Plains Exploration & Production Co. (PXP) has agreed to make an early $1.1 billion payment to Chesapeake Energy Corp. for its share of drilling costs in the companies’ Haynesville Shale joint venture (JV) in exchange for a 12% discount. The early payment “should all but eliminate” investor worries about Chesapeake’s liquidity, an energy analyst said Thursday.
Last year PXP paid Chesapeake $1.65 billion cash to become a 20% JV partner in Chesapeake’s Haynesville Shale leasehold (see Daily GPI, July 2, 2008). In another transaction PXP agreed to fund — over several years — half of Chesapeake’s drilling and completion costs for future JV wells until PXP had paid Chesapeake an additional $1.65 billion.
PXP has 110,000 net acres in the shale play under the agreements, and it has the right to a 20% stake in additional acreage purchased by Chesapeake in the play.
The JV modification “greatly benefits both companies,” said Chesapeake CEO Aubrey McClendon. “This agreement modification provides substantial upfront capital to Chesapeake, reduces PXP’s total investment in the Haynesville and further aligns the incentives between the partners.”
Under the amended agreement, Chesapeake is to receive $1.1 billion in cash by the end of September instead of an estimated $1.25 billion that would have been paid by PXP over the next three years. The revised terms would reduce by about 12% PXP’s total drilling carry obligations, Chesapeake said.
Chesapeake and PXP also terminated an amendment that had granted PXP a one-time option in June 2010 to avoid paying the last $800 million of the drilling carry obligations in exchange for trading back to Chesapeake half of its Haynesville Shale assets. Chesapeake and PXP said they now will pay their proportionate working interest costs on future drilling. Several other “minor modifications” also were made to the agreement.
The revised agreement, said PXP, will allow it to “unlock potential capital” for other assets.
©Copyright 2009Intelligence Press Inc. All rights reserved. The preceding news reportmay not be republished or redistributed, in whole or in part, in anyform, without prior written consent of Intelligence Press, Inc.
© 2020 Natural Gas Intelligence. All rights reserved.
ISSN © 1532-1231 | ISSN © 2577-9877 |