CNOOC to buy stake in Chesapeake Eagle Ford assets
CNOOC Ltd. has agreed to buy a one-third undivided interest in Chesapeake Energy Corp.’s oil and gas leasehold in the Eagle Ford shale of South Texas in a deal expected to result in the drilling of 900 wells by yearend 2012.
By OGJ editors
HOUSTON, Oct. 11 – CNOOC Ltd. has agreed to buy a one-third undivided interest in Chesapeake Energy Corp.’s oil and gas leasehold in the Eagle Ford shale of South Texas in a deal expected to result in the drilling of 900 wells by yearend 2012.
The Chinese company will pay $1.08 billion in cash at closing, subject to adjustments, and fund 75% of Chesapeake’s share of drilling and completion costs until it has paid $1.08 billion. Chesapeake, which holds 600,000 net acres in the Eagle Ford shale play, expects the carry limit to be reached by the end of 2012.
Chesapeake will be operator of the project. It expects to add two rigs by yearend to the 10 now working on wells it operates in the Eagle Ford play. It expects the venture to be using 31 rigs by yearend 2011 and 40 rigs by yearend 2012.
Chesapeake predicted peak production by the project of 400,000-500,000 boe/d of oil and gas. The company has 10 horizontal Eagle Ford wells on production now, with initial production rates of 1,160 b/d of oil and 400 Mcfd of gas in the play’s oil window and 4 MMcfd of gas and 1,200 b/d of oil in the wet gas window south of the oil-prone part of the play.
About 85% of the area covered by the CNOOC agreement is in the oil window and 15% in the wet-gas window of the Eagle Ford and dry-gas window of the Pearsall shale.
CNOOC has the option to acquire its 33.3% share of any additional acreage acquired by Chesapeake in the area—mainly in Webb, Dimmit, LaSalle, Zavala, Frio, and McMullen counties—and to participate with Chesapeake for a 33.3% interest in midstream properties related to production in the deal.
Chesapeake Chief Executive Officer Aubrey K. McClendon said the deal brings combined proceeds from five major shale-development ventures formed with other companies since 2008, including up-front cash payments and drilling carries, to $13 billion.
In a recent presentation, Chesapeake estimated the value of its Eagle Ford assets at $6-7 billion. In the same presentation it said it is shifting its drilling focus to liquids plays and targeting only gas wells needed to hold leases or use joint venture carries until gas prices exceed $6/Mcf.