The U.S. E&P joint-venture deal with a foreign partner is not a bottomless pit, warns Bobby Tudor, chief executive officer of energy investment-banking firm Tudor, Pickering, Holt & Co. Securities Inc.

“There are only so many deals in North America that Reliance (Industries Ltd.) is going to do—or CNOOC or Statoil for that matter. So there is not a bottomless pit, if you will, of buyers for these asset-level deals and, at some point, the music stops.

“It’s just not yet,” Tudor said at a recent Oil Council meeting in New York.

JVs among leading U.S. unconventional-resource players have made international headlines in the past two years, including Chesapeake Energy Corp.’s recent deal with CNOOC Ltd. in Chesapeake’s Eagle Ford play. Deals with smaller independents have as well.

“Smaller independents with shale-gas positions have found difficulty with funding over time,” Tudor notes, as natural gas prices have softened from 2008 highs.

Carrizo Oil & Gas Inc. has done a deal with Reliance in the Marcellus. “Gastar (Exploration Ltd.) has done one (with Korea’s Atinum Partners Co. Ltd., also in the Marcellus). And they have all done exactly that, which is to use the attractiveness of their asset base to bring in a partner to help fund it to accelerate cash flow to get their borrowing base up so they can, effectively, live to another day.

“They’ve been able to, in effect, sell a piece of the company to make that happen. We think there will be more of those. The question is, ‘When does the buyer list run out?’”

Tom Petrie, vice chairman of Bank of America Merrill Lynch, said at the Oil Council meeting, “There is a risk of ‘deal fatigue’ on the JV side. The foreign buyers, in my view, and the ones we’ve been involved with in the past two years, wanted to come in not just to get access to the resource.

“In fact that was a secondary consideration. Most of them wanted to get up the (unconventional-resource) learning curve and be able to apply it back in their own domain, so we’re pretty well through the list of parties who want to do that.”

More North American unconventional-play JVs are to come, but there will be fewer, Petrie agrees. “It’s going to be very interesting—how future JVs get done.”

Tudor notes that a unique dynamic supports non-U.S. JV partners’ return-on-capital analysis. “If you’re CNOOC or Statoil, there are a lot of reasons why you’re doing this, frankly, and near-term economic return in the next year is low on your priority list.

“If you’re CNOOC, you have a 3% cost of capital and a 50-year time line. If that’s the case, what you want to be doing is learning how you can do shale gas, so you can do it in other parts of the world and you want your capital to be working, if you have a 2% or 3% cost of capital. Commodity prices can be low and you can still survive.”

Petrie notes, “In the better shale plays, even at today’s (natural gas) prices, it’s economic.”

For more news from the Oil Council meeting, see

--U.S. Shale-Gas Plays Are ‘Criminally Destructive,’ Says Kayne Anderson’s Sinnott

--BP: Exporting U.S. Gas Depends Ultimately On If Foreign Buyers Can Compete With U.S.’ Own Market

--Transier: Divorces Among JV Partners Inevitable And Will Be Ugly

–Nissa Darbonne, Editor-at-Large, Oil and Gas Investor,, Today, Oil and Gas Investor This Week, A&D Watch,, Contact Nissa at