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TheStreet Open House

Chesapeake, Devon Kick Off 2012 Energy Deals (Update 1)

Updated to reflect Devon Energy $2.2 billion shale spin to Sinopec

NEW YORK ( TheStreet) --

Devon Energy (DVN) is selling a 33% interest in five shale ventures to Chinese energy giant Sinopec (SIPC) for $2.2 billion, adding to a fast start for shale sales in 2012.

For the one-third shale stake, Sinopec will pay Devon Energy $900 million in cash and a further $1.6 billion in payments for drilling expenditures through 2014, roughly 70% of the projects exploration costs. The deal, along with a similar shale sale by Chesapeake Energy (CHK) to Total (TOT) of France on Tuesday signals that energy deals may stay hot in 2012 as foreign companies cut U.S. deals to bolster their reserves and build new drilling skills.

Devon Energy's divestiture follows a series of spins, including its deepwater oil exploration portfolio. In 2010, the Oklahoma City -based company sold $7 billion worth of U.S. deepwater assets to BP and it cut similar sales to A.P Moeller Maersk of Denmark, CNOOC (CEO) of China and U.S. -based Apache (APC) among others.

Sinopec's one-third shale asset purchase of Devon Energy shale assets, which include acreage in the Tuscaloosa Marine , Niobrara, Mississippian, Ohio Utica and the Michigan Basin shale formations is indicative of a wider push by Chinese companies into North American shale assets.

In October 2011, Sinopec spent $2.1 billion to buy Canadian shale specialist Daylight Energy. China has estimated that there are 1,275 trillion cubic feet of shale gas reserves in the U.S. and Canada, Bloomberg reports, which is a higher than a similar assessment made by the U.S. Energy Information Association in April.

To read more on U.S. to watch for as Chinese companies cut energy deals in North America, see how China is primed for the U.S. oil market in 2012 .

For Devon Energy, the shale stake sale to Sinopec will allow the company to consolidate its drilling costs among a diverse portfolio of shale assets. "This arrangement improves Devon's capital efficiency by recovering our land and drilling costs to date and by significantly reducing our future capital commitments," said Devon Chief Executive John Richels in a press release.

Chesapeake Energy's (CHK) $2.3 billion sale of its stake in a Ohio shale venture to French oil giant Total (TOT) earlier on Tuesday gives oil and gas deals a hot start in 2012 after the sector topped M&A activity last year.

Chesapeake Energy's sale of its 25% shale joint-venture stake with EnerVest to Total follows previous shale divestitures to foreign oil giants like BHP (BHP), BP (BP) and Statoil (STO).

Meanwhile, after buying $2.25 billion of Barnett shale assets from Chesapeake Energy in 2010, Total is continuing a U.S. energy push, which includes shale, deepwater and solar energy assets.

Oil and gas was the hottest M&A sector in 2011, with $259 billion in deals -- but that amount reflected a 17% year-over-year drop from 2010, according to Dealogic. Kinder Morgan's (KMI) $37.9 billion acquisition of El Paso (EP) was the biggest deal of 2011 after a $39 billion wireless merger between AT&T (T) and T-Mobile USA was struck down by antitrust authorities.

Continued energy deals are among some of the boldest M&A predictions for 2012. To read more on M&A to watch for in the next year, see the 5 unexpected deals themes for 2012.

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