Daily Blog

Internationals buying up N.A. Hydrocarbon Plays

Huge international companies are buying up all the hydrocarbon resources in North America.  At least that's what it has looked like over the past few days.  Total signed up with Chesapeake for a 25% interest in about 620M acres of Utica within a Cheapeake/EnerVest JV.  Cost was $700MM plus a commitment to $1.6B of development (60%).  Sinopec is ponying up $2.2B for an interest in 1.2MM of Devon's acreage in the Utica, Michigan Basin, the Mississippian, the Tuscaloosa marine shale and the Niobrara.  Similar to Total, Sinopec will cover 70% of development costs - $1.6B by 2014.  Finally PetroChina is buying the 40% of the MacKay River oil-sands prospect that it doesn't already own from Athabasca Oil Sands corp.  Price is $680MM Canadian.

What can we take away from all this.

#1 - lack of investment capital will not be a barrier to further shale and oil sands development.  International capital wants in the high growth hydrocarbon plays to learn the ropes, and they are willing to pay up to get there. 

#2 - the shale deals include carry provisions, which means that they contain commitments to fund a rapid pace of development.  So more money is coming, seemingly regardless of what happens to prices.

#3 - the big money is to be made by developing and flipping to eager international investors.  Developers will continue scrambling to find the next plays because the money is huge and quick.

#4 - lack of midstream infrastructure is simply a problem to be solved.  And the dollars associated with the solution pale in comparison to the natural resource investments.  So midstream looks good for a long time.