Investment Race U.S. Energy Sector Attracts Foreign Capital to Shale

By Benjamin Priddy, June 18, 2013

Foreign investment in the U.S. oil and gas sector is at an all-time high, with private international and foreign state-owned energy companies citing the potential for high returns and low associated commercial and political risks as major factors that create a favorable investment climate. The latest foreign acquisition of an American energy company was Sinopec’s $1 billion deal in late February to buy half of Chesapeake Energy Corporation’s oil and gas acreage in Oklahoma. Chinese national energy companies are looking to lay hands on shale technologies developed in North America for use back home. Other foreign investors are looking to take advantage of low American gas prices to build petrochemical plants and oil refineries there. 

FDI in American Energy Flourishes

In mid-January, businessman and former deputy speaker of the State Duma, Mikhail Yuriyev, announced plans to form Amshale Energy Capital Partners to invest in shale oil and gas production and refining facilities in the United States. Yuriyev, president of the Russian League of Industrialists, plans to raise an initial $200 million in capital investment for exploration and production in shale plays in Texas, Louisiana, Montana, and North Dakota. Along with business partner Andrei Kunatbayev, he then plans to seek out additional investors in North America, Europe, and Asia to contribute another $1 billion to Amshale Energy, Vedomosti reported in January.

In 2010, Yuriyev and Kunatbayev founded Pesto Investment Group and Lafert, two U.S.-based companies currently active in shale oil and gas drilling in Texas and refining in Louisiana. According to Bloomberg, Pesto Investment Group has already partnered with Halliburton Co. to drill 10-15 wells in south Texas, where one of the country’s largest shale oil plays, Eagle Ford, is located. Yuriyev told several Moscow newspapers that Russia’s uncompetitive market, higher taxes and cost of services make the U.S. a much more attractive place for investment. 

Out of the $186.5 billion invested in mergers and acquisitions (M&A) of American oil and gas companies in 2011, 30 percent – over $56 billion – of total investments were made by foreign buyers, according to PwC last year. There were 191 total M&As in the U.S. energy industry in 2011 and 88 consisted of upstream shale transactions, KPMG reported. Large international energy companies and private equity firms led the rush to invest in the North American energy boom that year. But national oil companies (NOCs), from countries like China, and private buyers like Mikhail Yuriyev, offset a decline in foreign direct investment (FDI) in American energy in 2012, caused by lingering economic stagnation in Europe and investor uncertainty in the U.S. economic outlook. Rising interest among foreign NOCs is leading to more asset transactions and corporate acquisitions, enabling companies to deploy more capital and invest in more than one shale play.

“Over the past number of years, foreign investment in U.S. shale plays has truly come from a global base of investors,” Greg Matlock, Senior Manager for Transaction Advisory Services at Ernst & Young in Houston, told OGE. “That being said, investors from Asia