Chesapeake Energy Corp. announced Tuesday a joint venture in the Haynesville Shale natural gas field that will make the Oklahoma City-company more than $3 billion. Houston-based Plains Exploration & Production Co. will pay Chesapeake $1.65 billion for a 20 percent interest in Chesapeake's leases within the field, which covers parts of north Louisiana and east Texas. Additionally, Plains agreed to pay half of Chesapeake's drilling and completion costs on Haynesville wells for the next several years — an amount up to another $1.65 billion, officials said Tuesday. It's a deal that validates Chesapeake's holdings in the field, which its chief executive has said was perhaps the most significant natural gas find the company has ever made. James C. Flores, Plains' chairman, president and chief executive, said Tuesday on Chesapeake owns the core of the field, while his company has the money to invest. "We believe that Chesapeake's unrivaled experience in drilling and completing shale wells throughout the U.S., its large rig fleet and aggressive Haynesville Shale development program will provide Plains with attractive operational costs,” he said. Flores estimated those costs would be about $1.83 per thousand cubic feet of natural gas.
"(Chesapeake) is one shrewd, aggressive
company that creates
Jake Dollarhide, Longbow Asset Management
Why McClendon agreed to itAubrey McClendon, Chesapeake's chief executive, said Tuesday the deal creates substantial value for both companies, adding it also establishes a $16.5 billion value for its Haynesville Shale leases. "The $1.65 billion in cash we are receiving from Plains and the additional $1.65 billion commitment will help fund a substantial portion of Chesapeake's leasehold, and our drilling and completion costs over the next few years.” McClendon said finding costs for his company should be less than $1 per thousand cubic feet of natural gas. He said Chesapeake held about 550,000 net acres within the field at the end of June. The company, which intends to continue acquiring leases that Plains also will own part of, said it chose the Houston-based company as a partner in this joint venture because the two companies have a long relationship. Jake Dollarhide, founder of Longbow Asset Management in Tulsa, said Tuesday's announcement is in line with Chesapeake's aggressive strategy. "This is one shrewd, aggressive company that creates opportunities,” Dollarhide said. "Sometimes, when you are open-minded, good things can come, especially in very bullish markets such as this. "Plains recognizes the potential of this particular region, and obviously, they are very motivated to be a part of it. It seems a very favorable outcome for Chesapeake, only giving up 20 percent interest for half the costs,” he said.