Shell sees big boost from buyout of Chesapeake's Permian acreage

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Published November 29, 2012

| Reuters

Royal Dutch Shell expects "years and years" of production from oil and natural gas acreage it recently bought from Chesapeake Energy Corp and plans to add more drilling rigs, the head of Shell's Americas operations said on Thursday.

Shell paid $1.94 billion last September for 618,000 acres in the Permian Basin, a vast source of oil and natural gas in the western part of Texas.

Shell and other global energy companies including Exxon Mobil Corp and Chevron Corp are buying more oil and gas assets in North America as they struggle to boost production in a sector where a vast amount of resources is located and tightly controlled by countries like Brazil and Russia.

Much of the Permian Basin land, which Chesapeake was desperate to sell to get needed cash, is considered prospective at best, and it only has seven drill rigs in operation currently producing 26,000 barrels of oil equivalent per day, low by industry standards.

Shell believes the land holds potential to produce much more, and expects the rig count to rise to 10 "over a period of time," Marvin Odum, president of the Dutch oil major's U.S. arm, Shell Oil Co, and director of Shell's Upstream Americas division, said in an interview with Reuters on Thursday.

"We made a very good acquisition here," Odum said. "This is a relatively small payment for a lot of resources that are reasonably well-proven, but yet to be developed, and a very nice suite of acreage that's more in the appraisal/exploration phase."

Shell had little comment about the deal when it was first announced and has been quiet about production plans.

The company was attracted to the land because it already is producing, meaning production has been proved viable, Odum said. At the same time, Shell was intrigued about exploration possibilities elsewhere on the acreage, he said.

(Reporting By Ernest Scheyder, Patricia Kranz and Joshua Schneyer in New York and Anna Driver in Houston; Editing by Patricia Kranz and Theodore d'Afflisio)

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