Transier: Divorces Among JV Partners Inevitable And Will Be Ugly

...JVs have skewed U.S. gas markets

Divorces among U.S. unconventional-play joint-venture partners are inevitable, says Endeavour International Corp. chairman, president and chief executive Bill Transier.

And these divorces are going to be ugly, even politically charged, he told Oil Council meeting attendees in New York recently.

“You would hope not but, in general, you’re definitely going to see that happen.”

Endeavour operates in the U.K. North Sea and in U.S. unconventional-shale plays in the Haynesville, Marcellus, Alabama and Montana, and it holds interests in South Texas and the Permian Basin.

“All you have to do is go around the world, and the way they think about the oil and gas business is dramatically different from the way we think about it in North America or even in the U.S.”

This disconnect will surface in time. “You’ve seen in these JV agreements that they’re highly complex in the way they’re put together. Some guys, like Aubrey (McClendon, chairman, president and CEO of Chesapeake Energy Corp.) do a really good job of weighting all of the terms to his benefit over time.”

Chesapeake entered a joint venture in its Eagle Ford shale play in South Texas in October with CNOOC Ltd., a first time the Chinese national oil company has held oil and gas interests onshore the U.S.

Chesapeake and other U.S. operators have entered JVs with Norway’s Statoil ASA (Chesapeake, Marcellus); the U.K.’s BP, BG and Royal Dutch Shell (Chesapeake/BP, Fayetteville; Exco Resources/BG, Haynesville; Exco/BG, Marcellus); Italy’s ENI Spa (Quicksilver Resources, Barnett); France’s Total SA (Chesapeake, Barnett); Japan’s Mitsui and Sumitomo (Anadarko/Mitsui, Marcellus; Rex Energy/Sumitomo, Marcellus); and India’s Reliance Industries (Atlas Energy, Marcellus; Pioneer Natural Resources, Eagle Ford; Carrizo Oil & Gas, Marcellus).

“For Statoil, CNOOC and now the Koreans (in a JV with New York private-equity firm KKR for a roughly one-quarter interest in Colonial Pipeline Co.), Eventually they will figure out it’s not really what they intended or the way they think about the business and that’s where you will get into these politically charged events. It’s going to end up that way.”

The cost of entry in these deals totals more than $18 billion, according to a Jefferies & Co. count. Additional capital is required in the JVs to fund further drilling of the acreage position.

“The balance in the U.S. with some of the capital that has flowed in through some of these ventures has kind of skewed the market, particularly natural gas in the U.S., and eventually you may see a response on the U.S. government side and you may see a response from some of these NOCs.”