A joint venture between Chesapeake, EnerVest Ltd., and Total has been announced in the liquids-weighted Utica Shale play in Ohio. The joint venture combines 542,000 net acres contributed by Chesapeake with 77,000 net acres contributed by EnerVest Ltd.
Total will acquire a 25% interest in the combined JV acreage through a US$700 million upfront cash payment. Total has also agreed to carry 60% of future capital costs by Chesapeake and EnerVest over a period expected to last not more than 7 years. Reflecting aggressive drilling plans, Total announced that its share of net output will reach 100 Mb/d by 2020.
This is Total's second major JV alliance in the North American unconventional sector. The previous transaction was with Chesapeake in the Barnett Shale but involved primarily dry gas. On a per acre basis Total is paying dearly for these growth assets. Specifically, Total is paying US$15,000 per net acre, consisting of US$4,500 up-front and US$10,533 in carried costs. This compares to the US$6,000 per acre paid by Hess for Utica shale acreage in its September 2011 deal with Consol.
From Total's perspective, the significance of this deal is four-fold: (1) it is part of a continuing program of acquisitions by Total targeted at building its growth assets, (2) it marks a shift in Total's strategy to more closely conform with the peer group consensus identified in our recently released study, Global Exploration & Production: Focus Areas of Growth, prepared jointly with Energy Intelligence Group, (3) it is liquids-weighted and (4) it is expected to yield world scale oil production potential. ENI is the only remaining member of the Global Competitor peer group that has not undertaken major deals to enter the North American unconventional resource plays. Look for growing pressure on ENI to join the trend.
This alliance is also significant for the global oil markets in coming years. The deal marks the launch of the liquids-weighted Utica shale as a major new source of world-scale oil production. Liquids production from multiple North American unconventional operations (Bakken, Niobrara, Eagle Ford, and now Utica) will likely grow rapidly in the near to medium-term.