Sinopec in $2.5 billion US Shale Deal

China Petroleum & Chemical Corp. (Sinopec) has unveiled a $2.5bn deal with Oklahoma-based Devon Energy.

Sinopec, China’s second-largest oil company, is investing in 1.2 million acres in Devon's holdings in the Tuscaloosa Marine Shale in Alabama and Mississippi, the Niobrara Shale in Colorado, the Mississippian, the Utica Shale in Ohio and in the Michigan Basin.

Sinopec, will pay $900 million in cash and as much as $1.6 billion in Devon’s future drilling costs, funding 125 wells in the coming year.

In an interview with Bloomberg, Scott Hanold, a Minneapolis-based analyst for RBC Capital Markets, said that Sinopec is paying about $5,500 an acre when drilling costs are included.

“Market expectations were at best $3,000 an acre, so Devon did pretty well,” Hanold said. “There’s been a clear interest by Asian companies taking a position in U.S. shale.”

Devon had been seeking a joint-venture partner to help shoulder the costs of drilling in unconventional basins where wells require the expensive hydraulic fracturing process to produce oil and gas.

Sinopec is seeking exposure to unconventional hydrocarbon know-how to produce in order to leverage China’s vast shale and other unconventional resources.

In 2011, Sinopec bought Calgary based Daylight Energy Ltd., for about $2.16 billion.