By Ben Geman - 10/11/10 11:24 PM EDT
Oklahoma-based Chesapeake announced Sunday that CNOOC would spend $1.08 billion for a one-third stake in the project and the same amount to fund drilling and other project costs in the field, which Chesapeake believes could produce 400,000-500,000 barrels of oil equivalent per day in the next decade.
CNOOC faced attacks on Capitol Hill in 2005 when it launched an unsuccessful $18.5 billion bid for Unocal, a California-based multinational corporation. The proposed deal prompted concerns about energy-hungry China locking down worldwide petroleum reserves. Unocal was instead purchased by Chevron Corp.
But Chesapeake CEO Aubrey McClendon said Monday that the deal with his company has nothing in common with the Unocal controversy. “This is fundamentally different. In that situation, CNOOC wanted to acquire an American energy company — a large one in its entirety,” he said on CNBC.
“Here, they're just simply investing capital in a minority position. And U.S. assets that Chesapeake owns in South Texas will have total control over, will use their capital to create American jobs and to create more American oil production which will reduce our foreign imports of oil as well,” he added. “Remember, all the oil stays here. The jobs stay here.”
CNOOC's failed Unocal deal was followed by an even greater firestorm in 2006 when state-owned Dubai Ports World purchased a London-based company that ran key U.S. ports. Dubai Ports World, the port company, under heavy pressure, agreed to sell the U.S. operations.
The controversies led to legislation signed in 2007 that overhauled the work of an interagency panel called the Committee on Foreign Investments in the United States (CFIUS) that reviews foreign purchases of U.S. companies and assets.
The legislation required that CFIUS review the security-related effects of transactions on “critical infrastructure” and long-term U.S energy needs.
A Chesapeake spokesman told Bloomberg that the Texas deal will not require U.S. regulatory approval.
McClendon said the project includes some gas production but is “mainly oil.” And he plans to employ hydraulic fracturing, or “fracking” — a common technique in shale-gas fields that involves high-pressure injections of chemicals, water and sand to break apart rock formations and enable trapped hydrocarbons to flow.
The Environmental Protection Agency is currently studying the environmental and health effects of fracking, an old technique that has gained new currency amid the boom in U.S. shale-gas production. The industry calls concerns about groundwater contamination greatly overblown and has resisted calls for new federal rules, calling state oversight sufficient.
The project will also use "horizontal drilling" techniques, McClendon said. "We and a handful of other companies in the U.S. starting in 2005 revolutionized the U.S. natural gas business using the combination of these two new technologies," he told CNBC.
He added that similar opportunities exist for oil development. "Today, we think we have the chance of really changing the oil business in the U.S. and the world, has very, very positive geopolitical implications for our country and economic implications," he said.
McClendon also called the deal a plus for efforts to combat climate change. Natural gas has lower greenhouse gas emissions than coal or oil.
“This project will advance the efforts of both the U.S. and China to reduce greenhouse gas emissions and accelerate commercial opportunities for the development of shale gas resources in China,” he said in a prepared statement Sunday.
China is the world’s biggest greenhouse gas emitter, and its heavy use of coal to fuel its growth is prompting fears of runaway emissions despite China’s aggressive renewable energy programs.
“Will they learn things that will help them go back and develop oil and natural gas in China? Possibly so, and so, it's good for the world because they burn, in my opinion, too much coal there today, need to develop their domestic reserves and natural gas and oil,” McClendon told CNBC.