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Chevron, Shell seek rich returns from U.S. acreage

By Steve Gelsi, MarketWatch:  Sept. 12, 2012, 1:51 p.m. EDT

NEW YORK (MarketWatch) — Royal Dutch Shell and Chevron Corp. moved Wednesday to buy acreage in the Permian Basin of Texas and New Mexico in the latest example of major oil companies bulking up their U.S. holdings as a way to increase production at affordable prices.

In separate deals with Chesapeake Energy CHK -0.85% , Chevron CVX +0.35% will add to its 700,000 acres in the region, while Royal Dutch Shell RDS.A -0.03% UK:RDSA -0.45% will mark its first big acquisition in the Permian. See Energy Stocks for more on Chesapeake.

The Permian basin offers richer returns than other domestic fields because of the region’s proportion of oil and natural-gas liquids, which fetch higher prices than natural gas. Modern drilling and well-stimulation technology have helped make the fields more lucrative in recent years.

Energy analyst Phil Weiss of Argus Research said the multinationals got the properties at a value as Chesapeake scrambles to generate cash to compensate for lower revenue from stubbornly low natural gas prices.

More deals from the majors may come in the future as credit for transactions remains easy and cheap, he said.

“There are opportunities for the majors to find companies that have been overleveraged because of depressed natural gas at good prices,” said Weiss. “When you’re big and strong and when the market punishes one of your peers, you have the ability to step in and take advantage of it.”

Lysle Brinker, director of research for IHS, said major oil companies have been moving back into the U.S. after pulling up stakes in the 1990s.

“The independent energy companies are the ones that started the unconventional revolution and the big guys were late to the game, but now that it’s a viable business, they’re trying to take advantage of opportunities,” Brinker said. “They have a lot of cash, and it’s sometimes more challenging to find places to invest overseas, where there’s more risk.”

Chevron said it would acquire 246,000 net leasehold acres in the Delaware Basin in New Mexico for an undisclosed sum.

“These early-in-life, liquids-rich unconventional assets have the potential to be significant future contributors to Chevron’s robust North American operations,” said George Kirkland, vice chairman of Chevron.

Chevron said it sees the potential to “increase substantially” the current net production of 7,000 barrels of oil equivalent per day in the area it’s buying.

Royal Dutch Shell said it would spend about $1.94 billion for 618,000 acres in West Texas with current production of 26,000 barrels of oil equivalent a day.

“The acquisition provides both existing production and near-term growth potential from a proven resource, as well as promising opportunities for expansion,” Shell said.

Weiss said the U.S. remains attractive because it offers a big energy market for oil and gas, a stable tax environment and the chance for major oil companies to test new techniques for oil extraction for use overseas.

In the biggest move so far by an oil major into U.S. acreage, Exxon Mobil paid about $40 billion in stock in 2010 to buy XTO Energy to become the U.S.’s biggest domestic natural gas producer.

Steve Gelsi is a reporter for MarketWatch in New York.

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