Chesapeake Energy announced two new acquisitions for a total of $88 million and 107 Bcfe of proven reserves and future drilling opportunities, with the largest deal targeting potentially higher value Canadian resources.

In that transaction Chesapeake entered an alliance with Calgary-based Ranger Oil to jointly develop a 3.2 million acre area in the Helmet, Midwinter and Peggo areas (referred to as the Helmet area) of northeastern British Columbia. Chesapeake will pay $50 million to acquire 67 Bcfe of reserves, 5.2 Bcfe of anticipated 1998 production, and about 160,000 net acres of leasehold. The effective date of the transaction is Dec. 1, 1997 with closing scheduled Jan. 31.

With the deal, “Chesapeake gains access to a prized area where it has pursued entry for over a year,” said Aubrey K. McClendon, Chesapeake CEO. “Helmet is attractive to us because of the large amount of gas in place (estimated at over 1.5 Tcfe), the introduction of horizontal drilling to the area, which has made developing the reserves more economical, and the likelihood that Canadian to U.S. gas differentials will shrink considerably in the years ahead. Ranger wins by being able to undertake a more aggressive drilling program and by bringing in a partner that has demonstrated technological expertise in horizontal drilling.”

Major new west-to-east pipelines and expansions underway or planned are expected to increase Canadian netbacks by relieving the bottleneck keeping the gas from getting to markets. McClendon noted the Ranger deal is Chesapeake’s second Canadian alliance following an alliance with Pan East Petroleum, which is now underway. “In the Pan East/Chesapeake 1998 winter drilling program, we are scheduled to participate with a 50% interest in approximately 10 wells, four of which will be drilled in the Helmet area.”

Chesapeake’s 1998 business strategy includes efforts to concentrate on development drilling and acquisitions in the Midcontinent and western Canada, continue development of the company’s Austin Chalk potential in Texas and Louisiana, and to deliver exploration success in the Tuscaloosa Trend in Louisiana, the Deep Wilcox Trend in Texas, the Lovington area in eastern New Mexico, and the Western Canadian Sedimentary Basin, McClendon said.

In the Pan East deal, Chesapeake purchased 11.9 million treasury shares of the company’s common stock at a per share price of C$2.50 in a private placement, giving it 19.9% of the company.

In its second deal of 1998, Chesapeake agreed to buy the Midcontinent properties of privately owned Enervest Management Co. for $38 million. The properties include about 40 Bcfe of proven reserves and are expected to produce about 4.5 Bcfe this year. Chesapeake did the deal because of the Enervest properties’ proximity to its Anadarko Basin properties recently acquired from AnSon, McClendon said. “We are creating another valuable core area for Chesapeake in the Anadarko Basin, the nation’s third largest gas basin, which is located in our operating backyard of western Oklahoma and southwest Kansas. Accordingly, Chesapeake anticipates acquiring additional Anadarko Basin properties from other private companies during the year.”

In November, Chesapeake announced an agreement to acquire Hugoton Energy. The deal is expected to close early this year. Hugoton has about 300 Bcfe of proved reserves, which are 80% developed. The combined current production rate of Hugoton and Chesapeake will be about 350 MMcfe/d.

Chesapeake faces a number of shareholder lawsuits alleging it violated securities laws by misrepresenting its development of Louisiana Austin Chalk reserves. For the first quarter of fiscal 1998 ended Sept. 30, Chesapeake net income was down 33% to $5.5 million, or 8 cents/share, on revenue of $78.4 million from $8.2 million, or 13 cents/share, on revenue of $49.8 million in fiscal Q1 1997.

Joe Fisher, Houston

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