Uchenna Izundu
International Editor
LONDON, Sept. 2 -- BP America and Chesapeake Energy Corp. plan to establish a joint venture that will produce 180 MMcfd of gas equivalent from shale assets in Arkansas.
According to a letter of intent signed Sept. 2, BP will pay $1.9 billion for a 25% interest in Chesapeake's Fayetteville shale assets. The assets cover 540,000 net acres, which the companies believe could support the drilling of as many as 6,700 future horizontal wells. Following the deal's completion, BP will own 135,000 net acres and Chesapeake will own 405,000 net acres.
This is the second major deal signed recently between BP and Chesapeake. It follows closely after a $1.7 billion acquisition for the Arkoma basin Woodford shale assets in Oklahoma.
Andy Inglis, BP chief executive of exploration and production, said the JV was a strategic entry into three top-tier shale plays in North America and BP could acquire 1 billion boe from the shale resources. This deal was critical to BP developing a leading position in unconventional gas technology and boost North American onshore natural gas production from its current level of 470,000 boe/d.
It will give Chesapeake $1.1 billion in cash at closing and will pay for Chesapeake's 75% share of drilling and completion expenditures until the outstanding $800 million has been met throughout 2008 and 2009.
Chesapeake is reportedly planning to continue acquiring leasehold in the Fayetteville shale play. BP said it will have the right to a 25% participation in any such additional leasehold.
Chesapeake is also in discussions with other companies to reach a similar agreement over its Marcellus shale assets, which it hopes to complete by yearend.
Contact Uchenna Izundu at [email protected].
