Chesapeake Energy announced its long awaited Utica Shale joint venture (JV) Nov. 3. We’ll have to wait a little longer to find out who the partner is. We simply know it is an international company. Exxon already has a position in the play and would be a likely candidate, but they don’t have a history of participating in this type of deal. It is likely someone else.
Chesapeake is selling a 25% interest in 650,000 net acres in wet gas window for $2.14 billion or $15,000 per acre. Enervest operates approximately 80,000 of the 650,000 acres and will receive $300 million in the deal. Approximately $640 million will be paid to Chesapeake upfront and the remaining balance will be paid in the form of a cost carry that can stretch through 2014.
It will be interesting to see what happens in the dry gas areas and the oily areas. CHK has an approximate 800,000 additional acres prospective for oil and dry gas. This might be an indirect signal that wet gas formations have the most favorable production characteristics in shale.
The company also has plans to raise $1.25 billion through selling perpetual preferred shares to accelerate drilling in the play. As part of the financial transaction, the company has committed to drilling 50 wells per year or 250 wells total through 2016. With plans to ramp up to 40 rigs, I don’t think there will be any problems hitting those numbers.
Chesapeake will serve as the operator of the JV and will conduct all leasing, drilling, completion, operations and marketing activities for the project. The LOI provides that the JV partner will have the option to acquire a 25% share of all additional acreage acquired by Chesapeake in the JV AMI and the option to participate with Chesapeake for a 25% interest in midstream infrastructure related to production generated from the assets. The LOI provides for the execution of definitive transaction documents and closing by mid-December 2011.
Read the full press release at chk.com