BP to buy 25 pct stake in Chesapeake shale assets
U.S. natural gas producer Chesapeake Energy Corp <CHK.N> said on Tuesday it agreed to sell a 25 percent interest in its Fayetteville Shale assets in Arkansas for $1.9 billion to a unit of BP Plc its second big acreage deal with the oil major.
By Agencies |
HOUSTON: U.S. natural gas producerChesapeake Energy Corp said on Tuesday it agreed to sell a 25percent interest in its Fayetteville Shale assets in Arkansas for $1.9 billionto a unit of BP Plc its second big acreage deal with the oil major. Highnatural gas prices earlier this year and the promise of vast reserves haveprompted exploration and production companies -- both large and small -- to snapup acreage in North American shale fields like the Fayetteville and theHaynesville in Louisiana.
In a shale formation, natural gas or oilis locked in rock, requiring expensive technology like hydraulic fracturing torelease it. "We thought they'd get more," Tudor Pickering Holt & CoSecurities Inc said in a note to clients, adding the deal was a "niceendorsement from a major." Chesapeake, based in Oklahoma City, Oklahoma, hasbeen spending aggressively to acquire acreage and develop shale plays like theHaynesville. To pay for the drilling, the company has issued debt and equity andengineered acreage ventures similar to the BP shale deals. Chesapeake'sFayetteville assets currently have net production of about 180 million cubicfeet of natural gas equivalent and include about 540,000 net acres of leasehold.BP will own about 135,000 net acres of this leasehold, and Chesapeake will ownabout 405,000 net acres.
In July, Chesapeake sold all of its ArkomaBasin Woodford Shale assets in Oklahoma to BP for $1.7 billion. Chesapeake plansto continue acquiring leaseholds in the Fayetteville Shale, and BP will have theright to a 25 percent participation in any additional leasehold. BP will pay$1.1 billion in cash at closing, expected later this month, and a further $800million during the remainder of 2008 and in 2009. "We are also pursuing asimilar transaction involving our Marcellus Shale assets with others in theindustry that we hope to complete by year-end 2008," said Chesapeake ChiefExecutive Aubrey McClendon in a statement. Later, McClendon told the LehmanBrothers CEO Energy/Power conference that the Marcellus Shale deal would likelyinvolve a large company that is not domiciled in the United States. The SouthChina Morning Post reported last month that state oil firm China NationalPetroleum Corp was contemplating bidding for minority states in Chesapeake'sshale gas assets.
In an interview with Reuters, Chesapeake'sMcClendon declined to comment on suitors for its Marcellus assets. In July,Chesapeake entered into a joint venture with Plains Exploration and ProductionCo acquiring a 20 percent interest in Chesapeake's Haynesvilleleasehold for $1.65 billion in cash. It also agreed to fund a portion ofChesapeake's drilling and completion costs.
The Plains venture andthe BP deal will pay for about $2.5 billion of Chesapeake's drilling andcompletion expenditures currently planned for the second half of 2008 through2010, the company said. Shares of Chesapeake fell 6.5 percent, or $3.16, at$45.24 on the New York Stock Exchange, in line with a 5 percent decline in theAmerican Stock Exchange index of natural gas companies.
In a shale formation, natural gas or oilis locked in rock, requiring expensive technology like hydraulic fracturing torelease it. "We thought they'd get more," Tudor Pickering Holt & CoSecurities Inc said in a note to clients, adding the deal was a "niceendorsement from a major." Chesapeake, based in Oklahoma City, Oklahoma, hasbeen spending aggressively to acquire acreage and develop shale plays like theHaynesville. To pay for the drilling, the company has issued debt and equity andengineered acreage ventures similar to the BP shale deals. Chesapeake'sFayetteville assets currently have net production of about 180 million cubicfeet of natural gas equivalent and include about 540,000 net acres of leasehold.BP will own about 135,000 net acres of this leasehold, and Chesapeake will ownabout 405,000 net acres.
In July, Chesapeake sold all of its ArkomaBasin Woodford Shale assets in Oklahoma to BP for $1.7 billion. Chesapeake plansto continue acquiring leaseholds in the Fayetteville Shale, and BP will have theright to a 25 percent participation in any additional leasehold. BP will pay$1.1 billion in cash at closing, expected later this month, and a further $800million during the remainder of 2008 and in 2009. "We are also pursuing asimilar transaction involving our Marcellus Shale assets with others in theindustry that we hope to complete by year-end 2008," said Chesapeake ChiefExecutive Aubrey McClendon in a statement. Later, McClendon told the LehmanBrothers CEO Energy/Power conference that the Marcellus Shale deal would likelyinvolve a large company that is not domiciled in the United States. The SouthChina Morning Post reported last month that state oil firm China NationalPetroleum Corp was contemplating bidding for minority states in Chesapeake'sshale gas assets.
In an interview with Reuters, Chesapeake'sMcClendon declined to comment on suitors for its Marcellus assets. In July,Chesapeake entered into a joint venture with Plains Exploration and ProductionCo
The Plains venture andthe BP deal will pay for about $2.5 billion of Chesapeake's drilling andcompletion expenditures currently planned for the second half of 2008 through2010, the company said. Shares of Chesapeake fell 6.5 percent, or $3.16, at$45.24 on the New York Stock Exchange, in line with a 5 percent decline in theAmerican Stock Exchange index of natural gas companies.
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