Chesapeake Energy of Oklahoma City has signed a unique agreementwith Gothic Energy Corp., Tulsa, which includes the right for fiveyears to develop 50% of Gothic’s current and subsequently acquiredundeveloped reserves. This includes 60 Bcfe of proved undevelopedreserves and a substantial amount of probable and possiblereserves.

Approximately 65% of Gothic’s reserves were acquired from AmocoProduction in January for $238 million and include Amoco’s interestin some of Oklahoma’s most prolific natural gas fields, all in theAnadarko and Arkoma basins. The deal will enable Chesapeake toconsolidate operations with those on its own substantial assets ineach of the fields.

Chesapeake Energy also will acquire 50% of Gothic’s proveddeveloped natural gas reserves of 45 Bcfe in Oklahoma’s ArkomaBasin for $20 million cash. It also will obtain the right toparticipate during the next five years in subsequent producingproperty and leasehold acquisitions by Gothic; purchase 100% ofGothic’s newly issued $50 million 12% Series B Senior PreferredStock that matures on June 30, 2008; receive 10-year warrantsexercisable into 15% of Gothic’s currently outstanding common stockfor $0.01 per share; and have the right to designate for electionone member to Gothic’s five-person board of directors.

On its side “Gothic will receive $70 million in cash needed tohelp fund its recapitalization and improve liquidity,” saidChesapeake Chairman Aubrey K. McClendon. He said he believedChesapeake’s preferred stock investment would be worth $50 millionafter Gothic’s recapitalization.

The transaction is scheduled to close in late April and iscontingent upon Gothic successfully completing a high-yield debtoffering during April.

Chesapeake President Tom L. Ward said his company has”intensively researched Gothic’s properties,” both during and sincethe Amoco divestiture process. Amoco had complete 3-D seismicsurveys on several key Oklahoma fields but had not had time tobegin development programs. “The Gothic properties fit the classicdefinition of high quality, long-lived, underdeveloped assets thatyou dream of acquiring in this business,” Ward said.

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