CNOOC has also agreed to fund 75% of Chesapeake's share of drilling and completion costs until an additional $1.08 billion has been paid, which Chesapeake expects will occur by year-end 2012, the companies said.
The Eagle Ford shale is believed to be rich in natural gas liquids and condensates, which command higher prices than regular natural gas and is therefore more attractive, Reuters reported. CNOOC shares hit a three-year high on news of the deal. Shale gas, which accounts for 15% to 20% of U.S. gas production, is expected to quadruple in coming years. Several large oil companies, including Exxon Mobil (XOM) and Royal Dutch Shell (RDS) have bought into U.S. shale plays in recent years.
"We are very pleased to announce our fifth industry shale development transaction," said Chesapeake CEO Aubrey McClendon. "Chesapeake has continued to maintain a majority position in each of the five major projects subject to development arrangements ranging from 67% to 80%."The agreement shows, Reuters reports, that the companies believe the deal will clear regulatory hurdles, even though U.S. regulators and politicians blocked CNOOC's efforts to buy U.S. oil company Unocal five years ago. This deal would mark the first major investment by a Chinese state-run company in onshore energy reserves in the U.S.
Many foreign energy companies have bought into similar American projects to learn the skills pioneered in the U.S. required to tap gas, The Wall Street Journal reported. Until now, China hasn't been able to tap its own reserves of shale gas, due to a lack of drilling know-how.
Of course, with China's fast growing economy and high and growing demand for energy, Reuters reports that more such deals are expected.