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Chesapeake Buys into Gastar's Deep Bossier Play in East Texas

Chesapeake Energy Corp. and Gastar Exploration Ltd. announced last Monday they have signed a letter of intent (LOI) under which Chesapeake will help fund and share in Gastar's development of the Deep Bossier play in the Hilltop Prospect area in East Texas. The two also will cooperate in exploration of 13 counties in East Texas.

Under the prospective agreement Chesapeake would acquire new common shares from Gastar equal to 19.9% of Gastar's outstanding common shares and acquire a 33% working interest in Gastar's Deep Bossier play in Leon and Robertson Counties. The two also intend to form an area of mutual interest agreement to explore the 13 East Texas counties.

Chesapeake would pay a share price equal to the lesser of 1) C$3.31 per share (or approximately US$2.80 per share at current exchange rates) or 2) the average of the closing price of Gastar's stock for the three business days immediately preceding the date of closing with such average price not to be less than C$3.15 per share (or approximately US$2.66 per share at current exchange rates). Gastar currently has 135.2 million common shares outstanding and will issue to Chesapeake approximately 26.9 million new shares.

From the stock offering, Gastar expects to raise approximately C$84-$89 million (or approximately US$72-75 million ) and plans to use the proceeds to accelerate its drilling activities in East Texas, reduce short-term debt and for general corporate purposes. Chesapeake will be granted registration rights for the shares issued.

Aubrey K. McClendon, Chesapeake's chairman, said, "We are pleased to announce today's agreements with Gastar. We have known Russ for years and have admired his success in building Gastar and developing the Hilltop Prospect."

Commenting on the agreement, J. Russell Porter, Gastar's president, stated, "This transaction will result in Gastar's current business plan being fully funded through 2006 to pursue its operating plans in East Texas. We are proud that Chesapeake has decided to assist us in this endeavor."

Under the terms outlined in the LOI, Chesapeake will also purchase from Gastar for cash and the drilling commitment described below an undivided 33.33% of all of Gastar's leasehold working interest in the Deep Bossier Hilltop Prospect, less and except the 160 acre units surrounding each of Gastar's existing wellbores. In the Hilltop Prospect Gastar currently owns approximately 54,000 gross acres and 38,000 net acres. The acreage purchase price of approximately US$8.6 million shall be paid in cash by Chesapeake at closing.

With respect to operations on Gastar's retained 66.67% leasehold working interest in the properties proposed to be assigned to Chesapeake, Chesapeake will pay a disproportionate amount of the drilling costs through casing point on the first six wells drilled in the Hilltop Prospect.

Gastar and Chesapeake will also form an AMI covering all of Leon, Robertson, Houston, Cherokee, Madison, Anderson, Angelina, Nacogdoches, Trinity, Polk, Shelby, San Augustine and Sabine Counties, Texas (the "AMI Area"). For a period of three years from the closing date, Gastar shall offer Chesapeake the exclusive first right to purchase up to an undivided 50% of any leasehold/working interest rights acquired by Gastar in the AMI Area on pre-determined terms. The AMI will be "one-way;" that is, Chesapeake will not be obligated to present to Gastar any interests it now owns or acquires in the future in the AMI Area.

The proposed transaction is subject to satisfactory completion of a due diligence investigation by Chesapeake and the negotiation of a mutually agreeable stock purchase agreement, registration rights agreement, lease purchase agreement, lease assignment form and joint operating agreement for the Hilltop Prospect. Gastar expects to execute definitive agreements and issue the stock to Chesapeake by Oct. 31, 2005. Any sale of Gastar's leasehold interest shall be subject to any existing rights of first refusal held by third parties through existing joint operating agreements.

Chesapeake Energy, headquartered in Oklahoma City, is the third largest independent producer of natural gas in the U.S. The company's operations are focused on exploratory and developmental drilling and property acquisitions in the Mid-continent, Permian Basin, South Texas, Texas Gulf Coast and Ark-La-Tex (including the Barnett Shale) regions.

Gastar Exploration is focused on finding and developing natural gas assets in North America and Australia. Gastar pursues a balanced strategy combining select higher risk, deep natural gas exploration prospects with low-risk coal bed methane (CBM) development. Besides its acreage in the Deep Bossier gas play it is working in the deep Trenton-Black River play in the Appalachian Basin. Gastar's CBM activities are conducted within the Powder River Basin of Wyoming and upon the approximate 3.5 million acres controlled by Gastar and its joint development partners in Australia's Gunnedah Basin, PEL 238 and Gastar's Gippsland Basins located in New South Wales and Victoria, respectively.

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