Why does Big Oil suddenly love Pennsylvania?

[Updated]

Big Oil was born in Pennsylvania, and a growing number of the industry’s major players seem convinced that its future is there, too — specifically, in the natural gas deposits of the Marcellus Shale formation. The latest evidence? Chevron just dropped $4.3 billion on it. The company is acquiring Atlas Energy, a Pittsburgh-based independent producer that has an estimated 9 trillion cubic feet of gas to its name in the region, which geologists think may contain at least 262 trillion cubic feet of recoverable gas.

Today’s deal makes Chevron the third member of the Big Oil elite to seek refuge from an increasingly stormy oil business in the United States’ burgeoning shale gas industry. In December Exxon Mobil bought the shale gas company XTO for $41 billion. In May, Royal Dutch Shell picked up East Resources, another company active in the Marcellus Shale, for $4.7 billion. On news of the Chevron acquisition, shale gas stocks are up 3 percent today. The Center for Strategic and International Studies’ energy policy expert Frank Verrastro is also bullish on the deal. He emails:

It reinforces Chevron’s move into unconventional gas (like Exxon, BP, Total, Shell and Statoil) and positions them well as gas is looked to play a significant role in a cleaner fuels economy. In Atlas’s people, Chevron also acquires the expertise in operating in the Marcellus (and elsewhere). Nice package.

A few things are worth noting about the deal. One is how differently it’s being received than Exxon’s XTO acquisition, for which the company had to endure some grumbling. Critics said the oil giant paid too much and offered too few opportunities for the efficiency gains for which Exxon’s acquisitions are known; Exxon’s CEO, Rex Tillerson, countered that it was a long-term move, not a short-term one.

The second is what an international enterprise the shale gas business has become. Chevron’s deal makes it a partner with an Indian company, Reliance Industries, which was working with Atlas in Pennsylvania. As Verrastro notes, Norwegian giant Statoil is investing in U.S. shale drilling, as is the Chinese National Offshore Oil Company (CNOOC).

The third is that Chevron must not be overly concerned about the risk to their long-term business posed by environmental concerns over shale drilling. The process of hydraulic fracturing, or “fracking,” in which chemical-laced water is used to loose the gas from the shale, is controversial enough to have spawned its own documentary; when Exxon signed its XTO acquisition, it included a clause by which the oil company could walk away from the deal if the technology proved problematic. “Chevron and Exxon, they may know how to manage these risks, bring the best practices to bear,” Lucian Pugliaresi, the president of the Energy Policy Research Foundation, says. “They may be the right companies for these projects.”