By Sui-Lee Wee and Paritosh Bansal
HONG KONG/NEW YORK (Reuters) - China's top offshore oil producer, CNOOC Ltd <0883.HK>, agreed to pay $1.1 billion for a stake in a U.S. shale oil and gas field, testing the U.S. political climate for the first time since its 2005 failed bid for Unocal.
CNOOC shares hit a three-year high on news of the deal with Chesapeake Energy Corp
"We expect them to expand their footprint in the Canadian oil-sands and also in Brazil's deepwater. That's the last frontier where you can extract big oil volumes," said Gordon Kwan, head of Asian energy research for Mirae Asset Securities, adding that Nigeria and Angola could also be attractive.
The Eagle Ford Shale, located in a patchwork of counties in southeastern Texas, is believed to hold vast amounts of oil and natural gas that has a high liquids content. Interest in the area has intensified as companies look to produce "liquids-rich" gas and crude oil that provide higher returns in a time when natural gas prices are depressed.
Canadian oil firm Opti Canada Inc
CNOOC, along with its China's Sinopec Group, is also bidding for stakes in assets owned by Brazilian oil and gas start-up OGX SA
The 10 deals so far this year for China's oil and gas companies have been worth $18.6 billion, already eclipsing the $15.8 billion in deals for all of 2009, according to Thomson Reuters data.
Most of the outbound acquisitions by China's oil firms have been in risky areas such as Africa, which Western rivals have avoided, or in locations with aging assets.
Now they are also eyeing the United States, which was once deemed off limits to the Chinese due to protectionist sentiment.
"Ninety-five percent of the world's E&P (exploration and production) companies are in North America," said an Asia-based investment banker who has advised Chinese oil firms on outbound deals. "If you have to move the reserve needle, you have to buy U.S. companies."
U.S. oil and gas companies are gradually warming to Chinese investment, partly because their companies are now short of cash, Kwan of Mirae Asset said.
In contrast, China's state oil giants including PetroChina <0857.HK> <601857.SS>
NO REGULATORY HURDLES
The Chesapeake agreement shows that China is confident that the purchase of a 33 percent stake in the Eagle Ford acreage in South Texas will get the backing of U.S. regulators and politicians, who stepped in five years ago to block CNOOC's effort to buy U.S. oil company Unocal.
Outside the energy realm, political concerns have also surfaced from time to time involving efforts by Huawei
While U.S.-China tensions over the value of China's currency persist, ties between the two countries have grown since 2005, with China becoming a major global economic force.
Mirae Asset's Kwan said the structure of the latest deal will make it more likely to get regulatory approval.
"With Unocal, it was buying an entire company, taking over the staff. Here they're buying a 33 percent stake in one of many Chesapeake projects," he said.
By working with Chesapeake, which would remain the operator of the project, the deal could help CNOOC gain exposure to the complicated shale-gas extraction technology that it still lacks.
Cheaspeake, one of the largest producers of natural gas in the United States, has sought to increase its exposure to oil and gas with a high liquids content because the condensate can be stripped from the gas and sold at a premium.
CNOOC is paying an average of nearly $11,000 per acre for the Eagle Ford acreage, higher than the $10,000 per acre that Wall Street expected, CapitalOne Southcoast said in a research note on Monday.
CNOOC shares closed 4.5 percent higher at HK$16.82, their highest since October 30 2007, and outperforming the broader market, which was up 1.23 percent. Chesapeake shares were up 3.1 percent at $23.78 in morning trading in New York.
OTHER SHALE INVESTMENTS
Despite low natural gas prices, interest has been rising in shale formations that could hold enough natural gas to satisfy U.S. demand for a decade.
CNOOC's purchase agreement comes after a flurry of investments by energy companies in shale -- underground rock formations that hold reserves of oil and natural gas.
Norwegian oil firm Statoil
CNOOC agreed to fund 75 percent of Chesapeake's share of drilling and completion costs until an additional $1.08 billion has been paid, which Chesapeake expects by year-end 2012, the companies said. The transaction is expected to close in the fourth quarter.
"Partnering with Chesapeake on this project to develop shale oil and natural gas jointly ... satisfies the spirit of Sino-U.S. cooperation in the energy sector," CNOOC Chairman Fu Chengyu said in a statement.
CNOOC swooped in after talks with Indian energy company Reliance Industries
Shale gas accounts for 15-20 percent of U.S. gas production but is expected to quadruple in coming years, touching off a scramble among producers such as Statoil, Exxon Mobil
Chesapeake's adviser on the transaction was Jefferies & Co, and CNOOC's was Tudor, Pickering, Holt & Co. Securities. China-focused private equity firm Hopu Investment Management played an advisory role in the transaction, according to a source with direct knowledge of the matter.
(Additional reporting by Joseph Chaney and Denny Thomas in HONG KONG and Anna Driver in Houston; Editing by Ken Wills, Muralikumar Anantharaman, Dave Zimmerman)
