Total, Chesapeake announce Barnett shale joint venture

By OGJ editors
HOUSTON, Jan. 4
-- Chesapeake Energy Corp. announced a $2.25 billion joint venture agreement with Total E&P USA Inc. in which Total will acquire a 25% interest in Chesapeake’s upstream Barnett shale assets.

The transaction covers 270,000 net acres of Chesapeake’s Barnett shale leasehold that accounts for 700 MMcfd of gas equivalent of current net production and proved reserves of 3 tcf of gas equivalent.

Total will pay $800 million upon the transaction’s closing, expected by Jan. 31 and subject to regulatory approvals. In addition, Total will pay $1.45 billion by financing 60% of Chesapeake’s drilling and completion costs in the JV area. The $1.45 billion obligation is expected to be fulfilled by yearend 2012.

Chesapeake believes its JV leasehold position will support drilling 3,100 additional net locations with 6.3 tcf of gas equivalent of unproved reserves. About 60% of Chesapeake’s core and Tier 1 leasehold is developed.

Total has the right to acquire a 25% share in any new acreage that Chesapeake acquires in the Barnett shale until Dec. 31, 2015. Total and Chesapeake also agreed to jointly study other Barnett shale opportunities as well as shale plays in Canada.

Currently, Chesapeake has 20 rigs working in the Barnett shale, and it expects to ramp up to about 30 rigs working there throughout much of 2010.

Christophe de Margerie, Total chief executive officer, said the agreement marks Total’s entry into the US shale plays. Total currently holds assets in the Gulf of Mexico.

Aubrey K. McClendon, Chesapeake’s chief executive officer, said Chesapeake is maintaining its previously announced 2010 production target of 2.6 tcf of gas equivalent.

“We plan to continue to take advantage of our large asset base by pursuing other joint ventures, including potentially our large acreage positions in the Eagle Ford shale and in several Midcontinent unconventional plays,” McClendon said.

Separately, Chesapeake already has JVs with Plains Exploration & Production Co., BP America, and Statoil.

Chesapeake is drilling a well in the Eagle Ford shale play. McClendon said he expects production there in about 45 days.

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