Big Oil’s flight draws US risk takers to Australian shale industry

By JOE CARROLL
Bloomberg

Aubrey McClendon, the wildcatter who pioneered the US shale revolution by going where big oil companies wouldn’t, is at it again. This time in Australia.

Emboldened by the exodus of producers such as Chevron and Statoil from Australian shale, McClendon and private-equity investor John Raymond are pouncing amid the rout in global crude prices and a dearth of other ready investors, said Fadel Gheit, an analyst at Oppenheimer & Co. in New York.

Australia is home to the world’s sixth-largest shale oil reserves and seventh-biggest tranche of shale gas, according to the US Energy Information Administration.

“The big boys left town and that left an opening for the likes of McClendon and Raymond,” Gheit said. The major oil companies “left a vacuum and these guys are ready to go against the grain and fill it. It’s what they do.”

McClendon’s American Energy Partners is negotiating two acquisitions with a combined value of more than $160 million for Australian drilling rights that span an area the size of New York state. That followed the disclosure last week that Raymond’s Energy & Minerals Group agreed to invest in Pangaea Resources’s shale holdings in the country.

Chevron quit an Australian shale venture earlier this year as tumbling crude prices prompted the second-largest US oil producer to conduct an internal reassessment of investment priorities. ConocoPhillips, Hess Corp. and Statoil had already abandoned Australia’s shale patch by that point.

Armour Surges

Brent crude futures, a benchmark for international oil prices, dropped 59% in the past 14 months as a flood of supply from North American shale and Persian Gulf fields overwhelmed demand.

McClendon’s American Energy signed a letter of intent and a three-month exclusivity agreement with Armour Energy to acquire a 75% stake in 21.5 million acres (8.7 million hectares) of drilling rights, Brisbane, Australia-based Armour said in a statement on Thursday. Armour shares surged as much as 70% after the announcement before closing 49% higher Thursday in Sydney.

Terms of the preliminary deal require American Energy to pay Armour as much as $18 million in signing bonuses and to spend $100 million on oil and natural gas drilling over five years. American Energy also has the option to acquire a 5% stake in Armour and a seat on the board of directors, according to the statement.

New Frontier

Work on the project should begin by May, Armour CEO Robbert de Weijer said. Separately, the company is seeking buyers for a stake in 7.8 million acres it holds in the same region, he said.

The deal “vindicates Armour’s view that the McArthur Basin represents one of the worlds great opportunities for the discovery of a new frontier oil and gas province,” Nicholas Mather, Armour’s executive chairman, said in the statement.

In a separate deal announced on Friday, American Energy signed a letter of intent to buy rights across 14.6 million acres from Empire Energy Group. The Sydney-based company said in a statement that American Energy will pay as much as $15 million in signing bonuses and other payments, as well as $60 million in drilling costs.

American Energy also has the option to acquire a 7.5% stake in Empire.

Unconventional Oil

McClendon co-founded Chesapeake Energy in 1989 with 10 employees and $50,000, eventually amassing millions of acres of US drilling rights and building the company into what was for a time the biggest American gas producer. He was ousted from Chesapeake in 2013 following an investor revolt.

This week’s agreements mark McClendon’s first overseas foray. Charlie Rexford, an American Energy spokesman at Brunswick Group, said McClendon wasn’t available for an interview.

Raymond’s Energy & Minerals, a key backer of McClendon’s post-Chesapeake activities, last week agreed to acquire an 18% stake in Australian shale rights held by closely held Pangaea. Raymond didn’t return a telephone message seeking comment. McClendon and Raymond are investing in the county’s Northern Territory region.

In his home country, McClendon’s efforts to build a new shale empire since his forced departure from Chesapeake have foundered. American Energy has struggled under low energy prices and heavy debts incurred to amass a portfolio that stretches from the Great Plains to Appalachia.

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