Chesapeake Energy and BP America have announced the execution of a letter of intent for a joint venture, pursuant to which BP will acquire a 25% interest in Chesapeake's Fayetteville Shale assets in Arkansas, US, for $1.9 billion.

The assets have current daily net production of approximately 180 million cubic feet of natural gas equivalent and include approximately 540,000 net acres of leasehold which the companies believe could support the drilling of up to 6,700 future horizontal wells.

As a result of the transaction, BP will own approximately 135,000 net acres of this leasehold and Chesapeake will own approximately 405,000 net acres.

BP will pay $1.1 billion in cash at closing and will pay a further $800 million during the remainder of 2008 and in 2009 by funding 100% of Chesapeake’s 75% share of drilling and completion expenditures until the $800 million obligation has been funded.

Chesapeake plans to continue acquiring leasehold in the Fayetteville Shale play and BP will have the right to a 25% participation in any such additional leasehold. The transaction is subject to the execution of mutually acceptable definitive documentation that the companies anticipate executing within the next week and closing is anticipated to occur later this month.

Aubrey McClendon, Chesapeake’s CEO, said: We are honored to broaden our business relationship with BP and are excited about the mutually beneficial nature of our transactions with them. Just a month after closing the sale of all our Arkoma Basin Woodford Shale assets in Oklahoma to BP for $1.7 billion, we are pleased to now announce a second major transaction with BP for a 25% interest in our Fayetteville Shale assets in Arkansas for $1.9 billion.