Recently, Exxon announced its deal to buy XTO Energy. Now another big oil company has gotten into natural gas play. As the fifth largest oil and gas company in the world, France’s Total S.A. plans to purchase Chesapeake Energy Corp's for $2.25 billion, giving the company 25 percent of Chesapeake's stake.
In any industry, a big company buying a small independent isn't unusual. However, this move by two majors in oil and gas demonstrate their belief that natural gas is a promising field. Unfortunately, these companies would've done better to invest in natural gas a few years ago when natural gas experienced a price boom. What's more is that natural gas plays are facing concerns related to environment and public safety, which could lead to stricter regulations. More regulations are costly for these companies.
Total wants to gain expertise in unconventional hydrocarbons to grow in the unconventional field around the world. Instead of natural gas and oil markets moving in parallel, oil prices continue to increase while natural gas prices are staying the same. This provides major oil companies with the opportunity and resources to invest in natural gas companies.
Even with the deal, Chesapeake Energy Corp will still manage Barnett Shale. Therefore, the oilfield contracts and operations will remain in place. But with Chesapeake continuing as an operator, the company is responsible for addressing new environmental regulations.
Hydraulic fracturing, also known as fracking, is a drilling technique developed in Barnett Shale. Lawmakers in Washington are researching the drilling technique and its potential effects on the water supply. If congress enforces a new law that makes fracturing illegal, it gives Exxon a way out of its purchase because of a protection clause.
Chesapeake's deal with Total is its fourth European deal in 18 months.