Chesapeake Energy Corp. and BP America intend to form a joint venture that gives BP a 25% interest in Chesapeake's Fayetteville Shale assets in Arkansas for $1.9 billion, the companies said last week. This marks the third transaction in less than two months involving the sale of Chesapeake's shale assets, two of which have been with BP.
Chesapeake's Fayetteville Shale assets have daily net production of approximately 180 MMcfe of natural gas and include about 540,000 net acres of leasehold, which the producers believe could support the drilling of up to 6,700 horizontal wells. Houston-based BP will own approximately 135,000 net acres of the leasehold, and Oklahoma City, OK-based Chesapeake will own an estimated 405,000 net acres, according to the companies.
BP, one of the world's largest producers, will pay $1.1 billion in cash at closing and will pay $800 million during the remainder of this year and in 2009 toward Chesapeake's 75% share of drilling and completion expenditures until the $800 million obligation has been met. Chesapeake, the largest domestic producer of natural gas, said it plans to continue acquiring leasehold in the Fayetteville Shale play, with BP having the right to a 25% participation in any additional leasehold.
The transaction is subject to mutually acceptable definitive documents that are expected to be completed within the next week, the producers said, adding that closing is expected later this month.
The deal comes a month after the closing of the sale of Chesapeake's Arkoma Basin Woodford Shale assets in Oklahoma to BP for $1.75 billion in early August (see NGI, July 21).
"The PXP [Plains Exploration and Production] Haynesville Shale joint venture and the BP Fayetteville Shale joint venture together will pay for approximately $2.5 billion of Chesapeake's drilling and completion expenditures currently planned for the second half of 2008 through 2010. As previously announced, we are also pursuing a similar transaction involving Marcellus Shale assets with others in the industry that we hope to complete by year-end," said Chesapeake CEO Aubrey K. McClendon (see NGI, Aug. 18).
In early July Chesapeake Energy brought aboard PXP as a partner in its half a million-acre leasehold in the emerging Haynesville Shale in transactions valued at more than $3 billion (see NGI, July 7). PXP paid $1.65 billion cash for a 20% stake in Chesapeake's shale leasehold. PXP also agreed to fund half of Chesapeake's drilling and completion costs over several years for future joint venture wells until PXP pays Chesapeake an additional $1.65 billion.
"This [Fayetteville Shale] transaction, when combined with our recent Woodford acquisition, establishes a material position in the two attractive shale plays in the Arkoma Basin. Together with our substantial position in the emerging Haynesville Shale play in East Texas, BP has made a strategic entry into three top tier plays in North America and established potential shale resources of 1 billion barrels of equivalent net to BP," said Andy Inglis, BP chief executive of exploration and production (see NGI, Aug. 4).
"Development of these resources, along with our leading position in coalbed methane production, and our extensive tight gas plays throughout North America, will enhance BP's position as a leader in unconventional gas technology and enable growth of our North American onshore natural gas production from today's level of 470,000 b/d equivalent."
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