Total Gets a Piece of Chesapeake

Posted Jan 4th 2010 3:20PM by Tom Taulli
Filed under: Chesapeake Energy (CHK)

Unconventional energy -- which comes from hard-to-get sources like shale -- is red hot. The biggest sign of this is Exxon's (XOM) recent deal to pay $30 billion for XTO (XTO).

As a result, the expectation is that there will be many more deals in the sector. This week Total SA (TOT), which is one of the largest oil companies in the world, agreed to form a joint venture for natural gas with Chesapeake Energy (CHK). The deal may involve as much as $2.25 billion.

In the joint venture, Total will get a 25% stake of Chesapeake's Barnett properties (for a value of roughly $800 million). While the company has unconventional assets in various parts of the world, there is nothing in the US -- until now.

Of course, the oil giant will use its considerable resources to extract the oil (which can be fairly expensive). In other words, for a company like Chesapeake, the deal is critically important. After all, it is still not easy to get capital, especially for highly leveraged companies. Keep in mind that Chesapeake struck similar joint ventures with Marcellus (for $1.25 billion), BP Plc ($1.9 billion) and others.

Both Total and Chesapeake have agreed to explore other opportunities (true, this is vague). Thus, we may see other deals from the parties.

In earlier trading, the shares of Chesapeake were up 5.6% to $27.33.

Tom Taulli advises on business tax preparation and resolving tax problems. He is also the author of a variety of books, including the including The Complete M&A Handbook. His website is at Taulli.com.

Tags: bp, chk, Energy, inthenews, Maecellus, tot, xom, xto