Europeans see benefits in U.S. shale

BY JOHN-LAURENT TRONCHE
March 16, 2009

Just as domestic energy producers invested in Middle Eastern oil and gas plays over the past several decades, it appears European energy companies currently see benefits in acquiring stakes in U.S.-based shale plays for application back home.

Over the past several months, three European energy companies – from Britain, France and Norway – have bought stakes in domestic shale plays producing oil and gas. Most recently, Paris-based energy giant Total purchased a 50-percent interest in American Shale Oil LLC to cooperate on a western Colorado shale oil lease that, over time, could be expanded to more than 5,000 acres of federal land, according to the March 3 deal.

“Given the magnitude of oil shale resources we believe that this project has an important long-term potential for global energy markets,” said Yves-Louis Darricarrère, Total’s extraction and processing president, in a statement.

Similarly, during the past several years, Netherlands-based Royal Dutch Shell quietly has been working on shale oil developments in northwest Colorado and Wyoming, not far from Total and AMSO.

Foreign investment isn’t anything new – Canadian energy producers and technologies have been in the Barnett Shale for several years – but the Total-American Shale Oil deal is just the most recent example of European companies moving across the Atlantic to investigate how technology pioneered in U.S. shale plays could help develop similar plays overseas.

Chesapeake invites overseas guests

The British Invasion (not The Beatles et al.) began last summer, just as natural gas and oil prices began to plummet from record highs.

In July 2008, the Houston-based arm of BP Plc, based in London, purchased Chesapeake Energy Corp.’s interest in Oklahoma’s Woodford Shale – about 90,000 acres producing about 50 million cubic feet of natural gas per day – for $1.75 billion.

The companies followed that transaction with another less than two months later.

In September 2008, BP America Inc. agreed to purchase a 25-percent interest in Chesapeake Energy’s Fayetteville Shale assets in Arkansas for $1.9 billion. As a result, the companies would cooperate on the Oklahoma City-based energy producer’s 540,000 acres of lease producing about 180 MMcfe per day, with BP owning about 135,000 acres of the total.

Chesapeake Energy followed up with a third transaction – the largest, to date – for its Marcellus Shale holdings.

Norwegian state-controlled energy company StatoilHydro would pay $3.375 billion for a 32.5-percent stake in the former’s 1.8 million net acres of Marcellus Shale assets, according to a November 2008 agreement. StatoilHydro paid $1.25 billion in cash at closing, and the remaining $2.125 billion over the next three years “by funding 75 percent of Chesapeake’s 67.5 percent share of drilling and completion expenditures until the $2.125 billion obligation has been funded,” according to the Nov. 11 statement.

“This deal adds a major building block to the gas value chain position we have established in the U.S., the world’s largest and most liquid gas market,” said StatoilHydro President and CEO Helge Lund in a statement. “This is a significant step in strengthening our U.S. gas position, building on our existing capacity rights for the Cove Point LNG terminal, our gas trading and marketing organization and the gas producing assets in the Gulf of Mexico.”

The three transactions – especially those with BP – prompted many investors, analysts and national news organizations to assume Chesapeake Energy would be acquired by a larger, integrated energy company, likely BP. CEO Aubrey K. McClendon at first ignored the rumors, and then denied them outright, saying the company had not been and is not for sale.

Still, European interest is evident and it’s likely that companies investing in U.S. plays see good use for the technology back home.

“We’re getting calls in here, too, and we’re getting visitors from various countries,” said Ken Morgan, dean of the Texas Christian University Energy Institute. “We just had some people from Jordan, Iraq and one of my board members has been asked to work in Paris for a year.”

That board of advisers member, Dan Jarvie, is president of Worldwide Geochemistry LLC and is a well-known analytical and interpretive organic geochemist. Morgan said Jarvie has been asked to help Europeans better understand their own shale formations.

“It’s pretty wise of them to [look to the U.S.], and you almost have to get to Fort Worth to understand what the technology is all about,” he said, adding there are two ways companies can get the technology: buying it, or through cooperative efforts.

From: USA, To: EU

A German research firm, the GFZ German Research Centre for Geosciences, also is conducting a six-year, $8-million study – using the Barnett Shale as a leading example – to compile a comprehensive diagram of European shales. The shale database could include Germany, Netherlands, France, Austria, Scandinavia, Great Britain and some Baltic states, according to Gas Shales in Europe, or GASH, literature.

“Gas shales are currently amongst the hottest plays in the United States as a result of high gas prices, and the remarkable technological successes exploiting the Barnett Shale of the Fort Worth Basin,” according to the GASH proposal. “…Many parts of Europe, dead as far as conventional fossil fuel is concerned, contain prime targets for shale gas exploration. Compared to North America, Europe has a much more complex and compartmentalized setting of geological units. In order to get shale gas exploration going, a multi-disciplinary state-of-the-art re-evaluation of available data, an evaluation of tracer regions and their shale gas potential is needed.”

The study began in January, and will be compiled with researchers from France, Scandinavia, Austria, the United States and more.

Some companies already are working to acquire leases across Europe, both onshore and offshore.

At Houston’s NAPE 2009 event in February, companies large and small advertised shale oil and gas prospects across Europe, which representatives said weren’t too dissimilar from domestic shale plays. France, Italy, Poland and England were just a few of the countries with potential shale development.


Buck