SK E&S offers USD $360 million to acquire a 49.9% stake in a gas field of Continental Resources for joint development.
Secures 38 million tons of natural gas which is an amount close to the total annual import of natural gas in Korea.
Expects 1.2 million tons of production per year starting from the year 2019.
Hopes to hedge the effect of price rise of natural gas.
Linked with company-wide ‘No Resource Oil Production Country Project SK E&S secures capacity for its own exploration and development.
SK E&S (www.skens.com) is starting to make inroads into the North America shale gas production market.
SK E&S announced on October 27, 2014 that its affiliated company DewBlaine Energy, which was established in North America in late September 2014, has signed a contract to offer USD $360 million to acquire a 49.9% stake in a local gas field belonging to U.S. petroleum liquids producer Continental Resources Inc., (hereafter Continental).
As for the terms of payment, SK E&S revealed that it will offer USD $90 million in cash at the time of contract and pay the rest by shouldering half the exploration cost which will be headed by Continental. Consequently, SK E&S will be shouldering 75 percent of expense for shale gas development per year until it pays off the remaining USD $270 million that comes with the acquisition of stakes.
As for the terms of payment, SK E&S revealed that it will offer USD $90 million in cash at the time of contract and pay the rest by shouldering half the exploration cost which will be headed by Continental. Consequently, SK E&S will be shouldering 75 percent of expense for shale gas development per year until it pays off the remaining USD $270 million that comes with the acquisition of stakes.
The project will proceed in a manner of two companies making joint investment to develop the gas field and collaborating with each other in all stages of production. Continental will be in charge of the actual operation of the field.
SK E&S now owns 49.9 percent of stakes in the gas field of Woodford Shale located northeast of Oklahoma and estimated to hold approximately 77 million tons of natural gas. The size of the land reaches up to around 182㎢ (approx. 55.1 million pyeong).
Through the latest contract, SK E&S secured about 38 million tons out of a total 76 million tons of natural gas reserves. The amount comes close to the quantity imported by Korea in the previous year (approx. 39 million tons).
The two companies agreed to focus on gas drilling to maintain mining rights for the next three years and to launch a full-fledged production starting from 2017. Such is the preconceived plan to gradually increase the production of natural gas so that it would produce 2.4 million tons of natural gas annually by 2019. Half of that production will go to SK E&S.
“The biggest gain is that we have secured a hedging capacity in case of a price rise in natural gas down the road,” SK E&S said in regards to concluding the latest contract. “We plan to increase our influence in the North American region based on our partnership with Continental which is well versed in production and management of natural gas.”
The significance of the latest contract is further emphasized by the fierce competition SK E&S had to go through to become Continental’s partner. Many big companies including state-run energy enterprises from around the world competed to take over North America shale gas ever since the United States, which used to be a major energy importer, transformed itself to become an energy exporter.
With the latest feat, SK E&S has prepared a foothold to explore and develop natural gas on its own which is the core factor in the upstream LNG value chain. “Through the latest investment in Continental’s field, SK E&S has established itself as a full-fledged LNG provider with its own shale gas field to develop,” commented an official at SK E&S.
SK E&S largely views the latest achievement as a result of a company-wide united effort within SK Group, based on SK Chairman Chey Tae-won’s ‘No Resource Oil Production Country Project’.
As a matter of fact, Chairman Chey has always stressed that, “Energy reserves will stand at the core of national competitiveness in the future and that the biggest mission of an energy company is to secure and develop resources.” True to his words, he has been aggressive in developing resources since 2004, pushing ahead with research and investment by making overseas resources development as one of the major growth engines for the company since the start of the 21st century.
Continental, which is joining hands with SK E&S for the development of the gas field, is a big-scale energy company that produces an average of 170,000 BPD (barrels per day) largely centered on the Bakken region that is spread throughout North Dakota and Montana and the Woodford region located in Oklahoma (as of second quarter of 2014). It is listed on the New York Stock Exchange with a market capitalization that reaches approximately USD $21.1 billion.
The lands of Bakken and Woodford that belong to Continental are considered as some of the most well-known shale gas reserves in the United States along with regions such as Eagle Ford (Texas), the Haynesville (Louisiana/Texas), and Marcellus (Pennsylvania).
Harold G. Hamm, the Chairman of Continental, said in regards to partnership with SK E&S that, “It is a pleasure to become a partner to SK, the global leader in energy business,” adding that, “It is an honor that SK chose Continental as its first partner for investment in the North American shale gas market.”
Meanwhile, experts in the industry speculate that the U.S., which has surpassed Russia to emerge as the world’s biggest natural gas producer through so-called ‘Shale Gas Revolution’ since 2009, will rise as the net exporter of natural gas by the early half of 2016 and lead the way for new changes in the global energy market.
According to the U.S. Energy Information Administration (EIA), shale gas reserves in America reaches to about 665Tcf (1Tcf is 1 trillion cubic feet), which is the fourth largest in the world following that of China (1,115Tcf), Argentina (802Tcf) and Algeria (707Tcf). However, the U.S. comes in at no.1 in the actual production of shale gas as 91 percent of shale gas produced in the world comes from America, thanks to its advanced technology in exploration and drilling, as well as economic efficiency that far surpasses that of other nations.
