March 2011, Vol. 238 No. 3

Projects

Chinese Oil Company Buys Into Chesapeake Acreage

Chesapeake Energy Corp. has signed an agreement to sell CNOOC International Limited a 33.3% undivided interest in Chesapeake’s 800,000 net oil and natural gas leasehold acres in the Denver-Julesburg (DJ) and Powder River Basins in northeast Colorado and southeast Wyoming. The consideration for the transaction will be $570 million in cash.

CNOOC will fund 66.7% of Chesapeake’s share of drilling and completion costs until an additional $697 million is paid, which Chesapeake expects to occur by year-end 2014.

Chesapeake will conduct all leasing, drilling, completion, operations and marketing activities for the project. Chesapeake operates 16 producing wells in the DJ and Powder River Basins that have reached initial production rates of up to 1,000 barrels of oil and 3 MMcf/d.

In the next several decades, the companies plan to develop net unrisked unproved resource potential up to 5 billion barrels of oil equivalent (after deducting an assumed average royalty burden of 20%). Chesapeake is using five operated rigs to develop its DJ and Powder River Basins leasehold and with the additional capital investment from CNOOC Limited, anticipates raising drilling activities to 10 rigs by year-end 2011 and 20 rigs by year-end 2012.