NEW YORK (AP) — The French oil company Total on Monday made a move into the U.S. natural gas market with a $2.25 billion deal with Oklahoma's Chesapeake Energy.
Total's agreement with Chesapeake (CHK) comes just a few weeks after ExxonMobil said it would buy natural gas producer XTO Energy in a $31 billion all-stock deal.
Total (TOT) said it will pay $800 million in cash for a 25% 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 pay for 60% 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 more than 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," Total's CEO 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, BP America and Statoil.
Copyright 2010 The Associated Press. All rights reserved.
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