Sheila McNulty Are Chesapeake JVs a defence against acquisition?

PFC Energy, the consultancy, has come up with an interesting theory regarding Chesapeake’s decision to do a string of joint ventures with major oil companies – it will keep the company from being bought out like XTO Energy was by ExxonMobil in December. If PFC is right (and its theory makes a lot of sense), the rumors that Chevron or others are looking to buy Chesapeake will not come to anything.

On January 4, Chesapeake announced its latest joint venture agreement, this time with Total, for the acquisition of a 25 per cent working interst in Chesapeake’s Barnett Shale leaseholdings in a deal valued at $2.2bn. As with its previous joint ventures, this one leaves Chesapeake with a majority working interest position in the leasehold portfolio along with a commitment to pursue joint ventures in other geographic regions.

For those doing the deals with Chesapeake, the benefits are obvious: access to a resource base largely controlled by the US independents, as well as to the experience and expertise of Chesapeake’s staff. But some had started to wonder whether Chesapeake was giving away too much. Indeed, it already had done four such deals.

But PFC says that Chesapeake’s multiple-joint venture strategy may well have secured the company’s future. According to the report:

With most of the leading acquisition candidates now engaged in joint ventures with Chesapeake, an acquisition move by any one of them (or by a potential outsider) could engender a messy response. Having Chesapeake as operator under these joint venture arrangements is one thing, but having a competitor as operator (and, presumably, the new keeper of the Chesapeake brain trust) would represent a substantial competitive advantage that the likes of BP, BG, Statoil and Total would surely resist.

PFC notes that with $6.5bn in cash proceeds and $6bn in forward activity (expected to extend through 2012) from the the five deals, Chesapeake is in an enviable growth position. And its former competitor, XTO, is about to become part of Exxon.