Chesapeake Energy Corp. has brought aboard Plains Exploration & Production Co. (PXP) as a partner in its half a million-acre leasehold in the emerging Haynesville Shale in transactions valued at more than $3 billion.

In one of the joint ventures (JV) announced Tuesday, PXP paid $1.65 billion cash for a 20% stake in Chesapeake’s shale leasehold. In another deal, PXP agreed over several years to fund half of Chesapeake’s drilling and completion costs for future JV wells until PXP pays Chesapeake an additional $1.65 billion.

Chesapeake held around 550,000 net acres in the shale before the PXP transactions. Under the agreements, PXP would hold 110,000 net acres in the play; Chesapeake would have 440,000 net acres. Chesapeake would continue to acquire more acreage, and PXP would have the right to a 20% stake in additional leasehold.

Chesapeake CEO Aubrey K. McClendon said the partnership would fund “a substantial portion” of the company’s leasehold costs over the next few years and provide “finding costs from this play of less than $1.00/Mcfe.”

The companies would develop their leasehold using 80-acre spacing, which could support drilling up to 6,875 horizontal wells. Assuming a per-well estimated ultimate reserves (EUR) average between 4.5 Bcfe and 8.5 Bcfe, the leasehold could hold net unrisked unproved reserve potential of 23-44 Tcfe after deducting the assumed average 25% royalties, said Chesapeake. The Oklahoma City-based independent now is using five operated rigs in the play and plans to operate “at least 12” rigs by the end of the 2008, “at least” 30 by the end of 2009 and “up to 60 rigs” by the end of 2010. Under the planned rig allocation, the companies could drill 600 wells more over the next three years, said Chesapeake.

Chesapeake’s expertise in developing shale plays provides us with an opportunity to see even better results in the months and years ahead,” said McClendon. The initial production rates on the eight horizontal wells completed by the company have ranged from 5 MMcfe/d to 15 MMcfe/d “on restricted chokes…We believe these truly exceptional wells would have been capable of even greater initial production rates if produced on open chokes as Barnett and Fayetteville shale wells commonly are produced.”

PXP was chosen to partner with Chesapeake “because of our long relationship with its management team, its successful record as an effective industry partner in major projects and strong historic presence in the Louisiana energy industry,” said McClendon.

PXP CEO James C. Flores said that at an $8/Mcf New York Mercantile Exchange gas price, the addition of the Haynesville Shale position would give PXP an organic production growth rate of more than 20% compounded annually. He estimated that reserve growth would be more than 10% compounded annually. “We now anticipate our current net proved reserves of 600 million boe will reach approximately 1 billion boe by 2012.”

A joint conference call is scheduled for 9 a.m. EDT Wednesday.

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