Chesapeake Energy Corp. this week said it will sell a stake of its northern Oklahoma acreage to China-owned Sinopec for $1 billion, continuing a growing trend of foreign government-owned oil companies partnering with American producers.
The strategy is good news for American producers.
Sinopec last year struck a $2.5 billion joint venture with Oklahoma City-based Devon Energy Corp. for development of the company's Mississippian and Niobrara shale plays.
Norwegian-owned Statoil in 2008 entered into a $3.4 billion joint venture with Chesapeake in Pennsylvania's Marcellus Shale. Two years later, Statoil began a similar $1.3 billion deal with Talisman Energy Inc. in the Eagle Ford shale in south Texas.
Since Chesapeake's announcement on Monday, I've heard comments from people who seem to misunderstand what's going on here.
The Chinese government did not buy Chesapeake or an Oklahoma oil field.
Under the terms of these joint ventures, the foreign companies — or any other financier — help pay for the drilling and development in exchange for a share of the profits.
The produced oil and natural gas will stay in the United States. Royalties will be paid to Oklahoma landowners. Production taxes will be paid to state and local coffers. Most of the rig hands and truck drivers and service crews and caterers and everyone else associated with the rig are from Oklahoma or surrounding areas.
While the foreign investors stand to pocket a profit if the oil and natural gas fields produce as expected, what they're most interested in is knowledge.
With the fastest-growing economy in the world, China is immensely interested in creating its own shale oil and gas boom.
But first, it is learning from Chesapeake, Devon and other American companies.
Oppenheimer analyst Fadel Gheit described the strategy as “legalized industrial espionage.”
But unlike with illegal industrial espionage, there are no losers here.
The foreign companies pocket profits and knowledge.
The domestic companies are able to defer costs and speed up their drilling programs, increasing the royalties paid to mineral owners and taxes paid to state and local governments.
Another concern I've heard is that these joint ventures threaten energy independence.
Again, the produced oil and natural gas will stay here. Even if the effort to export liquefied natural gas takes off, exports will represent only a small portion of the country's natural gas production.
In the meantime, the foreign dollars will help increase domestic oil and natural gas production.