Total bucks Saddle Resources out of the Barnett Shale

Relative bargain for Total, which gains three-times its original stake in the play for around a quarter of the original cost

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By exercising its pre-emptive right to acquire Chesapeake’s 75 per cent interest, Total will become a 100 per cent owner and operator of the joint venture’s Barnett Shale assets and increase its exposure to US shale gas by 110 per cent, according to Wood Mackenzie.

In a new report, Wood Mackenzie US Lower 48 experts discuss how they interpreted Saddle Resources’ purchase and what the future may hold for Total and Chesapeake.

Due to struggles meeting the terms of its 20-year gas gathering and shipping contract with Williams Partners, Chesapeake announced plans in Aug. to exit the Barnett Shale by conveying its interests to Saddle Resources.

On 9 Sept., Total stepped in to block Saddle Resources’ purchase by exercising its pre-emption right.

Chesapeake first acquired acreage in the Barnett Shale in 2006, and by 2009, Total purchased a 25 per cent stake in Chesapeake’s assets for US$800 million and a US$1.45 billion cost carry.

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For the remaining 75 per cent stake, Total will pay US$420 million to Williams to restructure the gas gathering contracts, as well as an additional US$138 million to terminate three pipeline capacity contracts.

This is a relative bargain, with gains three-times its original stake in the play for around a quarter of the original cost, according to Wood Mackenzie.

Chesapeake will pay US$334 million to Williams in its share of the buyout—a figure that remains unchanged from the original agreement with Saddle Resources.

As a result, Total will own and operate 100 per cent of the Barnett Shale assets, increasing its exposure to US shale gas by 110 per cent and establishing a stronger position in US unconventionals.

This acquisition also boosts Total’s production numbers, placing the company ahead of both Chevron and BP for North America shale gas production.

Total’s other primary North America shale gas position is in the Utica, where the company owns a 25 per cent interest in Chesapeake-operated acreage.

In 2015, Chesapeake was rumoured to be looking for a buyer for its dry gas Utica assets, which have an estimated value of US$2 billion. Could a similar deal be in the cards for these two companies?