One of the largest independent natural and gas company, Chesapeake Energy Corporation (NYSE: CHK) has agreed to sell stake in the Denver-Julesburg (DJ) and Powder River Basins in northeast Colorado and southeast Wyoming, to China's biggest offshore drilling company CNOOC Ltd. (NYSE: CEO) for $570 million in cash.
CNOON International, a wholly owned subsidiary of CNOON Ltd., an investment holding company, will purchase 33.3 percent undivided interest in Chesapeake's 800,000 net oil and natural gas leasehold acres in the Denver-Julesburg and Powder River Basins. In addition to the agreed $570 million, CNOOC Limited has agreed to fund 66.7% of Chesapeake's share of drilling and completion costs until an additional $697 million has been paid, which Chesapeake expects to occur by year-end 2014. Closing of the transaction is anticipated in the first quarter of 2011.
As the operator of the project, Chesapeake will conduct all leasing, drilling, completion, operations and marketing activities for the project. Chesapeake is currently operating 16 producing wells in the Denver-Julesburg and Powder River Basins that have reached initial production rates of up to 1,000 barrels of oil and 3.0 million cubic feet of natural gas per day.
After the deal is completed, the companies plan to develop net unrisked unproved resource potential up to 5.0 billion barrels of oil equivalent (after deducting an assumed average royalty burden of 20%). Chesapeake is currently utilizing five operated rigs to develop its DJ and Powder River Basins leasehold and with the additional capital investment from CNOOC Limited, anticipates increasing its drilling activities to approximately 10 rigs by year-end 2011 and 20 rigs by year-end 2012.
CNOOC Ltd. also has the option to acquire 33.3 percent of any additional area acquired by Chesapeake in the area and the option to participate with Chesapeake for a 33.3 percent interest in midstream infrastructure related to production generated from assets.
The deal is expected to provide the necessary capital to accelerate drilling of this oil and natural gas resource, resulting in a reduction of the country's oil imports over time, the creation of thousands of high-paying jobs in the U.S. and in the payment of very significant local, state and federal taxes.
Chesapeake Energy Corporation is a producer of natural gas in the United States. It owns interests in approximately 44,100 producing natural gas and oil wells that are producing approximately 2.4 billion cubic feet equivalent (bcfe), per day, 93% of which is natural gas. The Company is focused on discovering, acquiring and developing conventional and unconventional natural gas reserves onshore in the United States. For FY 2009, the company reported total revenues of $7.7 billion, down from $11.62 billion in FY 2008. The company reported a loss of $9.57 per diluted share in FY 2009.
CNOOC Ltd., through its subsidiaries, is engaged in the exploration, development, production and sales of crude oil and natural gas and other petroleum products. It is a producer of offshore crude oil and natural gas. It has four production areas in offshore China, which are Bohai Bay, Western South China Sea, Eastern South China Sea and East China Sea. In addition, the Company is also an offshore crude oil producer in Indonesia. The Company also has upstream assets in Nigeria, Australia and some other countries. For FY 2009, the company reported revenues of $15 billion and net earnings of $0.10 per diluted share.
On January 28, 2011, Chesapeake stock lost value by 1.34 percent to settle at $27.33 a share. CNOOC's ADR also lost value by 6.68 percent, or 15.79 points to settle at $220.49.
