Drilling has commenced on the first well in a new STACK joint venture between Oklahoma City operator Chaparral Energy Inc. and Houston private equity firm Bayou City Energy (BCE).
The joint development agreement, which involves those firms’ respective affiliates, Chaparral Energy LLC and BCE Roadrunner LLC, will fund development of Chaparral’s 110,000-acre STACK position in Oklahoma.
Under the JDA, BCE will fund all drilling, completion, and equipping costs for 30 STACK wells as part of a first tranche, with Chaparral drilling and operating 17 wells in Canadian County and 13 in Garfield County. The tranche, subject to average well cost caps that vary by well-type across location and targeted formations, will have a maximum capital commitment of $100 million. The JV could be expanded to additional tranches in the future.
In exchange for funding, BCE will receive wellbore-only interest in each well totaling 85% working interest until the program reaches a 14% internal rate of return. Once the IRR is achieved, ownership interest in all wells will revert such that Chaparral will own 75% working interest and BCE will retain 25% working interest of Chaparral’s leasehold interest in each well.
Chaparral will retain all acreage and reserves outside of the wellbore, with both parties paying lease operating expenses based on relative ownership interests.
