In January of this year, I offered up one way to play it, via the recently re-branded SM Energy. In February, I told you it was the "play du jour." In April, EOG Resources said it saw resource potential of 900 million barrels of oil equivalent on its acreage here.
I'm talking about the Eagle Ford shale play in South Texas. Since Petrohawk Energy
First came the announcement from Statoil
As for the price tag, Statoil is paying a total of $843 million for 67,000 net acres, or over $12,500 per acre. That's quite a premium to what Plains Exploration & Production
That's one reason big international oil players are an ideal partner in these joint ventures -- they've got deep pockets, and aren't afraid to pay up a bit to achieve strategic goals. Another example of this is CNOOC's
CNOOC is paying $2.16 billion -- half up front, and half in the form of future drilling costs -- to earn a one-third interest in Chesapeake's 600,000 net acres in the Eagle Ford. Ignoring the time value of money, that works out to $10,800 per acre. Again, this is more than PXP recently paid.
Relative value is always a dangerous game to play. Just because my neighbor paid more for his South Florida condo doesn't mean I got a great deal. Whether Plains, Statoil, and CNOOC are savvy acquirers, or just Johnny-come-latelies, will take some time to discern. It largely comes down to decline rates and ultimate recoveries from these Eagle Ford wells.
Natural gas prices are also a big swing factor that could spell the difference between economic and uneconomic wells for the likes of Petrohawk and Swift Energy. That's yet another reason that oil majors are ideal participants here -- they can afford to wait for $6 natural gas. I can't say the same for all the small guys pouring into this play.
Chesapeake Energy is a Motley Fool Inside Value choice. CNOOC is a Motley Fool Global Gains selection. Statoil ASA is a Motley Fool Income Investor recommendation. Try any of our Foolish newsletter services free for 30 days. Fool contributor Toby Shute doesn't have a position in any company mentioned. Check out his CAPS profile or follow his articles using Twitter or RSS. The Motley Fool has a disclosure policy.
True to its name, The Motley Fool is made up of a motley assortment of writers and analysts, each with a unique perspective; sometimes we agree, sometimes we disagree, but we all believe in the power of learning from each other through our Foolish community. The Motley Fool has a disclosure policy.