More Shale Joint Ventures Ahead

An increasing trend in developing natural gas resources through joint ventures (JVs) can be noticed across the North American markets. Several industry players are prioritizing JVs over other sources of capital for property development.

SM Energy Company (SM), formerly known as St. Mary Land & Exploration Company, intends to raise $300–$500 million over the next one year via assets sale and JVs. For these, SM Energy looks at various non-core assets and its stake at Marcellus Shale play.

Chesapeake Energy Corporation (CHK), another natural gas player with significant holdings in core shale plays, has carried out a similar JV recently. Early this year, Chesapeake signed a $2.25 billion joint venture deal with France’s Total SA (TOT) to help develop its Barnett Shale properties in Texas.

Chesapeake is now aiming to sell a 20% interest in its Marcellus Shale gas operations in Eastern U.S. and find a JV partner for its Eagle Ford shale play in Texas.

Among others, Marcellus Shale is one of the top gas-producing zones in continental United States, in which oil majors have been keen to acquire a place, fetching huge premiums for asset holders.

SM Energy has been working over the past several years to build significant positions in emerging shale plays to transform into a more resource-focused company, with a deep inventory of repeatable drilling prospects that carry a high rate of return.

While going in for JVs is a positive move towards improvement, SM’s oil-weighted activity is also commendable, especially in the Permian and Rocky Mountain regions.

Since both SM Energy’s and Chesapeake’s reserves and production are heavily natural gas-weighted, we maintain our Neutral recommendation with the Zacks #3 Rank (Hold) in a still-tentative natural gas environment.

SM ENERGY CO (SM): Free Stock Analysis Report
TOTAL FINA SA (TOT): Free Stock Analysis Report
CHESAPEAKE ENGY (CHK): Free Stock Analysis Report

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