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Total moves into U.S. natural gas

Strikes $2.25-billion deal with Chesapeake Energy for stake in shale assets, funding

The Associated Press

Monday, January 04, 2010

New York — French oil company Total SA Monday made a move into the U.S. natural gas market with a $2.25-billion (U.S.) deal with Oklahoma's Chesapeake Energy Corp.

Total's agreement with Chesapeake comes just a few weeks after Exxon Mobil Corp. said it would buy natural gas producer XTO Energy in a $31-billion all-stock deal.

Total said it will pay $800-million in cash for a 25-per-cent stake in Chesapeake's Barnett Shale assets, which hold vast quantities of natural gas in northern Texas.

The French company will pay an additional $1.45-billion to help fund 60 per cent of Chesapeake's share of drilling and completion expenses.

The deal provides Total with additional production of about 175 million cubic feet per day of natural gas. Growth in future years should increase Total's share of production to over 250 million cubic feet per day, the company predicted. Total's share of proven reserves will be about 0.75 trillion cubic feet of gas, with additional unproved reserves of about 1.6 trillion cubic feet.

Total CEO Christophe de Margerie said the deal is a “strategically important move” into the U.S. shale gas business.

Shale is a layered, sedimentary rock that exists in formations throughout the world. Natural gas is tightly locked in the rock formations and had been extraordinarily expensive to extract until the last few years.

The deal “will allow Total to develop its expertise in unconventional hydrocarbons in order to expand its unconventional business worldwide,” he said.

Chesapeake's CEO Aubrey McClendon said the transaction boosts the company's financial position.

The companies expect the deal will close at the end of January. Chesapeake, which is based in Oklahoma City, has struck similar partnership deals with Plains Exploration & Production Co., BP America and Statoil.