In the U.S., the widespread application of advanced drilling technologies such as horizontal drilling and hydraulic fracturing has sparked a domestic oil and gas boom whose reverberations are being felt the world over.
But it's not just U.S. energy companies that are investing heavily in the boom. Foreign firms are also keen to get a piece of the action. Let's take a closer look at some of the biggest foreign players investing in U.S. shale development.
Chinese interest in U.S. shale
According to the U.S. Energy Information Administration (EIA), approximately 20% of the $133.7 billion invested in U.S. shale oil and gas development from 2008 to 2012 came from outside the country's borders.
Of these foreign investors, China has been the most generous. Since 2008, Chinese firms have invested some $5.5 billion in U.S. shale oil and gas projects through joint-venture agreements with U.S. companies, including Chesapeake Energy (NYSE:CHK) and Devon Energy (NYSE:DVN).
Many of these agreements feature a commonly used arrangement known as a drilling carry, whereby the foreign firm purchases a stake in the U.S. host company's acreage by providing an upfront cash payment and agreeing to cover a portion of the drilling cost.
For instance, Chesapeake's 2010 agreement with China's largest energy company, CNOOC (NYSE:CEO), allowed CNOOC to purchase one-third undivided interest in a portion of Chesapeake's Eagle Ford assets in exchange for financing 75% of Chesapeake's drilling and completion expenses.
Similarly, Devon Energy's (NYSE:DVN) joint-venture transaction last year with Sinopec (NYSE:SHI), another large Chinese oil company, allowed Sinopec to buy a third of Devon's equity in five shale gas fields, including acreage in the Niobrara, Utica, and Tuscaloosa Marine shales, in exchange for paying $1.6 billion to cover drilling expenses in those fields.
Chinese companies' main incentive in pursuing these joint-venture deals is not simply to acquire U.S. oil and gas assets for diversification purposes, but rather to gain the necessary expertise so that they can also exploit shale reserves in their native country.
Other foreign investors
In addition to Chinese companies, a host of international players are investing in the U.S. shale boom. According to EIA data, Japanese firms plowed $5.3 billion into U.S. shale oil and gas assets, while Indian companies spent $3.55 billion, and Korean firms invested $1.55 billion. Meanwhile, U.K. companies invested $3.95 billion, French firms $4.55 billion, and Norwegian companies $3.38 billion. Clearly, U.S.-based companies aren't the only ones enthusiastic about U.S. oil and gas production.