France’s largest oil company has acquired a $2.32 billion holding in Ohio’s Utica shale from Chesapeake Energy Corp. and EnerVest Ltd.
The deal with Total SA provides energy giant Chesapeake with the needed funds to drill extensively in eastern Ohio for natural gas and liquids.
“We believe that the Utica shale is a world-class asset with world-class returns and now we have a world-class partner to help develop the play more aggressively than we could have with our own resources,” said Aubrey K. McClendon, Chesapeake’s chief executive officer.
Total SA will gain a 25 percent stake in 619,000 acres in 10 Ohio counties, Oklahoma-based Chesapeake announced Tuesday.
That includes about 542,000 acres leased by Chesapeake and about 77,000 acres leased by EnerVest.
The land is valued at $15,000 an acre.
Chesapeake will get $2.03 billion and Texas-based EnerVest will receive $290 million in the long-rumored deal that was finalized Friday.
Total E&P USA Inc., a Total SA subsidiary, paid $610 million to Chesapeake when the joint venture transaction closed and will pay $1.42 billion toward future drilling and completion costs.
Chesapeake expects to get all that money by Dec. 31, 2014.
Total SA will also help pay for other improvements including needed pipeline improvements in eastern Ohio.
The French company will also get a 25 percent interest in any additional land acquisitions in the 10 counties by Chesapeake and EnerVest.
Chesapeake has refused to identify the specific 10 Ohio counties. It is involved in all or parts of 14 counties in eastern Ohio, stretching from Stark, Portage and Trumbull counties south to the Ohio River.
Chesapeake last November had announced its intent to bring in a financial partner on its Ohio holdings.
The strategy is typical for Chesapeake, the nation’s No. 2 natural gas producer and the No. 1 gas driller.
Historically, the company has been quick to locate new drilling options and then spends billions on leases, often borrowing heavily. Then it finds a financial partner to recover some of its money while keeping a large stake.
The new agreement marks the second partnership between Chesapeake and Total.
In 2010, the French firm joined with Chesapeake in developing the Barnett shale in Texas in a $2.25 billion deal.
Total is involved in unconventional gas projects in Canada, Algeria, Argentina, Australia, Denmark and Poland. It has expressed interest in shale development in China.
The deal marks Chesapeake’s seventh joint venture transaction since 2008 in developing shale deposits in the United States.
In those deals, Chesapeake has sold about 1.5 million acres for $14.8 billion, while retaining about 3.6 million acres that could be worth $45.7 billion, McClendon said in a statement.
“Total is delighted to be building on our technical successes with Chesapeake in the Barnett Shale JV and to expand into the liquid-rich Utica shale play in Ohio,” said Yves-Louis Darricarrere, president of Total Exploration & Production.
“This is consistent with our strategy to develop positions in unconventional plays with large potential and, in this case, with value predominantly linked to oil price,” he said. “This JV will provide us with a material position in a valuable long-term resource base under attractive terms and with a top-class operator.”
Bloomberg News reported that Total SA was especially attracted to the Chesapeake deal by the liquid-rich results with oil and the wet gasses (propane, butane and ethane) in addition to natural gas.
Chesapeake will serve as operator of the joint venture and will conduct all leasing, drilling, completing, operating and marketing activities. To date, Chesapeake has invested $2 billion and leased about 1.5 million acres, mostly in 14 Ohio counties. The company has said it could have 12,000 wells on its leased land and that could produce tens of billions of dollars.
Last November, Chesapeake had announced a financial transaction that provided $1.25 billion to accelerate its Ohio drilling. The company offered preferred stock in a new subsidiary, CHK Utica LLC, that owns 700,000 acres in 13 counties in eastern Ohio to investors.
Bob Downing can be reached at 330-996-3745 or bdowning@thebeaconjournal.com.