Chesapeake Energy said Tuesday it signed a three-year joint development agreement with a new company formed by the management of Greystone Petroleum LLC, which was purchased by Chesapeake in May 2004 for $425 million (see Daily GPI, May 12). The new agreement gives Chesapeake the exclusive right to acquire a 50% interest in any of the new company’s (Greystone Oil & Gas LLP) future oil and gas projects.
“Through the course of discussing and completing the Sligo [Field] acquisition earlier this year, we realized that Joe [M. Bridges] and Mike [A. Geffert] were highly talented oil and gas finders in the Ark-La-Tex region, an area that Chesapeake has targeted for further expansion,” said Chesapeake CEO Aubrey K. McClendon. “We knew that after the sale of Greystone Petroleum, Joe and Mike would be a very attractive management team for private equity providers to invest with for a second time. We therefore decided to pitch them on the idea of forming a new Greystone with Chesapeake as their partner, rather than have private equity backing again.”
Greystone’s management will devote all of its efforts to the evaluation and development of oil and gas projects in Mississippi and in North Louisiana, East Texas and southeast Arkansas (Ark-La-Tex), a region in which Bridges and Geffert have devoted much of their professional careers and where they have a long history of successful development, including the Sligo Field in Bossier Parish, LA, the principal asset in Chesapeake’s May 2004 acquisition. In that purchase, Chesapeake acquired 214 Bcfe of proved reserves and 16,100 gross acres of leasehold. The purchase also included 51 Bcfe of probable and possible reserves and production of 45 MMcf/d.
Chesapeake will provide financial support for Greystone’s new project efforts and staffing needs in exchange for the right to acquire a 50% interest in Greystone’s projects.
“We believe the deal structure is mutually beneficial — Joe and Mike are able to keep 100% of the equity in their company while Chesapeake obtains ground floor 50% participation in new projects in exchange for a G&A contribution that we consider to be reasonable,” said McClendon.
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