Chesapeake Energy Corp. on Tuesday said it completed a joint venture (JV) in the Utica Shale with the U.S. subsidiary of France's Total SA, a company that had been all but acknowledged to be the Oklahoma City-based producer's silent partner for almost two months.
In early November Chesapeake said it had a letter of intent with an undisclosed "international major energy company" in the Utica Shale (see Daily GPI, Nov. 4, 2011). A Total executive in November wouldn't disclose whether his company was the undisclosed partner (see Daily GPI, Nov. 10, 2011), but the tie-up has been considered an open secret in Houston.
Total became a U.S. shale player after signing a JV with Chesapeake in the Barnett Shale in early 2010 (see Daily GPI, Jan. 5, 2010).
"Total is delighted to be building on our technical successes with Chesapeake in the Barnett Shale JV and to expand into the liquid-rich Utica Shale play in Ohio," said Total E&P President Yves-Louis Darricarrere. "This is consistent with our strategy to develop positions in unconventional plays with large potential and, in this case, with value predominantly linked to oil price. This JV will provide us with a material position in a valuable long-term resource base under attractive terms and with a top-class operator."
In the Utica JV, which was completed on Friday, Total E&P USA Inc. is acquiring an undivided one-quarter interest in about 619,000 net acres in 10 counties of eastern Ohio. About 542,000 net acres were contributed to the JV by Chesapeake and 77,000 net acres were contributed by Houston-based EnerVest Ltd. and its affiliates.
The transaction, which closed on Friday, resulted in combined value of about $2.32 billion, of which $2.03 billion was received by Chesapeake and $290 million by EnerVest. Close to $610 million was paid to Chesapeake in cash at closing. Another $1.42 billion is to be paid in the form of a drilling and completion cost carry, which is expected to be fully received by the end of 2014.
"We believe that the Utica Shale is a world-class asset with world-class returns and now we have a world-class partner to help develop the play more aggressively than we could have with our own resources," said Chesapeake CEO Aubrey K. McClendon. "This Utica transaction is our seventh significant JV and in these seven JVs, Chesapeake has sold approximately 1.5 million net acres for total leasehold consideration of $14.8 billion while retaining 3.6 million net acres as of the JV date with an indicated value by the JV partners of $45.7 billion."
Chesapeake is to be the JV operator and would conduct all leasing, drilling, completing, operating and marketing activities for the project. The agreement provides that Total would acquire a one-quarter share of all additional acreage acquired by Chesapeake in the JV area of mutual interest. Total also would participate in midstream infrastructure related to production generated from the assets with a 25% interest.
"Total is conscious of the environmental aspects linked to developing shale acreage and is confident in Chesapeake's capacity to manage the Utica Shale operations in a responsible manner, utilizing the highest industry standards in this respect," said Darricarrere.
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