Looking to expand both its acreage and proven natural gas and oil reserve base, Oklahoma City, OK-based Chesapeake Energy Corp. has entered into agreements to acquire $510 million of Midcontinent, Permian Basin and onshore Gulf Coast oil and gas assets through recent agreements to acquire privately-owned Concho Resources Inc. for $420 million and two smaller property acquisitions totaling $90 million.

Chesapeake said the acquisitions will give it an approximate 14% share of the Midcontinent production market, with daily production of approximately 725 MMcfe and internally estimated proved reserves of approximately 2,950 Bcfe. In the Permian Basin, Chesapeake believes it will rank among the 20 largest producers in the region after completion of the Concho acquisition. The company estimates its daily production in the Permian Basin will exceed 75 MMcfe/d and its proved reserves will exceed 350 Bcfe.

In addition to the acquisitions, Chesapeake announced that it will not close its previously announced exchange offer for $500 million of 8.125% senior notes on Dec. 29 as scheduled, allowing holders “an opportunity to review the information related to the acquisitions.” The company said that $380 million in aggregate principal amount of the 2011 notes have been tendered to date, but noted that a final determination regarding the exchange offer will be made “within the next few days.”

As a result of the transactions, Chesapeake has acquired or agreed to acquire an estimated 320 Bcfe in proved reserves, 195 Bcfe of probable and possible reserves and current production of 70 MMcfe/d. Company-wide, Chesapeake said it anticipates year-end 2003 proved oil and natural gas reserves to exceed 3.4 Tcfe.

The proved reserves from the acquisitions have a reserves-to-production index of 12.5 years, are 75% natural gas and are 67% proved developed. Concho Resources is a Midland, TX-based independent oil and natural gas producer.

“Today’s announced acquisitions fit very well with our existing Mid-Continent stronghold and further strengthen our growing Permian Basin and onshore Gulf Coast asset holdings,” said Aubrey K. McClendon, Chesapeake’s CEO. “In addition, these transactions are consistent with Chesapeake’s business strategy of creating value by delivering profitable organic growth from our developmental and exploratory drilling programs and by acquiring and developing low-cost, long-lived, under-exploited oil and natural gas assets.”

The two smaller transactions included assets located in the Permian Basin and in the Goliad County, TX area of Chesapeake’s onshore Gulf Coast region. In Goliad County, Chesapeake has agreed to purchase a 50% interest in and operations of a large prospect area in which it had previously acquired a 37.5% working interest through its acquisition of Canaan Energy Corp. in 2002.

Chesapeake said it expects the Concho acquisition to close on Jan. 30, 2004, noting that one of the other two transactions has recently closed and the other will also close in January 2004. The company intends to finance the acquisitions using approximately 50% common equity and 50% short-term and/or long-term borrowings.

Factoring in the new acquisitions, Chesapeake said it is increasing its 2004 production forecast by 9% from a range of 297-303 Bcfe (820 MMcfe/d at the mid-point) to a range of 323-329 Bcfe (890 MMcfe/d at the mid- point). Approximately 89% of the company’s production is expected to be natural gas with 11% from oil and natural gas liquids.

Chesapeake said that over the past few weeks it has aggressively increased its oil and natural gas hedging positions for 2004 and 2005. During this time, the company has hedged an additional 108 Bcf of natural gas at an average Nymex price of $5.38/Mcf and an additional 121,000 bbl at $31.16.

“In addition, the dramatic increase in oil and natural gas prices during the past few weeks has given us the ability to lock-in 100% of our anticipated gas production volumes from today’s acquisitions at prices well above the price decks we used to purchase these properties,” said McClendon. “In this time of tight oil and natural gas markets, we believe accretive returns to our shareholders can be generated from acquisitions by being willing and able to hedge the acquired production volumes at very attractive prices during periodic price spikes.

“We believe our focused acquisitions of high-quality properties followed by opportunistic hedging and combined with our value-added drilling programs will continue to be a winning strategy for our shareholders in the years ahead.”

©Copyright 2003 Intelligence Press Inc. Allrights reserved. The preceding news report may not be republishedor redistributed, in whole or in part, in any form, without priorwritten consent of Intelligence Press, Inc.