as they only own minority share in the whole company? 

I just thought kind of interesting (worrisome?) that our resources are owned by foreign companies.  The thought was , well there goes our opportunity to be energy independent.

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Permalink Reply by Skip Peel - Mineral Consultant on August 3, 2012 at 16:01

We (US) own stakes in foreign reserves.  It's a global economy.  BG not only bankrolled EXCO's development of their Haynesville assets, they held a lucrative long term gas sales contract that allowed EXCO to keep drilling, and earning a healthy profit,  even after the price of nat gas tanked.

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Permalink Reply by adubu on August 4, 2012 at 7:13

Some point in future the foreign companies that purchased the assets will desire to import the gas for their use(Export for USA-- of course LNG export must be completed to handle the volume that is not avaliable yet) that will help all the royalty owners in area due to improved prices and drilling of more wells resulting getting their minerals out of the ground to market and money in their accounts to spend. 

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Permalink Reply by Krkyoldhag on August 5, 2012 at 2:57

I saw the layout for the fueling docks and refining plants that are proposed ...just as in the Mid East  they are too concentrated in location to be secure from attacks.  Exporting is great idea for profits for royalties owners but I would like to see less concentration of our refining, exporting, facilities in the Gulf.

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Permalink Reply by Krkyoldhag on August 6, 2012 at 5:14

I don't believe.  I just think that concentrating the fuel stations and refineries together is just bad security.  All it would take is ONE nut loose to sabotage a facility.

So far as who?  Fiction is sometimes a forecast.  H.G. Wells put forth the fiction that atomic bomb was possible. 

Who attacked Pearl Harbor?  And was that attack a security failure?  Was it totally unexpected possibility?  Who shot our soldiers at Ft. Hood?  Was it a muslim or was it one of their own?  Which identity do you attach to him?  Who attacked the Temple in Wisconsin yesterday?  An ex military guy.

So who knows where the attack would come from?  I just think we should prepare and protect from ANY possible threat to our supplies of energy.

Why do oil and gas companies put up gates at drilling sites?  Why do they send a guy out in his pickup truck to check those sites?  Do they expect an attack?  If so why are so many of those gates left open?  Why do I see those guys in their a/c pickups taking naps along the roads at the well sites? Why do they publish the codes to those gates on line?   Tells me they don't take security all that seriously.

I wish I could say I believe a foreign  group would be source of the attacks.  I am afraid that it will be a home grown enemy.  I remember when Oklahoma bombing occurred I was shocked that it was a Timothy McVey from right here in our own country.

So do you want to open this up to "who" and from "where"?  It appears that the answers will make me more uncomfortable. 

I used to be able to tell people..when you see a guy walking down the street with a bottle of water you see someone from another country.  That was 30 years or more ago.  Now we all carry a water bottle.  But if I own a flight school and some guys sign up who speak a mid Eastern language I think I would raise an eyebrow.  And deny the lessons.  The enemy looks just like me.

On the other hand in the 1960's our military was training helicopter pilots from Iran in Wichita Falls.  Did anyone think we might be training the pilots who would in turn train the pilots that might deliver a weapon on us?

Ok I know..I nuts..  But on the other hand..I just had a mental acuity test run on myself by my doctor and he says I might be nuts but I of sound mind.  That scare you? 

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Permalink Reply by adubu on August 4, 2012 at 7:23

Skip--- does BG own 50% of XCO interest in the Haynesville acreage or just JV 50% interest in what's drilled as it is drilled up to a agreed Dollar amount?

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Permalink Reply by Skip Peel - Mineral Consultant on August 6, 2012 at 4:10

I think so, adubu.  BG owns 50% of the leases, the operated wells and the pipeline infrastructure in EXCO's LA Haynesville acreage.  I assume the same is true in E TX as EXCO did not expand operations to include those land positions until after the BG deal.  In fact many operators were limiting there E TX operations when EXCO/BG were moving in to take up the slack.  Here again the BG gas sales contracts allowed the JV to be aggressive when other companies were cutting back.

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