Monday, January 31, 2011

Chesapeake/CNOOC: Next Verse, Same as the First

Chesapeake Energy announced yesterday that the company had entered into an agreement with Chinese company CNOOC Limited whereby CNOOC will purchase a one third undivided interest in Chesapeake's 800,000 acre holdings in the Denver-Julesburg (DJ) and Powder River Basins in northeast Colorado and southeast Wyoming (a.k.a. Niobrara Shale). Chesapeake will receive $570 million cash upfront and CNOOC will fund two-thirds of Chesapeake's share of drilling and completion costs up to $697 million.  CNOOC will be CHK's partner in the region with an option to tag along on any new acreage and midstream ventures.

The deal is nearly identical to the one between CHK and CNOOC in the Eagle Ford Shale.

The Niobrara is part of CHK's rush to liquids, as the formation produces both oil and gas.  CHK will be the operator of the JV wells.  The company currently has 16 producing wells in the area and operates five rigs.  With the new investment, the rig count is expected to increase to 10 by year end 2011 and 20 by year end 2012 (hmm, I wonder where those rigs are going to come from...).  Given the pace of development in that area, CHK expects to "ride the carry" until year-end 2014.

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