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Asia's Appetite for Shale Gas Is Growing

By Toby Shute – Updated Apr 6, 2017 at 1:57PM

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A big joint venture points to a potential shift in the shale scene.

Last year, we highlighted the phenomenon of major European energy players like BP (NYSE:BP) and BG Group joining the amazing shale race. That trend is clearly continuing in 2010, with Total's entry into the Barnett. While Europeans have so far featured prominently in these big joint venture deals, I'm wondering whether Asian energy players won't steal the spotlight this year.

Yesterday's announcement by an affiliate of Mitsui & Co. is certainly a start. Mitsui E&P USA is taking a 32.5% stake in Anadarko Petroleum's (NYSE:APC) Marcellus shale project for a grand sum of $1.4 billion.

As with Williams' (NYSE:WMB) joint venture with Rex Energy, the deal has a drill-to-earn structure in which Mitsui will carry nearly all of Anadarko's Marcellus development costs from now to 2013. That includes 100% of Anadarko's costs in 2010.

As for the price tag on the deal, this is a premium offer. Williams is paying $1,500 an acre to earn its 50% share of Rex's leasehold. When Chesapeake Energy (NYSE:CHK) brought Statoil (NYSE:STO) in to earn into its giant leasehold position, that deal came out to $5,800 per acre, including Statoil's drilling carry. The Mitsui deal weighs in at $14,000 per acre. The only Marcellus joint venture where I've seen higher proposed earn-in terms -- and there are more Marcellus JVs than I can count -- is a small deal between Chesapeake and Canadian player Epsilon Energy.

Mitsui is not the first Japanese trading house to eye the North American shale plays. Mitsubishi teamed up with Schlumberger (NYSE:SLB) and a privately held Fort Worth operator back in 2008 to develop unconventional plays. Sumitomo entered into a JV with Carrizo Oil & Gas in the Barnett late last year. I wouldn't be surprised if Itochu and Marubeni had projects in the works as well. These businesses, which love to take minority stakes in commodity-linked projects around the world, are perfect shale partners.

China is also getting enthusiastic about shale. Royal Dutch Shell has teamed up with PetroChina (NYSE:PTR), while BP is in talks with Sinopec to develop shale resources. Unlike Washington, Beijing seems to realize that unconventional gas is perhaps the key platform for increasing energy supplies with a fraction of the emissions resulting from coal-fired power plants.

Korea's national oil company, KNOC, has announced $6.5 billion in planned M&A this year. Following the company's purchase of Canada's Harvest Energy Trust, a shale gas play may be next on the menu. India's ONGC, which has also teamed up with Schlumberger to study shale plays, is another one to watch in 2010.

Chesapeake Energy is a Motley Fool Inside Value selection. Statoil and Total are Motley Fool Income Investor recommendations. Explore any of our Foolish newsletters today, free for 30 days.

Fool contributor Toby Shute doesn't have a position in any company mentioned. Check out his Motley Fool CAPS profile or follow his articles using Twitter or RSS. The Fool owns shares of Chesapeake Energy. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Anadarko Petroleum Stock Quote
Anadarko Petroleum
BP Stock Quote
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Williams Companies Stock Quote
Williams Companies
$33.52 (-1.12%) $0.38
Schlumberger Stock Quote
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Equinor ASA Stock Quote
Equinor ASA
$36.51 (-0.81%) $0.30
PetroChina Stock Quote
Chesapeake Energy Stock Quote
Chesapeake Energy

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