A $3.4 billion joint venture of Chesapeake Energy, Houston-based EnerVest and an unnamed foreign company sets the bar higher for the Utica shale formation in Ohio.
Under terms of the deal announced Thursday, the unnamed company will take a 25 percent stake in 653,000 acres in 10 Ohio counties. This includes 570,000 acres owned by Chesapeake and 83,000 acres owned by EnerVest, which manages oil and gas properties for institutional investors.
The deal values the assets at about $15,000 per acre, said John Walker, president and CEO of EnerVest. That’s more than the $8,000-per-acre price tag for a recent Utica shale purchase made by Hess.
“This is a high-water mark in the Utica for now,” Walker said. “But if the play continues to develop as we expect, it might not be for long.”
Chesapeake and EnerVest will receive about 30 percent of the money up front in cash, with the balance of the $3.4 billion used over the next three years to fund drilling and production in the play.
The Utica is on a growing list of natural gas-bearing shales that have been the focus of multibillion-dollar bidding wars. Shale formations were long considered uneconomical for oil and gas production because they are dense and don’t allow for easy flow of hydrocarbons.
But in recent years firms perfected the combination of hydraulic fracturing — where a mix of water, sand and chemicals are pumped under high pressure to break apart shales — and horizontal drilling to make shale production economic.
North Texas’ Barnett Shale was the first major shale formation exploited using the advanced technology, followed by fields including the Haynesville in Northwestern Louisiana, the Marcellus in Pennsylvania and the Eagle Ford in South Texas.
Chesapeake has been expanding its Utica footprint aggressively in recent years.
Chesapeake and EnerVest are the No. 1 and No. 2 acreage holders in the Utica.
EnerVest’s foothold in Ohio began in 2003 when it purchased Columbus, Ohio-based CGAS out of Enron Corp.’s bankruptcy.
The company’s wells tapped into conventional oil and gas formations, although EnerVest and other companies were aware of the existence of natural gas in the Utica shale.
EnerVest built up its Ohio acreage over the years, with an average acquisition cost of around $10 per acre, said Walker.
“We still haven’t made a decision if we’ll sell our remaining acreage or not, but if this turns out to be another Eagle Ford — which we think it is — it’s best to be patient,” Walker said.
Also on Thursday EnerVest announced that it purchased $1.2 billion in producing gas wells and acreage in the Barnett Shale in North Texas from Encana and another unnamed privately owned seller.
In October 2010 EnerVest bought about $1 billion in Barnett assets in Oct. 2010 from Talon Oil & Gas.
Chesapeake said, meanwhile, that it sold $500 million in preferred stock of a newly formed entity called CHK Utica, LLC to a private equity group called EIG Global Energy Partners. The new entity will be focused on Utica development.