Total E&P USA, the domestic arm of the French energy giant, announced Friday that it is exercising its option to buy out Chesapeake Energy in the Barnett Shale.
Total, which acquired 25 percent of Chesapeake’s North Texas assets in 2010 for $2.25 billion, said it will take control of the 215,000 net developed and undeveloped acres, wells, leases, minerals, buildings and properties.
By exercising its option to take control of the assets, Total is canceling a deal announced last month by Chesaapeake to release its 75 percent stake in the Barnett Shale to Dallas-based Saddle Barnett Resources LLC, a company backed by First Reserve, an investment firm.
Over the six years that we have been involved in the Barnett, we have gained an in-depth understanding of the play and the technology,
José Ignacio Sanz, president and CEO of Total E&P USA
“Over the six years that we have been involved in the Barnett, we have gained an in-depth understanding of the play and the technology,” José Ignacio Sanz, president and CEO of Total E&P USA, said in a statement. “Increasing our stake in the Barnett Shale supports Total’s global strategy to be a leader in natural gas.”
As part of the deal, Chesapeake will pay $334 million to Williams Partners, the gatherer and processor of 80 percent of the gas from the Barnett assets, to terminate an earlier gathering agreement. Total will pay an additional $420 million to Williams for a fully restructured, competitive agreement.
Total also will pay $138 million to be released from three midstream capacity reservation contracts.
“We believe that we can extract significant value from the substantial, well located resource base of the play by combining focused upstream operating efficiency, streamlined midstream contract management and marketing savvy,” Sanz said. “
My first response when I read that is that Total believes the Barnett Shale is a good long-term investment and that it’s a good value,
Ed Ireland, a professor in the energy MBA program at Texas Christian University
Chesapeake Energy spokesman Gordon Pennoyer in Oklahoma City had no comment on Total’s announcement.
The renegotiated transportation contracts with Williams by Total will “allow or encourage additional drilling in the Barnett Shale,” said Ed Ireland, a professor in the energy MBA program at TCU.
But he said the deal is also a positive for the entire Barnett Shale.
“My first response when I read that is that Total believes the Barnett Shale is a good long-term investment and that it’s a good value,” said Ireland, who also is executive director of the Barnett Shale Energy Education Council, an industry informational organization.
“In the big picture it also assures that major integrated oil companies like Total are now seeing the value of shale” and are refocusing “on the shales and getting away from the offshore mega-projects,” he said.
Chesapeake first entered the Barnett in 2004, where it became a major player.
By leaving the Barnett, troubled Chesapeake said it hopes to boost its operating income between $200 million and $300 million a year through 2019.
Chesapeake’s efforts to improve its balance sheet appear to be working. Its stock is up more than 42 percent in the past month, according to 24/7 Wall Street, a financial website.
Total, established in 1924, is a global integrated energy producer and provider, a leading international oil and gas company with 96,000 employees in more than 130 countries worldwide.
Beside its Barnett investment, Total holds a 25 percent interest in the Chesapeake-operated Utica Shale joint venture in Ohio, the company said.