British Petroleum Moves into Arkansas
The second largest oil company in the European Union, British Petroleum (NYSE: BP), has announced that the company has entered into an agreement to purchase 25% of Chesapeake Energy's (NYSE: CHK) Fayetteville, Arkansas shale joint venture. British Petroleum is spending $1.9 billion dollars for the interest. Of the $1.9 billion dollar price tag, $800 will be paid by BP as they fund the drilling and development costs for Chesapeake's share of the venture through 2009. This maneuver adds 135,000 acres of rich shale deposit acreage to BP's US holdings. The Fayetteville properties are producing natural gas. Sharp appreciation in the price of natural gas has made it very worthwhile to pursue shale production fields which can be fairly expensive to develop.
When BP's 25% share is combined with the remainder of the field, total production is 180 million barrels per day equivalent of natural gas. The companies believe this production could be greatly expanded with the additional of as many as 6700 new horizontal wells which could be added to the property.
BP Chief Executive of Exploration and Production Andy Inglis stated,"Together with our substantial position in the emerging Haynesville Shale play in East Texas, BP has made a strategic entry into three top tier shale plays in North America and established potential shale resources of 1 billion barrels oil equivalent net to BP." This is the third acquisition of shale resources by British Petroleum in recent months.
With T. Boone Pickens calling for the conversion of US cars and trucks to natural gas, British Petroleum is making a strong play in gas reserves in the US. With or without the conversion of automobiles to use natural gas instead of gasoline, the market for natural gas remains very strong. Natural Gas prices have risen at a faster clip than oil during the year so far.
British Petroleum is trading very near its 52 week low at a Friday close of $57.63. This comes as the share price has fallen steadily since May. With an 84 cent per share dividend for the most recent quarter, BP offers an annualized yield of over 5.8% at the current prices.
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