Chesapeake Energy has declared the execution of an agreement for a $2.25bn joint venture with Total E&P USA, a wholly-owned subsidiary of Total, whereby Total will acquire a 25% interest in Chesapeake’s upstream Barnett Shale assets.
Total will pay $800m in cash at closing and will pay an additional $1.45bn by funding 60% of Chesapeake’s share of drilling and completion expenditures until the $1.45billion obligation has been funded, which Chesapeake expects to occur by year-end 2012. Closing of the transaction, which is subject to regulatory approval, is anticipated by the end of January 2010.
The assets subject to the Chesapeake-Total joint venture include approximately 270,000 net acres of leasehold in the Core and Tier 1 areas of the Barnett, approximately 700 million cubic feet of natural gas equivalent per day of current net production and approximately 3.0 trillion cubic feet of natural gas equivalent (tcfe) of proved reserves (0.75tcfe net to Total).
Chesapeake believes that its leasehold position will support the drilling of approximately 3,100 additional net locations (775 net to Total) with approximately 6.3tcfe of unrisked unproved reserves (1.6tcfe net to Total). Approximately 60% of Chesapeake’s Core and Tier 1 leasehold is held by production and therefore considered developed.
In the framework of the joint venture, Chesapeake plans to continue acquiring leasehold in the Barnett and Total will acquire its 25% share of the new acreage on promoted terms until December 31, 2015. After that Total’s right to acquire its 25% proportionate share of Chesapeake’s leasehold will be on an unpromoted basis and Total will also begin paying 25% of Chesapeake’s support costs related to the joint venture’s corporate development activities.
Christophe de Margerie, CEO of Total, said: ” Total is pleased to be making a strategically important move by entering into the U.S. shale gas business with Chesapeake, the world’s leading shale gas operator. It will allow Total to develop its expertise in unconventional hydrocarbons in order to expand its unconventional business worldwide. Total is conscious of the environmental aspect linked to producing shale gas and has confidence in Chesapeake’s capacity to contain the impact of the Barnett Shale gas’ operations on the environment and respect local and federal regulations and guidelines.”
Aubrey McClendon, CEO of Chesapeake, said: ”This transaction will allow Chesapeake to reduce its financial leverage and future capital expenditures and further position us to deliver industry-leading finding and development costs and returns on capital for years to come.
“This brings our combined shale joint venture proceeds, including upfront cash payments and drilling carries, during the past 18 months to approximately $10.8bn, which compares very favorably against a cost basis in the assets sold of approximately $2.7bn. Chesapeake has maintained majority positions in these joint venture shale assets ranging from 67.5% to 80% that have an implied remaining value of approximately $33bn based on the original valuations of the four joint ventures.”