France’s Total Takes Over Barnett Shale Following Chesapeake Exit

Integrated oil and gas supermajor Total S.A. (NYSE: TOT) announced Friday that it has exercised its preemption right to acquire all of the 75% interests it jointly owned with Chesapeake Energy Corp. (NYSE: CHK) in the Barnett Shale area in north Texas. With the acquisition, France-based Total becomes the sole owner and operator of the Barnett assets.

The Barnett Shale is the location of the first economically successful U.S. hydraulic fracturing (fracking) of oil and gas wells. A small company called Mitchell Energy & Development applied the technique to tight gas deposits around the Dallas-Fort Worth metropolitan area in the late 1990s. That’s when Mitchell Energy began fracking (then spelled, “fracing”) wells in the Barnett Shale and producing economically viable natural gas.

Founder and namesake George Mitchell sold his company to Devon Energy Inc. (NYSE: DVN) in 2002 for $3.2 billion. Mitchell died in 2013 at the age of 94.

Under the terms of the acquisition, Chesapeake will pay $334 million to Williams Partners L.P. (NYSE: WPZ) to terminate its current gathering agreement, to make good on a projected shortfall on in minimum volume commitment, and to pay fees related to the Barnett Assets. Chesapeake announced these payments on August 10.

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The French company’s U.S. subsidiary, Total E&P USA, will pay Williams an additional $420 million for a new gathering agreement that does not include a minimum volume commitment and that is based on a Henry Hub-based gathering rate instead of a fixed fee per thousand cubic feet. Total has also agreed to pay another $138 million to Williams to be released from three additional contracts.

In 2009, Total paid Chesapeake $800 million plus a drilling and completion carry of $1.45 billion for its 25% stake in the Barnett Shale. Total now acquires approximately 215,000 net developed and undeveloped acres, wells, lease, minerals, buildings and properties in the Barnett area.

Total’s stock traded down about 0.8% in Paris Friday morning at €44.10.

Chesapeake’s shares jumped about 13.5% on Thursday and traded down about 1.6% in Friday’s premarket, at $7.62 in a 52-week range of $1.50 to $9.55. The drop is likely due to a 1.2% decline in the morning’s crude price.

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