Total’s deal with Chesapeake Energy Corp. comes just three weeks after Exxon Mobil Corp. said it will buy producer XTO Energy Inc., another prolific natural gas producer, in a $31 billion all-stock deal.
Estimates of total U.S. gas reserves have risen so rapidly in just two years that they have caught the eye of major integrated oil companies that until recently had left unconventional natural gas plays in the U.S. to smaller players.
And Total, like Exxon, promised to take what it learns in the U.S. to potential natural gas fields across the globe.
“It reaffirms, if there could be any doubt, … that the world is looking to the U.S. to learn about gas shales,” Chesapeake CEO Aubrey McClendon said in an interview.
Total, the world’s fifth largest oil and gas company, will acquire a 25 percent interest in Chesapeake’s Barnett shale assets in north Texas for $800 million in cash. It will pay an additional $1.45 billion to help fund 60 percent of Chesapeake’s share of drilling and completion expenses.
Chesapeake, based in Oklahoma City, is the second largest producer in the Barnett, which is the source of half of all production from tight rock formations known as shale being produced in the U.S., according to Chesapeake.
Because the technology to unlock gas from shale has developed so quickly, energy experts have raised estimates of how much fuel is available by 35 percent since 2007. Estimates peg U.S. supplies as so large that they would last more than a century at current levels of consumption.
New supplies and looming climate legislation have already prompted some utilities to switch from coal-fired plants to natural gas turbines because they emit fewer greenhouse gases.
Total CEO Christophe de Margerie said in a statement that the deal will allow his company to expand its unconventional business worldwide.
It is Total’s second move in the past year into U.S. shale operations. A year ago, it bought a 50 percent stake in American Shale Oil, a subsidiary of IDT Corp., which has rights to prospective shale oil development in western Colorado.
The deal gives Total additional production of about 175 million cubic feet per day of natural gas. Growth in future years should increase Total’s share of production to more than 250 million cubic feet per day, the company predicted. Total’s share of proven reserves will be about 0.75 trillion cubic feet of gas, with additional unproved reserves of about 1.6 trillion cubic feet.
The deal sent Chesapeake shares up $1.64, or 6.4 percent, to $27.54 Monday. Total shares rose $1.90, or 3 percent, to $65.84.
It is the fourth European joint venture that Chesapeake has struck in the past 18 months as it expands ties with companies looking to exploit shale gas reserves globally. Chesapeake’s previous deals were with British oil company BP PLC, Norwegian oil company Statoil ASA and Plains Exploration & Production Co.
Chesapeake maintained its production estimates for this year and boosted expectations for 2011 as production continues to exceed predictions, McClendon told analysts on a conference call.
Chesapeake said it expects the deal to close by Jan. 31.