An undisclosed international major energy company will form a joint venture with Chesapeake Energy Corp. and acquire a 25% interest in 650,000 net acres in the wet natural gas area of the Utica shale play in eastern Ohio.
Chesapeake owns 570,000 net acres and will operate and conduct all activities for the joint venture. Owning the other 80,000 net acres are EnerVest Ltd., Houston, and its affiliates. The leases cover all or parts of 10 counties in eastern Ohio.
Consideration for the transaction is $2.14 billion to Chesapeake and $300 million to EnerVest. Chesapeake will receive $640 million cash at closing and $1.5 billion as a drilling and completion cost carry to be fully received by the end of 2014.
A letter of intent provides that the international partner will have the option to obtain 25% of all further acreage acquired by Chesapeake and to participate for a 25% interest in midstream infrastructure related to production generated from the assets. Closing is intended by mid-December.
Separately, as a first step in a financial transaction led by EIG Global Energy Partners, Washington, DC, Chesapeake sold EIG $500 million of perpetual preferred shares of newly formed CHK Utica LLC. Chesapeake expects to sell as much as $750 million more of CHK Utica preferred shares to investors by Nov. 30.
Chesapeake Utica owns 700,000 net leasehold acres in an area of mutual interest in the Utica shale play in 13 eastern Ohio counties. Chesapeake has retained all the common interests in CHK Utica.
Chesapeake committed to drill at least 50 net wells/year through 2016 in the AMI for the benefit of CHK Utica. Chesapeake believes it will have considerable operating and financial flexibility in fulfilling the drilling commitment because the company’s planned program involves a much higher rig count than the 10-rig count needed to fulfill the CHK Utica preferred shares investment.
Chesapeake said the deals will enable it to recover more than its total leasehold investment in the entire Utica shale play while selling 142,500 net acres of its 1.5 million net acres of Utica shale leasehold.
Through the financial transaction led by EIG, Chesapeake’s CHK Utica drilling program is almost entirely funded for the foreseeable future including cash flow from anticipated production.