Japanese Itochu abandons U.S. shale

"Itochu Tokyo" by Tokyo Watcher - Own work. Licensed under CC BY-SA 3.0 via Wikimedia Commons - https://commons.wikimedia.org/wiki/File:Itochu_Tokyo.jpg#/media/File:Itochu_Tokyo.jpg
"Itochu Tokyo" by Tokyo Watcher - Own work. Licensed under CC BY-SA 3.0 via Wikimedia Commons

As a stark reminder that not every investment in the North American shale turns out profitable, Itochu – the second-largest Japanese corporation after Mitsubishi – has decided to withdraw from shale exploration. The decision was taken after the realisation that the company’s shale operations have suffered a total loss of 813 million dollars.

The company has decided to sell its 25 per cent stake in shale oil assets in the US, back to Samson Resources for a nominal amount of one dollar. The assets were purchased in 2011 when in a deal signed by a KKR-led consortium, Itochu bought Samson’s distressed energy assets for $7.2bn.

Itochu’s decision was motivated by the unfavourable financial climate caused by the low natural gas and crude prices. As The Financial Times points out, Japan’s third-largest trading house had already written down its entire $1.04bn stake in Samson over the past few years, and since the writedown is already complete, Itochu said the sale of its 25 per cent holding back to Samson would not affect its financial results.

Itochu’s business is organised into six major segments, namely: textiles, machinery, metals and minerals, energy and chemicals, food, and a selection of services including IT, real estate, insurance, and logistics.

Following the disappointing developments within the North American unconventionals market, the company has decided to focus on its non-resource businesses, such as food and investment.

“We are not ruling out the resource business, but we will carefully examine the profitability and risks of future deals including trends in shale gas and oil prices,” Itochu told The FT.

Itochu’s decision to abandon shale exploration might be symptomatic of a larger trend of exploration companies moving from the high-cost and low-margin unconventional gas and oil exploration towards less risky conventional resources. Some analysts believe that many more companies – for whom shale exploration has been a non-core activity – will abandon their forays into unconventional and reposition themselves in the conventional gas and oil.

Image: Itochu offices in Tokyo.

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