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Indigo Pays Cash for Chesapeake Ark-La-Tex Assets

Privately backed producer Indigo Minerals LLC has returned to the acquisition market after making a $218 million cash deal with Chesapeake Energy Corp. to acquire some producing properties, undeveloped acreage and midstream assets spread across northern Louisiana, East Texas and Arkansas.

Under the agreement, Indigo would acquire stakes in 519 of Chesapeake's producing wells that are located in more than 60 fields. The transaction also includes 40,000 undeveloped acres, bringing the total acreage position to be sold to Indigo to more than 122,000 net acres. Indigo would operate 219 of the newly acquired wells, and it would gain a working interest in another 300 of the Chesapeake-operated wells in the region.

Once the transaction is completed, Indigo said it would be one of the largest private producers in the onshore Gulf Coast region. Net production following the acquisition "will approach 40 MMcfe/d, and total proved reserves will exceed 220 Bcfe," said Indigo, which is based in Houston.

According to Indigo, the properties to be acquired were producing about 26 MMcfe/d net in early March. The midstream assets to be sold include gathering systems directly associated with the Chesapeake-operated producing fields. Chesapeake would retain its deep leasehold rights in the Haynesville Shale properties, Indigo said.

The operated properties that Indigo is buying represent about 85% of the transaction value. Indigo said it plans to drill "hundreds" of development wells in the future within existing well units and on the largely contiguous 40,000 net undeveloped acres being acquired.

The transaction would give Indigo more than 150,000 net leasehold acres in northern Louisiana, East Texas, Alabama and Arkansas. The all-cash transaction has an effective date of March 1, 2009 and is scheduled to close on June 30.

The acquisition follows a divestment phase by Indigo that began in 2008, when the company sold 89,000 acres of mineral rights in the Haynesville Shale to EnCana Corp. for $457 million (see Daily GPI, June 26, 2008). Previous divestments that included various Haynesville Shale leasehold positions have netted Indigo around $611 million total in the past year, the company said.

Indigo is led by CEO William E. Pritchard III, who previously worked for Marathon Oil Corp. Pritchard also cofounded Peak Energy Resources Inc., whose properties were sold to Forest Oil Corp. in 2005 and XTO Energy Inc. in 2006. He also chairs M2 Midstream LLC, a gas gathering and processing company whose predecessor company, Momentum Energy Group Inc., was sold to DCP Midstream in 2007.

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