Sinopec to buy stake in Chesapeake assets

An employee walks past oil tanks at a Sinopec refinery in Wuhan, Hubei province (file). China Petroleum & Chemical Corp (Sinopec), Asia’s largest oil refiner, is to buy a 50% stake in Chesapeake Energy Corp’s Mississippi Lime oil and gas properties in Oklahoma and Kansas for $1.02bn.

Reuters/Beijing

China Petroleum & Chemical Corp (Sinopec) will buy half of Chesapeake Energy Corp’s Mississippi Lime oil and gas properties in Oklahoma for $1.02bn to increase its presence in the booming North American shale gas industry.

Output from shale fields in the US and Canada has jumped over the last three years due to the advent of drilling methods such as hydraulic fracturing.

Companies in China, which has the largest shale reserves in the world, are keen to get the know-how of drilling in such unconventional fields.

China’s state-owned CNOOC has struck a deal to buy Canadian oil and gas company Nexen for $15.1bn, while Pioneer Natural Resources said last month it would sell a stake in its assets in the Wolfcamp shale field of Texas to Sinochem Group for $1.7bn.

Sinopec, Asia’s largest oil refiner, will buy 50% of Chesapeake’s 850,000 acres of net oil and natural gas leasehold properties in the Mississippi Lime shale field in northern Oklahoma, the companies said.

The Mississippi Lime assets will be bought by Sinopec International.

“The deal is about $200mn below our modeled assumption for similar acreage but (with) more production,” analysts at investment bank Tudor, Pickering, Holt & Co said.

Chesapeake shares were down marginally at $20.40 in premarket trading yesterday. The stock has risen about 23% this year.

However, SunTrust Robinson Humphrey analyst Neal Dingmann. said the deal was very positive for Chesapeake.

“The price based on all metrics appears better than what myself or the Street expected, especially the $2,400 per acre metric,” he said.

Chesapeake has about 2.1mn net acres of leasehold in the Mississippi Lime region, which straddles northern Oklahoma and southern Kansas.

Production from Chesapeake’s Mississippi Lime region jumped 208% to an average of 32,500 barrels of oil equivalent per day in the fourth quarter, the company reported this month.

About 45% of the total output was oil, 46% was natural gas and the rest was natural gas liquids.

Sinopec’s deal with Chesapeake, the second-largest gas producer in the US, will help the Oklahoma City-based company cut down its debt, which stood at $12bn as of December 31.

Chesapeake, which closed $12bn of asset sales last year, is targeting asset sales of $4bn to $7bn in 2013, the company said in a presentation earlier this month.

Chesapeake said in December it would sell most of its natural gas processing and gathering assets for $2.16bn to Access Midstream Partners LP.

 The company’s board and big shareholders are trying to rein in spending, pay down debt and increase production of more profitable oil.

Chief executive Aubrey McClendon, who co-founded the company in 1989, is stepping down on April 1 following a tumultuous year during which the company faced a liquidity crunch and a governance crisis.

Sinopec struck a deal with Devon Energy Corp in January 2012 to buy a third of the US oil and natural gas producer’s interest in five developing fields for about $2.2bn.

A unit of Sinopec signed a deal to buy Canadian oil and gas explorer Daylight Energy for more than $2bn in October 2011.