Chesapeake Energy Corp. is going back to the Far East for help in funding its operations.
Chesapeake on Sunday announced a $1.2 billion joint venture agreement with CNOOC International Ltd., a subsidiary of one of China's largest independent oil companies.
The deal is Chesapeake's sixth industry development agreement and its second with CNOOC. CNOOC paid $1.2 billion for a stake in Chesapeake's holdings in the Eagle Ford Shale in south Texas in a deal announced in October.
CNOOC International will pay $570 million for a third of Chesapeake's 800,000-acre leasehold in the Niobrara Shale in northeast Colorado and southeast Wyoming.
The company also agreed to pay two-thirds of Chesapeake's drilling and completions costs until it has contributed another $697 million, which Chesapeake expects to occur by the end of 2014.
The deal is expected to close before the end of the first quarter.
“This transaction will provide the capital necessary to accelerate drilling of this large domestic oil and natural gas resource, resulting in a reduction of our 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 CEO Aubrey K. McClendon said.
Chesapeake will be the operator of the joint venture with CNOOC. The company will conduct all leasing, drilling, completion, operation and marketing activities for the project.
Chesapeake currently is operating 16 producing wells in the Denver-Julesburg and Powder River basins. Those wells have reached initial production rates of up to 1,000 barrels of oil and 3 million cubic feet of natural gas per day.
There are five operated rigs in the area now, but Chesapeake expects to increase its drilling activities to about 10 rigs by the end of the year due to CNOOC International's investment. The company expects to have 20 rigs running by the end of 2012.
As part of the deal, CNOOC International will have the option to purchase a one-third share of any additional acreage Chesapeake acquires in the area.
The company also will be able to participate with Chesapeake in midstream infrastructure related to production generated by those assets.
CNOOC Ltd., Chairman Fu Chengyu said he was pleased to strike another deal with Chesapeake.
“The project highlights the joint interests of energy companies in both the U.S. and China to accelerate the development of shale oil and gas, increase energy supply and reduce greenhouse gas emissions,” he said.
“We believe this project is meant to be mutually beneficial to both parties as well as for both Sino-U.S. energy industries.”
We believe this project is meant to be mutually beneficial to both parties as well as for both Sino-U.S. energy industries.â€