By OGJ editors
– Chesapeake Energy Corp. completed taking a farmout from Epsilon Energy Ltd., Concord, Ont., on 11,500 net acres of leasehold in the Highway 706 project in Susquehanna County, Pa.

The assets include the acreage, 10 MMcfd of gas production, and related compression, pipeline, and tap site facilities (OGJ Online, Feb. 26, 2009). Epsilon believes the leasehold will support the drilling of 120-150 wells, or 60-75 net to Epsilon.

Chesapeake paid $5 million at closing and will earn a 50% interest in Epsilon’s upstream Marcellus shale assets by paying a further $95 million over time by carrying the first $95-million of Epsilon’s 50% share of leasehold, drilling, completing, equipping, and gathering costs attributable to the prospect. The carry obligation is expected to be completed by Aug. 1, 2012.

In the framework of the farmout, Chesapeake plans to spend a total of $195 million developing the Highway 706 prospect. Epsilon said Chesapeake’s expertise will help it maximize return on the Pennsylvania assets while freeing up resources to concentrate on Epsilon’s New York Marcellus shale prospect.

Chesapeake said it expects average estimated ultimate recoveries to be substantially greater than those found on average in the Marcellus.

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