Eni SpA (NYSE:E) (BIT:ENI) has signed an agreement with Quicksilver for cooperation on development of shale oil and gas in the onshore fields of the United States. The two companies will work together to jointly evaluate, explore and develop unconventional oil reservoirs (shale oil) onshore in the U.S., revealed Eni in a press release this morning.
The agreement calls for Eni SpA (NYSE:E) (BIT:ENI) to acquire a 50% stake in the 53,500 gross acres held by Quicksilver. These undeveloped fields under Quicksilver’s ownership are located in the Leon Valley area, located in Pecos County (West Texas) approximately 800 km northwest of Houston. Quicksilver is to maintain its position as the operator of this field while the stake in the field is to be divided equally among the partners.
Eni SpA will cover 100 percent of the drilling
To earn this stake, Eni SpA (NYSE:E) (BIT:ENI) will cover 100% of the drilling, completion and seismic costs which are incurred in this area. These costs will net to about USD $52 million, which Eni will pay for as exploration activity is carried out. After this initial investment, future expenditures on the field including development costs will be shared by Eni and Quicksilver in the proportion of their respective shares in the oil field (i.e. equally).
“The terms of the agreement calls for an initial three phase program that includes the drilling of up to five exploration wells and the acquisition of a 3D seismic survey, aimed at determining the hydrocarbon potential of the area and the subsequent development plan,” said Eni.
The field development decisions will be taken by a joint evaluation team with members from each company. This team will make all decisions on exploration and development activities.
However, in exchange for paying for the entire exploration costs on the 53,500 acres of land, Eni SpA (NYSE:E) (BIT:ENI) will also earn 50% stakes in another 7,500 acres in the Leon Valley area.
“The Leon Valley acreage is located in the prolific Delaware Basin, where current production amounts to nearly 500,000 barrels of oil equivalent per day, both from conventional and unconventional reservoirs. It is estimated that within five years the Delaware Basin production will double, due to the rapid growth of oil production from unconventional reservoirs,” reports Eni.
Quicksilver will benefit from Eni’s experience in exploration
This partnership will allow Eni SpA (NYSE:E) (BIT:ENI) to reap the benefits of one of the most fruitful upcoming shale plays. Eni currently has little exposure to shale production and this agreement will allow the Italian company to reap the profits of the exciting new oil and gas play. Quicksilver will benefit from Eni’s experience in exploration activity and will be able to develop its fields at a much faster pace than it could have done alone.
Eni SpA (NYSE:E) (BIT:ENI) currently produces about 47,000 barrels of petroleum liquid per day in the United States and contributes about 0.6% to the total production of the country. The company has working interest in 777 licenses of which the majority (233 out of 777) are located in the Gulf of Mexico. The country’s total production of oil and gas exceeds 90,000 barrels of oil equivalent per day.