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Dave Forest

Dave Forest

Dave is Managing Geologist of the Pierce Points Daily E-Letter.

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These Private Equity Giants Are Selling Their Shale... To China

These Private Equity Giants Are Selling Their Shale... To China

Very interesting story unfolding this week in the U.S. energy sector; showing several twists emerging amongst the players in this space, old and new.

The Wall Street Journal broke the story Sunday that a new operator is breaking onto the scene in shale. Namely, billion-dollar Chinese property development company Yantai Xinchao.

According to filings, that firm has reached a deal to acquire a package of oil assets in west Texas. Few details were given on the properties -- but the price tag for purchase is significant, at around $1.3 billion. Related: Pain For Oilfield Services Will Continue Even If Oil Prices Rebound

The company did specify that this billion-dollar property package is located within Texas' Howard and Borden counties, an area that would put the assets within the shale oil hotbed of the Permian Basin.

The entrance of a Chinese player into this shale space, on this large scale, is a big development. But the story has another intriguing aspect -- the people vending the assets to Yantai Xinchao.

That's not one, but two major private equity players. One being ArcLight Capital Partners, and the other Denham Capital Management. Related: Stop Blaming OPEC For Low Prices

Both of these Boston firms are huge players in the energy investment space, with over $20 billion in funds between them dedicated to the exploration, production and midstream sectors.

And the fact they've chosen to exit the Permian is an interesting benchmark for the industry.

That's because the Permian is held up by analysts and oilmen alike as one of the most profitable plays in America right now. Raising the question: why would savvy investment groups like ArcLight and Denham sell a cash cow, at one of the most depressed times the market has seen in decades? Related: Banks Give A Stay Of Execution On Oil And Gas Sector

It's of course possible that Yantai Xinchao's $1.3 billion bid represents a sweet offer. With no details on the properties, we simply don't know if the Chinese owners are paying top dollar per barrel or not.

But whatever the case, this landmark deal shows at least one party (and possibly both) is very motivated -- China to get into shale, or America's private equity insiders to get out.

Here's to turning over the keys,

Dave Forest

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  • Lee James on October 31 2015 said:
    Maybe somebody's more interested in technology transfer, than high-cost U.S. unconventional petroleum supply??

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