Sheila McNulty International energy companies plan for global shale play

In the past year, there has been heightened interest in US natural gas resources, as new technology and expertise has expanded from 30 years to 100 years the number of years the US could continue to provide as much natural gas power as it is today. Foreigners are taking notice.

The interesting thing about this is the way they are expressing their interest. Instead of outright buyouts, these companies – including BP and BG from the UK; StatoilHydro, the Norwegian energy company; and Eni, the Italian oil company – have all bought into US natural gas plays through partnerships in which they share not only the reserves but the development of them.

Raoul LeBlanc, senior director at PFC Energy, believes it gives the international investors access to resources and expertise at a reasonable cost. Analysts note that international companies have learned from the experience of ConocoPhillips’ outright acquisition of Burlington Resources in 2005 for $35.6bn.

Late last year, Conoco was forced to disclose a 2008 fourth-quarter net loss of $31.8bn; a $34bn writedown; 1,300 job losses; and a $2.8bn cut in capital spending. The Burlington Resources natural gas acquisition was blamed in a large part for the writedown.

The Europeans are smart enough to understand they do not know how to work the new gas play – which involves extracting natural gas from shale rock – like the independents and want to learn, Mr LeBlanc said.

Martin Houston, BG’s executive director responsible for US operations, said its more than $1bn alliance with EXCO Resources provides for the joint development and growth of assets in the low cost Haynesville shale resource. This move, he said, was opportunist. BG had been looking for the right partner, with the right skills and the right acreage. BG is not new to the US gas market, but he said there is a learning to do’ element, in which BG’s access to EXCO’s skill is clearly going to be important.

It is something the US majors should be noting. While the big US oil and gas companies have some land-based natural gas positions in the country, they have not jumped into these partnerships despite the natural gas companies’ willingness to share their resources and experience in exchange for cash. The economic downturn, credit crisis, and plunge in natural gas prices has pushed many of them to the edge. Now is the time to move in to get in on these plays.

The US majors have long argued that they need big finds and for years have dismissed the onshore US natural gas play as beneath them. Yet the US natural gas reserve pool has been growing rapidly, as technology and experience has made shale gas more economic and accessible. And, given the lower carbon content of natural gas, and a concerted lobbying effort in the Senate on behalf of the industry, it should not be long before the Obama Administration recognizes the potential of this fuel. Only those who took the plunge will then be well placed to capitalize on natural gas’ rise to favor.