Will Our Energy Be Stamped “Made in China,” Too? – Devon Energy Corp. (DVN) and Chesapeake Energy (CHK)

Page 1 of 2

Recently, I’ve been wondering if oil and gas asset sales to national oil companies have the potential to jeopardize our dreams of energy independence. In the past couple of years, we’ve seen domestic energy producers such as Devon Energy Corp. (NYSE:DVN) and Chesapeake Energy Corporation (NYSE:CHK) rake in billions of dollars by selling a piece of future oil and gas production. It’s becoming pretty clear that more deals are on the way.

Probably feeling the pressure of competition following Chesapeake Energy Corporation (NYSE:CHK)’s $1.02 billion Mississippian Lime joint venture with rival Sinopec, China National Petroleum Company’s chairman recently said that it’s currently studying whether it, too, will join the fray. As that nation’s largest oil company it has the financial firepower to pursue a big deal. Overall, Chinese explorers have an estimated $40 billion to spend on locking up production.

Devon Energy CorpOne of the issues is that these companies could be bidding for our production assets with an unfair competitive advantage, as they can use Chinese government loans to stake their claim. Most of the U.S. deals involve having these companies simply buying joint venture stakes in production assets, with Chesapeake Energy Corporation (NYSE:CHK)’s sale involving a 50% stake in 850,000 net acres. Devon Energy Corp. (NYSE:DVN) also recently completed a transaction with Sinopec totaling $2.5 billion in which it sold a 33% interest in three emerging energy plays, including the Mississippian. The company uses these to minimize exploration costs by de-risking the acreage and increasing exploration activity. A larger looming issue will be when a Chinese national bids for control of a U.S. oil and gas producer.

The question is, what are the Chinese and other foreign buyers after? It’s not to lock up supply and ship it back to China, as instead the production will be sold in the states. The profits, on the other hand, will eventually make their way back to the mainland, which can then be used to purchase oil and gas on the open market. However, that’s probably not the real reason behind these deals. Instead, it’s more about the technology being used to unlock our vast shale resource.

You see, China has its own untapped resource potential, as the country is believed to hold the world’s third largest recoverable natural gas reserves. The problem is that most of these reserves are trapped in shale:

To best understand how to tap its own reserves, the country’s oil and gas companies are investing in the U.S. companies that have harnessed the technology to unlock our shale. Because our assets are cheaper on a relative basis and our political climate is stable, it makes the most sense to invest directly in U.S. production and learn firsthand.

In conjunction with a growing number of asset transactions, U.S. oil-field service companies with expertise in fracking are setting up shop in mainland China. Both Baker Hughes Incorporated (NYSE:BHI) and Halliburton Company (NYSE:HAL) have set up strategic partnerships with Chinese companies. Baker Hughes is setting up a research center for unconventional energy as well as investing in the development of technologies specific to China’s unconventional resources. Meanwhile, Halliburton is providing key software solutions to map out the resources so that Chinese operators can determine how to best extract the energy underneath its soil.

Page 1 of 2
blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

The Top 10 Most Expensive Digital Cameras to Snap Stunning Shots With

The 10 Highest Quality Fast Food Restaurants In America Today

The 8 Best Halloween Decorating Ideas to Spook Up Your House

10 Marvel Women that Should Get a Movie Right Now

The 20 Best Remixes of Popular Songs that Will Make You Forget the Originals

7 Most Expensive Cities in the World

5 Least Expensive Cities in the World

10 Celebrities Who Believe In Scientology

10 High Margin Food Products to Build a Business Around

The 10 Most Expensive Clothing Stores in the United States to Get Decked Out At

The 5 Biggest Kickstarter Scams That Swindled Backers’ Donations

The 10 Most Expensive Boarding Schools In the World

50 Crazy Facts About Japan You Won’t Believe

Top 10 Least Expensive Hybrid Cars to Save the Planet With

The 10 Biggest ‘Gate’ Controversies in History

The 10 States with the Highest Nursing Shortages Leaving Their Hospitals Depleted

The 10 Best Value Investment Blogs that Every Investor Must Read

The 6 Cheapest Boarding Schools in Europe 2015

The 5 Most Expensive Cars To Insure in the World

The 10 Most Common Genetically Modified Foods

10 Self-Made Billionaires Who Came From Nothing

The 10 Most Expensive Cities to Live in North America

The 13 Most Expensive Headphones in the World to Represent

The Top 20 Wealthiest Soccer Teams in 2014

4 BuzzWorthy Cannabis Stocks And Some Smoking Derivative Plays

The 10 Healthiest Fast Food Chains in America to Dine At

The 5 Most Expensive Cat Food Brands You Can Spoil Your Kitty With

The 6 Best eCommerce Platforms for Small Businesses

The 10 Worst Mistakes an Entrepreneur Can Make

The 5 Most OP Characters in League of Legends to Carry Games and Crush Foes With

The 5 Best Foods to Eat Before Running that Will Help You Pound the Pavement

10 Glaring Plot Holes in The Walking Dead that a Zombie-Filled Bus Could Drive Through

The 5 Biggest Celebrity Stoners Who Love Their Reefer

The 10 Most Overrated Movies Of All Time by Out-of-Touch Critics

Top 6 Least Expensive Cruise Destinations For 2015 that Will Take You to Paradise

10 States with Lowest Substance Abuse Rates in America

The 14 Most Watched TV Finales Ever

The 10 Best Selling Role Playing Games of All Time for PC

10 Most Influential Papers In Economics

Top 8 Biggest Charities in the US

10 Worst Celebrity Career Moves Ever

Top 10 Best Paid Tennis Stars in the World

Top 6 Cities For The Ultra Rich to Live in Comfort

10 Cities with High Demand for Nurses

6 of the Worst Greeting Card Messages Ever Crafted

How to Make Money in ArcheAge and Build Your Empire

10 Foods To Eat To Lower Cholesterol Levels

The 10 Most Hated Television Characters of All Time

The 30 Worst Halloween Costume Ideas Ever Brought to Horrible Life

10 Vocational Skills in Demand Today with Jobs Waiting to be Filled

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!