Shell sees big output boost from Chesapeake acreage buy

Thu Nov 29, 2012 11:43am EST
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By Ernest Scheyder and Joshua Schneyer

NEW YORK (Reuters) - Royal Dutch Shell (RDSa.L: Quote) expects "years and years" of production from oil and natural gas acreage it recently bought from Chesapeake Energy Corp (CHK.N: Quote) and plans to add more drilling rigs, the head of Shell's Americas operations said on Thursday.

Shell paid $1.94 billion last September for 618,000 acres in the Permian Basin, a vast oil and natural gas source in western Texas.

Shell and other global energy companies, including Exxon Mobil Corp (XOM.N: Quote) and Chevron Corp (CVX.N: Quote), are buying more oil and gas assets in North America to boost production in a sector where most resources are located and tightly controlled by countries like Brazil and Russia.

Much of the Permian Basin land bought by Shell, which Chesapeake desperately needed to sell, is considered prospective at best and only has seven drill rigs in operation. The properties are currently producing 26,000 barrels of oil equivalent per day, low by industry standards.

Shell believes the land could produce much more, and expects the rig count to rise to 10 "over a period of time," Marvin Odum, president of the Dutch oil major's U.S. arm, Shell Oil Co, and director of Shell's Upstream Americas division, said in an interview with Reuters on Thursday.

"We made a very good acquisition here," Odum said. "This is a relatively small payment for a lot of resources that are reasonably well-proven, but yet to be developed, and a very nice suite of acreage that's more in the appraisal/exploration phase."

Shell had little comment about the deal when it was first announced and has been quiet about production plans.

The company was attracted to the land because it already is producing, meaning production has been proved viable, Odum said. At the same time, Shell was intrigued about exploration possibilities elsewhere on the acreage, he said.   Continued...

A vehicle stops next to the gas pumps at a Shell gas station in Burbank, California April 29, 2008. REUTERS/Fred Prouser