Chesapeake Energy said Friday is has deferred the commencement of a $12 per share cash tender offer for all of the outstanding shares of Oklahoma City-based Canaan Energy Corp., pending negotiations with Canaan management. Chesapeake had announced its plan to buy the company last Monday for a total of about $55 million plus the assumption of $42 million in Canaan debt. It said its plans for the company would produce far better results than those of Canaan’s current management.

The offer by Chesapeake represented a 31% premium to Canaan’s share price on Monday. During the week, Canaan’s board adopted a shareholder rights plan and hired CIBC World Markets as financial adviser to assist in evaluating Chesapeake’s tender offer and other potential options.

Chesapeake said on Friday that Canaan had senior management had show a “willingness to engage in good faith discussions” with Chesapeake management regarding the offer. “We remain committed to take our fair and full offer to the shareholders of Canaan and are pleased that Canaan’s management and advisors have agreed to meet with us on this issue,” said Chesapeake CEP Aubrey K. McClendon. He cautioned, however, that at any time Chesapeake could commence or modify its proposed tender offer for Canaan shares, or terminate its tender offer plans.

“Our proposal provides Canaan shareholders with an immediate opportunity to realize significant value and much needed liquidity,” McClendon said in an earlier statement. “We believe that our current proposal is generous to Canaan shareholders. We hope that Canaan’s management will not deny Canaan’s shareholders the opportunity to consider Chesapeake’s proposal as an alternative to management’s business plan, a plan that has to date only eroded shareholder value through poor operating and financial performance.”

Canaan reported record revenues of $28.4 million last year and production of 7.6 Bcf. Year-end proved reserves totaled 94.9 Bcfe. Due to sharply lower year-end gas prices, a $13.4 million net noncash full cost ceiling writedown of Canaan’s oil and gas properties was taken, resulting in a net loss of $8.9 million.

Oklahoma City-based Chesapeake is among the 10 largest independent natural gas producers in the U.S. It reported net income of $215,356, or $1.33 per share, last year compared to $453,660, or 3.38 per share in 2000. Its production for 2001 was 161.5 Bcfe, comprised of 144.2 Bcf (89%) of gas and 2.88 MMbbl (11%) of oil. Chesapeake ended the year with 1,780 Bcfe of reserves, an increase of 31% compared to 2000.

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