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

By Benjamin Priddy, June 18, 2013

have been at the forefront of a number of the larger transactions that have been publicly announced. Investments into certain basins or geological formations can vary, especially with the volatility of commodity prices; however, the trend over the past couple of years has been for investors to focus on oily and liquids rich plays (i.e. the Eagle Ford, Bakken, etc.),” Matlock explained.

According to Rhodium Group, 2012 was a record year for Chinese direct investment in the U.S. energy industry, with 71 greenfield and acquisition deals worth over $8.7 billion. Chinese state-owned energy corporations struck the biggest deals in Oklahoma (Sinopec’s $2.5 billion deal for a stake in five Devon Energy oil and gas projects), and Texas (CNOOC’s investment in Eagle Ford), also where Russian investor Mikhail Yuriyev and business partner Andrei Kunatbayev are looking to invest.

The Texas Governor’s Office reports that BP, Total, and Canada’s Lynden Energy were among the largest foreign investors in the state’s oil and gas industry between 2005 and 2010. In 2010, one in every nine foreign coal, oil, and natural gas deals in the United States happened in Texas.

Investment Climate is Key

Technological advances that have largely been pioneered by American oil and gas companies, as well as the prospect of healthy returns and relative stability of the regulatory and legal system, are attracting many foreign companies to invest in U.S. energy, according to Matlock at Ernst & Young in Houston. “Under current law, the U.S. tax system provides a number of significant benefits for U.S. oil and gas investments,” Matlock explained. “Further, the U.S. is viewed comparably as a stable place to invest, with some level of certainty as to property and procedures in the event of disputes.”

In Russia, the weak regulatory environment and absence of tax incentives currently present a barrier to investment in the energy sector, Maria Belova, Senior Analyst at SKOLKOVO’s Energy Center, told OGE. “Foreign or independent energy companies that are looking to invest in Russia probably won’t end up coming due to the political risk involved, restricted access to infrastructure, and Russia’s current tax policy on mineral extraction,” Belova said. “The current mineral extraction tax doesn’t provide incentives for unconventional oil exploration and production, though on 3 May 2012 Vladimir Putin signed Russian Government Regulation No. 700-r ‘On Classification of Projects of Development of Subsurface Sites Containing Difficult-to-Recover Oil Based on Permeability of the Reservoirs and Viscosity of Oil.” According to Maria Belova, “The Government has instructed various ministries to submit draft legislation to establish certain tax and export duty stimulation measures to apply to such oil.” “The Ministry of Finance and Ministry of Energy are currently discussing how to create these tax incentives and a new policy may be released sometime this year,” Belova explained.

Independent oil and gas companies in the United States and Canada have played a key role in the North American “shale revolution.” In Russia, however, independent producers have historically played a small role in the energy industry. In the