RSN Fundraising Banner
FB Share
Email This Page
add comment

Intro: "Showing that it isn't worried about the upswell of angst over hydraulic fracking technology, the Chinese government, through state-controlled Sinopec, today struck a deal with Devon Energy to buy into five prospective new exploration areas in the US."

The US hydro-fracking business has new overseas investors, 06/15/09. (photo:
The US hydro-fracking business has new overseas investors, 06/15/09. (photo:

China Set to Frack America in Shale Deal

By Christopher Helman, Forbes

04 January 12


howing that it isn't worried about the upswell of angst over hydraulic fracking technology, the Chinese government, through state-controlled Sinopec, today struck a deal with Devon Energy to buy into five prospective new exploration areas in the U.S.

The deal, which includes $900 million in cash upfront and a promise of $1.6 billion in the years ahead to cover drilling and development, gives the Chinese a 33% stake in five of Devon's fields, and a front row seat to what is effectively the second wave of development of U.S. shale assets. The areas in question include the Tuscaloosa in Louisiana, the Niobrara in Colorado, the Mississippian in Devon's home state of Oklahoma, the Utica in Ohio and the Michigan basin.

This isn't the first time a Chinese company has bitten off a piece of shale - Cnooc has partnered with Chesapeake Energy in the Eagle Ford and Niobrara in recent years - but it is the first onshore U.S. foray for Sinopec.

Foreigners have been hot for shale in recent months, with Chesapeake also today unveiling its Utica JV partner as Total. Last week SandRidge Energy, run by Chesapeake co-founder Tom Ward, sold a $1 billion worth of its acreage in the Mississippian to Spain's Repsol. A few months back Aussie mining giant BHP Billiton continued its shale gobble with the $15 billion pick-up of Petrohawk, following its earlier $5 billion buy of Chesapeake's Fayetteville shale acreage. India's Reliance Industries, though a JV with Atlas, controls some 350,000 acres in the Marcellus shale.

Sinopec's deal makes sense - it's buying promising acreage in the U.S. at a time when the price of natural gas is low ($3 per mcf) and the value of the dollar as a reserve currency is high.

(With $3 trillion in U.S. government debt set to be turned over in 2012 we'll need to attract a lot more foreign investment than this - but that's another story.)

So what does this deal do for Devon? Bob Brackett, analyst at Bernstein Research, was scratching his head over this today. In a note Brackett wondered why Devon was doing the deal at all. "Unlike companies like Chesapeake who need JVs to fund development activity, Devon isn't in dire need of the proceeds," considering its $5.6 billion in cash on the balance sheet. What's more, Brackett thinks Sinopec got the better end of the deal; he values the deal acreage at a fair value of $5,900 versus the implied deal value of $4,800 an acre.

More important, Brackett wonders when Devon will reveal what it has in mind for its cash. A big acquisition perhaps? Share buybacks? Or maybe just some really, really nice accoutrements for the giant new skyscraper headquarters it's building in downtown Oklahoma City.

Whatever Devon decides to do with its cash, the likely destination will be onshore. The company sold its deepwater and select international assets to BP for $7 billion in 2010. With new partner Sinopec. That move was the first big one that Chief Executive John Richels made upon taking the reins of the company from Larry Nichols (who founded Devon with his father four decades ago). But divestitures don't make a legacy, and Richels is surely seeking to make a lasting mark on Devon.

The market liked today's move, pushing Devon shares up 6.63% to $66.11. your social media marketing partner


A note of caution regarding our comment sections:

For months a stream of media reports have warned of coordinated propaganda efforts targeting political websites based in the U.S., particularly in the run-up to the 2016 presidential election.

We too were alarmed at the patterns we were, and still are, seeing. It is clear that the provocateurs are far more savvy, disciplined, and purposeful than anything we have ever experienced before.

It is also clear that we still have elements of the same activity in our article discussion forums at this time.

We have hosted and encouraged reader expression since the turn of the century. The comments of our readers are the most vibrant, best-used interactive feature at Reader Supported News. Accordingly, we are strongly resistant to interrupting those services.

It is, however, important to note that in all likelihood hardened operatives are attempting to shape the dialog our community seeks to engage in.

Adapt and overcome.

Marc Ash
Founder, Reader Supported News

+12 # fdawei 2012-01-04 23:01
Can we track the market performance of Devon's shares over the past several weeks/months looking at massive stock purchases by individuals or groups?
+7 # colpow 2012-01-05 06:36
Time to translate Gasland into a few Chinese dialects.
+18 # gdp1 2012-01-05 09:17
...Chinese fracking in America? ...Damn, I feel like I'm living in a Rwanda or Ecuador, victimized by Texaco.....
+10 # Karlus58 2012-01-05 11:19
Sir, precisely the type of exploitation US backed interests have been exerting throughout the world.
+10 # mimo 2012-01-05 14:55
exactly why the planet is going to hell
+3 # Anarchist 23 2012-01-05 16:36
Welcome to the new Third World GSA (Geheim Staats of Amerikkka)We will be right there along with all the IDP (Internally Displaced Persons) from those other countries like Somalia and Ruwanda, Nigeria, Morocco, Iraq. I have my own well, but who knows what fracking in Co will do the water table in NM?

WTF-I saw this coming way back and am already set up in another country-I can move whenever I can find homes for the pets-provided they renew my passport!

Am I angry at what has happened? Does the ursine quadruped defaecate in the arboreal cluster?

THE NEW STREAMLINED RSN LOGIN PROCESS: Register once, then login and you are ready to comment. All you need is a Username and a Password of your choosing and you are free to comment whenever you like! Welcome to the Reader Supported News community.