Last updated: March 7, 2010 6:25 pm

Chesapeake in dealmaking frenzy

The frantic round of dealmaking involving Chesapeake Energy, a key player in US unconventional shale gas, underscores the role the independents had in developing the sector.

In contrast to ExxonMobil, which jumped in with its $41bn deal to acquire XTO, another shale gas specialist, many of its rivals opted for smaller joint venture deals with Chesapeake, which include partnership agreements to use the US company’s expertise to develop shale deposits globally.

In the past 18 months, Chesapeake has agreed deals worth a total of $10.8bn. The latest in January, saw Total of France agree to pay $2.25bn for 25 per cent of Chesapeake's assets in the Texas Barnett Shale, the US’ largest producing gas field. It has similarly concluded deals with the UK’s BP and Norway’s StatoilHydro.

Chesapeake has good reason to do the deals – which all involve a 20 to 33 per cent stake in some of its licences – it needs partners to help fund the development of the fields.

“In a perfect world, Chesapeake would want it all,” says Raoul LeBlanc, senior director at PFC Energy, the consultancy. But Chesapeake reported a 2009 net loss of $5.9bn on revenue of $7.7bn and analysts note Chesapeake's capital spending for 2010 was expected to hit $5.3bn, compared with its cash flow estimate of $4.1bn, based on a US natural gas price of $5 per million British thermal units (mBtu).

It is the most active driller in the US, responsible for one out of seven gas wells being, producing 20 consecutive years of sequential production growth. “They've sold a fair bit of acreage, but they've made people pay full value for it,” Mr LeBlanc says.

Chesapeake maintains either the number one or number two in the four biggest US shale fields: Haynesville, Marcellus, Barnett and Fayetteville.

The company expects production growth of 6 to 8 per cent for 2010 and 14-16 per cent in 2011, with about 14 tcfe (trillion cubic feet estimated) of proved reserves.

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