Following in Chesapeake's Footsteps
David Lee Smith
July 21, 2008
If you needed a clue why Chesapeake Energy (NYSE: CHK) CEO Aubrey McClendon is buying his company's stock hand over fist, BP (NYSE: BP) may have provided one. The Big Oil stalwart's taken a new interest in the path that smaller companies like Chesapeake and EnCana (NYSE: ECA) have followed to boost their own natural gas production.
Last week, BP agreed to pay Chesapeake $1.75 billion for natural gas assets in Oklahoma. The properties are located in the Arkoma Basin's Woodford Shale, and they're currently producing about 50 million cubic feet a day of natural gas equivalent.
From BP's perspective, the purchase seems to acknowledge that North America remains geologically interesting. Perhaps not coincidentally, this renewed interest occurs as the company fights tooth and nail to retain about a quarter of its production in Russia.
BP joins other big oil companies such as Royal Dutch Shell (NYSE: RDS-A) (NYSE: RDS-B), ExxonMobil (NYSE: XOM) and ConocoPhillips (NYSE: COP) in moving into "unconventional" gas plays. Their efforts often involve extracting gas from tightly packed sands, shale rocks, or coal beds.
Just last week, Shell announced that it'll spend nearly $6 billion to buy Duvernay Oil, which is busy building a position in Canada's Montney tight sands gas play. Shell is also now working with EnCana in Louisiana's ultra-promising Haynesville Shale.
Meanwhile, BP's Russian partnership is in tatters, with the company convinced that its three Russian billionaire partners are attempting to squeeze it out of the venture. On that front, last week was eventful, with the Russians turning up the heat and BP seemingly hanging on for dear life. Could this purchase from Chesapeake partly signal the company's recognition that U.S. operations are a lot less politically dicey than Russia?
For now, let's just say that BP's realized the potential of North America's gas plays. That factor may also have spurred McClendon's purchase of a whopping 750,000 shares of Chesapeake one day last week.
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